SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File No. 0-5258
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 1365549348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (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 |_|
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of December 26, 2003.
IEH CORPORATION
CONTENTS
Page
Number
------
Part I - FINANCIAL INFORMATION
ITEM 1- FINANICAL STATEMENTS
Balance Sheets as of December 26, 2003 (Unaudited) and March 28, 2003 1
Statement of Operations (Unaudited) for the three and nine months ended
December 26, 2003 and December 27, 2002. 3
Statement of Cash Flows (Unaudited) for the nine months ended
December 26, 2003 and December 27, 2002. 4
Notes to Financial Statements (Unaudited) 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
Part II - OTHER INFORMATION
1
IEH CORPORATION
BALANCE SHEETS
As of December 26, 2003 and March 28, 2003
Dec. 26, March 28,
2003 2003
---------- ----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 2,824 $ 5,565
Accounts receivable, less allowances for doubtful accounts of
$10,062 at December 26, 2003 and March 28, 2003 551,396 769,845
Inventories (Note 3) 920,600 1,089,075
Prepaid expenses and other current assets (Note 4) 34,256 53,722
---------- ----------
Total current assets 1,509,076 1,918,207
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $5,942,565 at December 26, 2003
and $5,788,365 at March 28, 2003 1,148,420 1,119,513
---------- ----------
1,148,420 1,119,513
---------- ----------
OTHER ASSETS:
Other assets 42,551 42,430
---------- ----------
42,551 42,430
---------- ----------
Total assets $2,700,047 $3,080,150
========== ==========
See accompanying notes to financial statements
2
IEH CORPORATION
BALANCE SHEETS
As of December 26, 2003 and March 28, 2003
Dec. 26, March 28,
2003 2003
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing (Note 7) $ 661,390 $ 712,659
Notes payable, equipment, current portion (Note 6) 11,903 16,978
Accrued corporate income taxes 22,600 16,800
Due to union health and welfare plan, current portion (Note 9) 16,328 30,000
Accounts payable 687,993 1,017,432
Pension plan payable, current portion (Note 9) 78,000 39,000
Other current liabilities (Note 5) 122,070 159,833
----------- -----------
Total current liabilities 1,600,284 1,992,702
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 9) 158,000 205,000
Notes payable, equipment, less current portion (Note 6) 13,374 7,822
Due to union health and welfare plan, less current portion (Note 9) -- 13,828
----------- -----------
Total long-term liabilities 171,374 226,650
----------- -----------
Total liabilities 1,771,658 2,219,352
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at December 26, 2003 and March 28, 2003 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (1,839,219) (1,906,810)
----------- -----------
Total stockholders' equity 928,389 860,798
----------- -----------
Total liabilities and stockholders' equity $ 2,700,047 $ 3,080,150
=========== ===========
See accompanying notes to financial statements
3
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
----------------- ------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUE, net sales $ 3,739,711 $ 3,562,562 $ 1,225,891 $ 1,176,074
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of products sold 2,709,927 2,629,573 893,956 880,144
Selling, general and administrative 714,441 618,262 238,429 210,739
Interest expense 81,230 98,116 24,862 31,841
Depreciation and amortization 154,200 151,200 51,600 50,400
----------- ----------- ----------- -----------
3,659,798 3,497,151 1,208,847 1,173,124
----------- ----------- ----------- -----------
OPERATING INCOME 79,913 65,411 17,044 2,950
OTHER INCOME 278 237 225 58
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 80,191 65,648 17,269 3,008
PROVISION FOR INCOME TAXES 12,600 12,600 4,200 4,200
----------- ----------- ----------- -----------
NET INCOME $ 67,591 $ 53,048 $ 13,069 $ (1,192)
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .029 $ .023 $ .006 $ (.001)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303 2,303 2,303
=========== =========== =========== ===========
See accompanying notes to financial statements
4
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
------------------------
Dec. 26, Dec. 27,
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 67,591 $ 53,048
--------- ---------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 154,200 151,200
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 218,449 (81,605)
(Increase) decrease inventories 168,475 (43,861)
(Increase) decrease in prepaid expenses and other current assets 19,466 (5,013)
(Increase) decrease in other assets (121) 1,188
Increase (decrease) in accounts payable (329,429) 18,030
Increase (decrease) in other current liabilities (37,763) (33,394)
Increase (decrease) in accrued corporate income taxes 5,800 12,600
Increase (decrease) in union health and welfare plan (27,500) (22,500)
Increase (decrease) in due to pension plan payable (8,000) --
--------- ---------
Total adjustments 163,577 (3,355)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 231,168 49,693
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (183,107) (160,086)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(183,107) $(160,086)
========= =========
See accompanying notes to financial statements
5
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Nine Months Ended
-----------------------
Dec. 26, Dec. 27,
2003 2002
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable $ 16,790 $ --
Principal payments on notes payable (16,323) (18,966)
Proceeds from accounts receivable financing (51,269) 155,748
Increase (decrease) on loan payable -- (25,289)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (50,802) 111,493
--------- ---------
INCREASE (DECREASE) IN CASH (2,741) 1,100
CASH, beginning of period 5,565 2,875
--------- ---------
CASH, end of period $ 2,824 $ 3,975
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the nine months for:
Interest $ 73,517 $ 89,369
========= =========
Income Taxes $ -- $ 943
========= =========
See accompanying notes to financial statements
6
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements as of December 26,
2003 and December 27, 2002 and for the nine month periods then ended
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Items 303 and 310 of Regulation S-B.
