UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended September 30,
2009 or
¨
Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the transition period from
_________ to _________
Commission
file number 0-6508
IEC
ELECTRONICS CORP.
(Exact
name of registrant as specified in its charter)
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Delaware
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13-3458955
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(State
or other jurisdiction of
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(IRS
Employer ID No.)
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incorporation
or organization)
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105
Norton Street, Newark, New York 14513
(Address
of principal executive offices, including zip code)
Registrant's
telephone number, including area code: 315-331-7742
Securities
registered pursuant to Section 12(b) of the Act:
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Common
Stock, $.01 par value
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NYSE
Amex
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(Title
of Class)
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(Name
of each exchange on which
registered)
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
¨
No
x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes
¨
No
x
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 has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files.)
Yes
¨
No
¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K
¨
.
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule
12b-2 of the Exchange Act (Check one)
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Large
accelerated filer
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¨
Accelerated
filer
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x
Non-accelerated
filer
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¨
Smaller
reporting company
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
At March 27, 2009, the last business
day of the registrant’s most recently completed second fiscal quarter, the
aggregate market value of the shares of Common Stock held by non-affiliates for
the registrant was $ 9,558,887(based on the closing price of the registrant’s
Common Stock on The Over-the-Counter Bulletin Board on such
date). Shares of Common Stock held by each executive officer and
director and by each person and entity who beneficially owns more than 10% of
the outstanding Common Stock have been excluded in that such person or entity
under certain circumstances may be deemed to be an affiliate. Such
exclusion should not be deemed a determination or admission by registrant that
such individuals or entities are, in fact, affiliates of the
registrant.
As of November 9, 2009, there were
outstanding 8,750,455 shares of Common Stock.
Documents
incorporated by reference:
Portions of IEC Electronics Corp.'s
definitive Proxy Statement for the 2010 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
TABLE
OF CONTENTS
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PAGE
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PART
I
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PART
II
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PART
III
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PART
IV
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"SAFE
HARBOR" CAUTIONARY STATEMENT UNDER THE
PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
References in this report to “IEC”, the
“Company”, “we”, “our”, or “us” mean IEC Electronics Corp. and its subsidiaries,
except where the context otherwise requires. This Annual Report on
Form 10-K contains certain statements that are, or may be deemed to be,
forward-looking statements within the meaning of
section-27A of the Securities Act of 1933 and section-21E of the Securities
Exchange Act of 1934, and are made in reliance upon the protections provided by
such Acts for forward-looking statements. These forward-looking
statements (such as when we describe what we “believe”, “expect” or “anticipate”
will occur, and other similar statements) include, but are not limited to,
statements regarding future sales and operating results, future prospects, the
capabilities and capacities of business operations, any financial or other
guidance and all statements that are not based on historical fact, but rather
reflect our current expectations concerning future results and events. The
ultimate correctness of these forward-looking statements is dependent upon a
number of known and unknown risks and events, and is subject to various
uncertainties and other factors that may cause our actual results, performance
or achievements to be different from any future results, performance or
achievements expressed or implied by these statements. The following
important factors, among others, could affect future results and events, causing
those results and events to differ materially from those expressed or implied in
our forward-looking statements: business conditions
and growth in our customer's industries, the electronic manufacturing services
industry and the general economy, variability of operating results, our
dependence on a limited number of major customers, the potential consolidation
of our customer base, availability of
components, dependence on certain
industries, variability of customer requirements, our ability to
assimilate acquired businesses and to achieve the anticipated benefits of such
acquisitions, other economic, business and competitive factors affecting our
customers, our industry and business generally and other factors that we may not
have currently identified or quantified. For a further list and description of
various risks, relevant factors and uncertainties that could cause future
results or