In the opinion of management, the unaudited financial statements
have been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial
position as of December 26, 2003 and December 27, 2002 and the
results of operations and cash flows for the nine month periods then
ended. The financial data and other information disclosed in these
notes to the interim financial statements related to these periods
are unaudited. The results for the nine months ended December 26,
2003, are not necessarily indicative of the results to be expected
for any subsequent quarter or the entire fiscal year. The balance
sheet at March 28, 2003 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. The
Company believes, however, that the disclosures in this report are
adequate to make the information presented not misleading in any
material respect. The accompanying financial statements should be
read in conjunction with the audited financial statements of IEH
Corporation as of March 28, 2003 and notes thereto included in the
Company's report on Form 10-KSB as filed with the Securities and
Exchange Commission.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture and
distribution of high performance electronic printed circuit
connectors and specialized interconnection devices. Electronic
connectors and interconnection devices are used in providing
electrical connections between electronic component assemblies. The
Company develops and manufactures connectors which are designed for
a variety of high technology and high performance applications, and
are primarily utilized by those users who require highly efficient
and dense (the space between connection pins with the connector)
electrical connections.
The Company is continuously redesigning and adapting its connectors
to meet and keep pace with developments in the electronics industry
and has, for example, developed connectors for use with
flex-circuits now being used in aerospace programs, computers,
air-borne communications systems, testing systems and other areas.
The Company also services its connectors to meet specified product
requirements.
7
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week
year which ends on the nearest Friday in business days to March
31st. For the year ending March 26, 2004, the year is comprised of
52 weeks. The year ended March 28, 2003 was comprised of 52 weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's
products.
The Company's policy with respect to customer returns and allowances
as well as product warranty is as follows:
The Company will accept a return of defective product within one
year from shipment for repair or replacement at the Company's
option. If the product is repairable, the Company at its own cost
will repair and return it to the customer. If unrepairable, the
Company will either offer an allowance against payment or will
reimburse the customer for the total cost of the product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of
the relationship with its customers in developing the custom
product. The Company is not obligated to provide such engineering
service to its customers. The Company does not charge separately for
these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis,
which does not exceed market value.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit
are insured by the Federal Deposit Insurance Corporation up to
$100,000 in aggregate. There were no uninsured balances at either
December 26, 2003 or March 28, 2003.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation
and amortization using the Modified Accelerated Cost Recovery System
(MACRS) method over the estimated useful lives (5-7 years) of the
related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant
and equipment which are sold, retired or otherwise disposed of are
removed from the asset and accumulated depreciation or amortization
account. Any gain or loss thereon is either credited or charged to
operations.
8
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Income Taxes:
The Company follows the policy of treating investment tax credits as
a reduction in the provision for federal income tax in the year in
which the credit arises or may be utilized. Deferred income taxes
arise from temporary differences resulting from different
depreciation methods used for financial and income tax purposes. The
Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings
Per Share", which requires the disclosure of "basic" and "diluted"
earnings (loss) per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during each period. Diluted earnings per share is
similar to basic earnings per share except that the weighted average
number of common shares outstanding is increased to reflect the
dilutive effect of potential common shares, such as those issuable
upon the exercise of stock or warrants, as if they had been issued.
For the nine months ended December 26, 2003 and December 27, 2002,
there were no items of potential dilution that would impact on the
computation of diluted earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments,
consisting of accounts receivable, accounts payable, and borrowings,
approximate their fair value due to the relatively short maturity
(three months) of these instruments.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities at the date of the financial statements.
Actual amounts could differ from those estimates.
Impairment of Long-Lived Assets:
SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To
Be Disposed Of", requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted SFAS No. 121. There were no,
long-lived asset impairments recognized by the Company for the nine
months ended December 26, 2003 and December 27, 2002.
9
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in an entity's financial
statements. This Statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. There were
no material items of comprehensive income to report for the nine
months ended December 26, 2003 and December 27, 2002.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segment of An Enterprise and Related Information." This
Statement requires public enterprises to report financial and
descriptive information about its reportable operating segments and
establishes standards for related disclosures about product and
services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the Company's presentation of its
results of operations or financial position.
Effect of New Accounting Pronouncements:
The Company does not believe that any recently issued but not yet
effective accounting standards, have a material effect on the
Company's financial position, results of operations or cash flows.
Note 3 - INVENTORIES:
Inventories are comprised of the following:
Dec. 26, March 28,
2003 2003
------------ ------------
Raw materials $ 599,863 $ 709,647
Work in progress 237,607 281,075
Finished goods 83,130 98,353
------------ ------------
$ 920,600 $ 1,089,075
============ ============
Inventories are priced at the lower of cost (first-in, first-out
method) or market, whichever is lower. The Company has established a
reserve for obsolescence to reflect net realizable inventory value.
The balance of this reserve as of December 26, 2003 was $36,000. At
March 28, 2003, the balance of this reserve was $0.
Inventories at December 26, 2003 and March 28, 2003 are recorded net
of this reserve.
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the
following:
Dec. 26, March 28,
2003 2003
--------- ---------
Prepaid insurance $ 17,707 $ 49,816
Prepaid corporate taxes 5,288 3,737
Other current assets 11,261 169
--------- ---------
$ 34,256 $ 53,722
========= =========
Note 5 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
Dec. 26, March 28,
2003 2003
--------- ---------
Payroll and vacation accruals $ 34,991 $ 77,622
Sales commissions 10,781 13,795
Other 76,298 68,416
--------- ---------
$ 122,070 $ 159,833
========= =========
Note 6 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new computer equipment and
software with notes payable. The notes are payable over a sixty
month period. The balance remaining at December 26, 2003 amounted to
$25,277.
Aggregate future principal payments are as follows:
Fiscal year ending March 31,
2004 $ 4,145
2005 9,991
2006 4,102
2007 3,136
Thereafter 3,903
---------
$ 25,277
=========
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 7- ACCOUNTS RECEIVABLE FINANCING:
The Company has an accounts receivable financing agreement with a
factor which bears interest at 2.5% above prime with a minimum of
12% per annum. At December 26, 2003 the amount outstanding with the
factor was $661,390 as compared to $712,659 at March 28, 2003. The
loan is secured by the Company's accounts receivables and
inventories.
Note 8- 2001 EMPLOYEE STOCK OPTION PLAN:
On December 21, 2001 the Company's shareholders approved the
adoption of the Company's 2001 Employees Stock Option Plan to
provide for the grant of options to purchase up to 750,000 shares of
the Company's common stock to all employees, including senior
management.
Options granted to employees under this plan may be designated as
options which qualify for incentive stock option treatment under
Section 422A of the Internal Revenue Code, or options which do not
so qualify.
Under this plan, the exercise price of an option designated as an
Incentive Stock Option shall not be less than the fair market value
of the Company's common stock on the day the option is granted. In
the event an option designated as an incentive stock option is
granted to a ten percent (10%) shareholder, such exercise price
shall be at least 110 Percent (110%) of the fair market value or the
Company's common stock and the option must not be exercisable after
the expiration of five years from the day of the grant.
Exercise prices of non incentive stock options may be less than the
fair market value of the Company's common stock.
The aggregate fair market value of shares subject to options granted
to a participant(s), which are designated as incentive stock
options, and which become exercisable in any calendar year, shall
not exceed $100,000. As of December 26, 2003 no options had been
granted under the plan.
12
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS:
The Company exercised its option to renew its lease on the premises
for 10 years. The original lease ran through August 23, 2001.
The Company is obligated under this renewal through August 23, 2011,
at minimum annual rentals as follows:
Fiscal year ending March,
2004 $ 28,191
2005 112,764
2006 112,764
2007 112,764
2008 112,764
2009 112,764
2010 112,764
2011 75,176
------------
$ 779,951
============
The rental expense for the nine months ended December 26, 2003 for
this lease was $84,573.
The Company has a collective bargaining multi-employer pension plan
with the United Auto Workers of America, Local 259. Contributions
are made in accordance with a negotiated labor contract and are
based on the number of covered employees employed per month. With
the passage of the Multi-Employer Pension Plan Amendments Act of
1990 ("The Act"), the Company may become subject to liabilities in
excess of contributions made under the collective bargaining
agreement. Generally, these liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from the Plan.
The Company has not taken any action to terminate, withdraw or
partially withdraw from the Plan nor does it intend to do so in the
future. Under the Act, liabilities would be based upon the Company's
proportional share of the Plan's unfunded vested benefits, which is
currently not available. The amount of accumulated benefits and net
assets of such Plan also is not currently available to the Company.
The total contributions charged to operations under this pension
plan were $37,705 for the nine months ended December 26, 2003 and
$32,785 for the nine months ended December 27, 2002.
As of December 26, 2003, the Company reported arrears with respect
to its contributions to the Union's Health and Welfare plan. The
amount due the Health and Welfare plan was $16,328.
The total amount due of $16,328 is reported on the accompanying
balance sheet as a current liability.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS (continued):
In December 1993, the Company and Local 259 entered into a verbal
agreement whereby the Company would satisfy this debt by the
following payment schedule:
The sum of $2,500 will be paid by the Company each month in
satisfaction of the current arrears until this total debt has been
paid. Under this agreement, the projected payment schedule for
arrears will satisfy the total debt in 7 months.
On June 30, 1995, the Company applied to the Pension Benefit
Guaranty Corporation ("PBGC") to have the PBGC assume all of the
Company's responsibilities and liabilities under its Salaried
Pension Plan. On April 26, 1996, the PBGC determined that the
Salaried Pension Plan did not have sufficient assets available to
pay benefits which were and are currently due under the terms of the
Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), that the Plan must be terminated in order to protect the
interests of the Plan's participants. Accordingly, the PBGC
proceeded pursuant to ERISA to have the Plan terminated and the PBGC
appointed as statutory trustee, and to have July 31, 1995
established as the Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire
matter and on July 2, 2001, an agreement was reached whereby the
Company's liability to the PBGC was reduced to $244,000. The Company
will make monthly payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
In addition, to the above referenced monthly payments, the Company
will make balloon payments of $25,000 each on the following dates:
January 1, 2004
May 1, 2004
May 1, 2005
January 1, 2006
The Company also granted the PBGC a lien on the Company's machinery
and equipment.
As a result of this agreement the amount due the PBGC was restated
to $244,000. The balance as of December 26, 2003 was $236,000. The
balance of $236,000 is reported on the accompanying balance sheet as
follows: $78,000 as a current liability and $158,000 as a long-term
liability.
14
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 10 - CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings (deficit) decreased by $67,591, which represents
the net income for the nine months ended December 26, 2003.
15
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements contained in this report which are not historical facts may be
considered forward-looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. The words "anticipate", "believe", "estimate", "expect",
"objective", and "think" or similar expressions used herein are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related footnotes which provide additional
information concerning the Company's financial activities and condition.
CRITICAL ACCOUNTING POLICIES
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week year which
ends on the nearest Friday in business days to March 31st.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company's policy with respect to customer returns and allowances as well as
product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option.
If the product is repairable, the Company at its own cost will repair and return
it to the customer. If unrepairable, the Company will either offer an allowance
against payment or will reimburse the customer for the total cost of the
product.
Most of the Company's products are custom ordered by customers for a specific
use. The Company provides engineering services as part of the relationship with
its customers in developing the custom product. The Company is not obligated to
provide such engineering service to its customers. The Company does not charge
separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which does not
exceed market value.
16
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit are insured
by the Federal Deposit Insurance Corporation up to $100,000 in aggregate. There
were no uninsured balances at either December 26, 2003 or March 28, 2003.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. The Company provides for depreciation and amortization using
the Modified Accelerated Cost Recovery System (MACRS) method over the estimated
useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and renewals and
betterments are capitalized. Items of property, plant and equipment which are
sold, retired or otherwise disposed of are removed from the asset and
accumulated depreciation or amortization account. Any gain or loss thereon is
either credited or charged to operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as a reduction
in the provision for federal income tax in the year in which the credit arises
or may be utilized. Deferred income taxes arise from temporary differences
resulting from different depreciation methods used for financial and income tax
purposes. The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share",
which requires the disclosure of "basic" and "diluted" earnings (loss) per
share. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during each period.
Diluted earnings per share is similar to basic earnings per share except that
the weighted average number of common shares outstanding is increased to reflect
the dilutive effect of potential common shares, such as those issuable upon the
exercise of stock or warrants, as if they had been issued. For the nine months
ended December 26, 2003 and December 27, 2002, there were no items of potential
dilution that would impact on the computation of diluted earnings or loss per
share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting of
accounts receivable, accounts payable, and borrowings, approximate their fair
value due to the relatively short maturity (three months) of these instruments.
17
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses,
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual amounts could differ from those estimates.
Impairment of Long-Lived Assets:
SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To Be Disposed
Of", requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted SFAS No. 121. There were no, long-lived
asset impairments recognized by the Company for the nine months ended December
26, 2003 and December 27, 2002.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income". This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in an entity's financial statements. This Statement requires an entity to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. There were no material items of
comprehensive income to report for the nine months ended December 26, 2003 and
December 27, 2002.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures About
Segment of An Enterprise and Related Information." This Statement requires
public enterprises to report financial and descriptive information about its
reportable operating segments and establishes standards for related disclosures
about product and services, geographic areas, and major customers. The adoption
of SFAS No. 131 did not affect the Company's presentation of its results of
operations or financial position.
18
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For the nine months ended December 26, 2003 compared to the nine months ended
December 27, 2002
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Nine Months Ended
------------------------
Dec. 26, Dec. 27,
2003 2002
--------- ---------
Operating Revenues (in thousands) $ 3,740 $ 3,563
--------- ---------
Operating Expenses: (as a percentage of operating revenues)
Cost of Products Sold 72.46% 73.8%
Selling, General and Administrative 19.10% 17.4%
Interest Expense 2.17% 2.8%
Depreciation and Amortization 4.12% 4.2%
--------- ---------
Total Costs and Expenses 97.85% 98.2%
--------- ---------
Operating Income (loss) 2.15% 1.8%
Other Income .01% --
--------- ---------
Income (loss) before Income Taxes 2.16% 1.8%
Income Taxes .34% .4%
--------- ---------
Net Income (loss) 1.82% 1.4%
========= =========
COMPARATIVE ANALYSIS-NINE MONTHS
Operating revenues for the nine months ended December 26, 2003 amounted to
$3,739,711 reflecting a 5% increase versus the comparative nine months operating
revenues of $3,562,562. The increase is a direct result of an increase in
commercial, governmental and military sales, during the nine months ended
December 26, 2003 as compared to the nine months ended December 27, 2002.
Cost of products sold amounted to $2,709,927, for the nine months ended December
26, 2003 or 72.46% of operating revenues. This reflected an increase of $80,354
or 3% over the cost of products sold of $2,629,573 or 73.8% of operating
revenues for the nine months ended December 27, 2002.
Selling, general and administrative expenses were $714,441 or 19.10% of revenues
for the nine months ended December 26, 2003 as compared to $618,262 or 17.4% of
revenues for the comparable nine month period ended December 27, 2002. The
increase of $96,179 or 15.6% was primarily due to an increase in travel during
the nine months ended December 26, 2003.
19
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS (Continued)
COMPARATIVE ANALYSIS-NINE MONTHS (Continued)
Interest expense was $81,230 or 2.17% of revenues for the period ended December
26, 2003 as compared to $98,116 or 2.8% of revenues in the nine months period
ended December 27, 2002.
Depreciation and amortization of $154,200 or 4.12% of revenues were reported for
the nine months period ended December 26, 2003. This reflects a minimal increase
from the comparable nine months period ended December 27, 2002 of $151,200 or
4.2% of revenues.
The Company reported net income of $67,591 for the nine months ended December
26, 2003, representing basic earnings per common share of $.029 as compared to a
net income of $53,048 or $.023 per common share for the nine months ended
December 27, 2002.
COMPARATIVE ANALYSIS-THREE MONTHS
For the three months ended December 26, 2003 compared to the three months ended
December 27, 2002:
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the revenues
of the Company:
Three Months Ended
--------------------------
Dec. 26, Dec. 27,
2003 2002
---------- ----------
Operating Revenues (in thousands) $ 1,226 $ 1,176
---------- ----------
Operating Expenses: (as a percentage of operating revenues)
Cost of Products Sold 72.92% 74.8%
Selling, General and Administrative 19.40% 17.9%
Interest Expense 2.03% 2.7%
Depreciation and Amortization 4.21% 4.3%
---------- ----------
Total Costs and Expenses 98.56% 99.7%
---------- ----------
Operating Income (loss) 1.44% .3%
Other Income .02% --
---------- ----------
Income (loss) before Income Taxes 1.46% .3%
Income Taxes .34% .4%
---------- ----------
Net Income (loss) 1.12% (0.1)%
========== ==========
20
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARATIVE ANALYSIS -THREE MONTHS (Continued)
Operating revenues for the three months ended December 26, 2003 amounted to
$1,225,891, reflecting a 4.24% increase versus the comparative three months
ended December 27, 2002 operating revenues of $1,176,074. The increase is a
direct result of an increase in commercial, governmental and military orders
during the quarter ended December 26, 2003.
Cost of products sold amounted to $893,956 for the three months ended December
26, 2003 or 72.92% of operating revenues. This reflected an increase of $13,812
or 1.57% of the cost of products sold of $880,144 or 74.8% for the three months
ended December 27, 2002. The increase represents the additional cost necessary
to support the increase in sales.
Selling, general and administrative expenses for the three months ended December
26, 2003 were $238,429 or 19.40% of revenues compared to $210,739 or 17.9% of
revenues for the comparable three-month period ended December 27, 2002. This
reflected an increase of $27,690 or 13.14% and reflects increases in
administrative and travel expenses.
Interest expense was $24,862 or 2.03% of revenues for the period ended December
26, 2003 as compared to $31,841 or 2.7% of revenues in the three-month period
ended December 27, 2002. The decrease in interest is associated with the
Company's full repayment of its loans payable.
Depreciation and amortization of $51,600 or 4.21% of revenues was reported for
the three-month period ended December 26, 2003. This reflects an increase of
$1,200 or 2.38% from the comparable three-month period ended December 27, 2002
of $50,400 or 4.3% of revenues. The increase is a result of new equipment
purchased during the period ended December 26, 2003.
The Company reported net income of $13,069 for the three months ended December
26, 2003, representing basic earnings per common share of $.006 as compared to a
basic loss of $1,192 or $.001 per common share for the three months ended
December 27, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported working capital deficit as of December 26, 2003 of $91,208
as compared to a working capital deficit of $74,495 at March 28, 2003. The
increase in working capital deficit of $16,713 was attributable to the following
items:
Net income (loss)
(excluding depreciation and amortization) $ 67,591
Capital expenditures (183,107)
Other transactions 98,803
---------
$ (16,713)
=========
As a result of the above, the current ratio (current assets to current
liabilities) was .94 to 1.0 as of December 26, 2003 as compared to .97 to 1.0 at
March 28, 2003. Current liabilities at December 26, 2003 were $1,600,284 as
compared to $1,992,702 at March 28, 2003.
The Company expended $183,107 in capital expenditures in the nine months ended
December 26, 2003. Depreciation and amortization for the nine months ended
December 26, 2003 was $154,200.
21
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company has an accounts receivable financing agreement with a factor which
bears interest at 2.5% above prime with a minimum of 12% per annum. The
agreement had an initial term of one year and will automatically renew for
successive one year terms, unless terminated by the Company or Lender upon
receiving sixty days prior notice. The loan is secured by the Company's accounts
receivable and inventories. At December 26, 2003 the amount outstanding was
$661,390 as compared to $712,659 at March 28, 2003.
The Company has a collective bargaining multi-employer pension plan with the
United Auto Workers of America, Local 259. Contributions are made in accordance
with a negotiated labor contract and are based on the number of covered
employees employed per month.
With the passage of the Multi-Employer Pension Plan Amendments Act of 1990 ("The
Act"), the Company may become subject to liabilities in excess of contributions
made under the collective bargaining agreement. Generally, these liabilities are
contingent upon the termination, withdrawal, or partial withdrawal from the
Plan.
The Company has not taken any action to terminate, withdraw or partially
withdraw from the Plan nor does it intend to do so in the future. Under the Act,
liabilities would be based upon the Company's proportional share of the Plan's
unfunded vested benefits which is currently not available.
The amount of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under this pension plan were $37,705 for the nine months ended
December 26, 2003 and $32,785 for the nine months ended December 27, 2002.
As of December 26, 2003, the Company reported arrears with respect to its
contributions to the Union's Health & Welfare plan. The amount due the Health &
Welfare plan was $16,328.
The total amount due of $16,328 is reported on the accompanying balance sheet as
a current liability.
In December 1993, the Company and Local 259 entered into a verbal agreement
whereby the Company would satisfy this debt by the following payment schedule:
The sum of $2,500 will be paid by the Company each month in satisfaction of the
current arrears until this total debt has been paid. Under this agreement, the
projected payment schedule for arrears will satisfy the total debt in 7 months.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On April 26,
1996, the PBGC determined that the Salaried Pension Plan did not have sufficient
assets available to pay benefits which were and are currently due under the
terms of the Plan.
22
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The PBGC further determined that pursuant to the provisions of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), that the Plan must
be terminated in order to protect the interests of the Plan's participants.
Accordingly, the PBGC proceeded pursuant to ERISA to have the Plan terminated
and the PBGC appointed as statutory trustee, and to have July 31, 1995
established as the Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire matter and on
July 2, 2001, an agreement was reached whereby the Company's liability to the
PBGC was reduced to $244,000. The Company will make monthly payments to the PBGC
as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
In addition, to the above referenced monthly payments, the Company will make
balloon payments of $25,000 each on the following dates:
January 1, 2004
May 1, 2004
May 1, 2005
January 1, 2006
The Company also granted the PBGC a lien on the Company's machinery and
equipment.
As a result of this agreement the amount due the PBGC was restated to $244,000.
The balance as of December 26, 2003 was $236,000. The balance of $236,000 is
reported on the accompanying balance sheet as follows: $78,000 as a current
liability and the balance of $158,000 as a long-term liability.
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material effect
upon its business. Increases in costs of raw materials and labor costs have been
offset by increases in the price of the Company's products, as well as
reductions in costs of production, reflecting management's efforts in this area.
While the Company has in the past increased its prices to customers, it has
maintained its relative competitive price position. However, significant
decreases in government, military subcontractor spending has provided excess
production capacity in the industry which has tightened pricing margins.
The Company does not view the effects of inflation to have a material effect
upon its business. Increases n costs of raw materials and labor costs have been
offset by increases in the price of the Company's products, as well as
reductions in costs of production, reflecting management's efforts in this area.
While the Company has in the past increased its prices to customers, it has
maintained its relative competitive price position. However, significant
decreases in government, military subcontractor spending have provided excess
production capacity in the industry which has tightened pricing margins.
Item 3 Controls and Procedures
23
Our management, under the supervision and with the participation of our
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 (the "Exchange Act") Rules 13a-14 (c)) within 90 days of the filing
date of this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on
their evaluation, our chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Quarterly Report on Form 10-Q has been made known to them in a timely
fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not involved in any legal proceedings which may have a
material effect upon the Company, its financial condition or operations.
Item 2. Changes in Securities and Use or Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Shareholders
The Company's Annual Meeting of Shareholders was held on Friday October
10, 2003 for record holders as of Friday, August 29, 2003. The only matter
acted upon was the election of one director to the Board of Directors for
a two year term.
The only director elected was Alan Gottleib who received 1,944,082 votes
(94%) and of which only 107,326 withheld their votes.
An aggregate of 2,051,408 shares were present in person or by proxy at the
meeting, representing approximately 89% of the total shares outstanding
Item 5. Other Matters.
None
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 31.1 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 31.2 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 32.1 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
Item 32.2 Certification Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly cause this report on Form 10QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
January 30, 2004 /s/ Michael Offerman
---------------- ---------------------------
Michael Offerman
President
January 30, 2004 /s/ Robert Knoth
---------------- ---------------------------
Robert Knoth
Chief Financial Officer
25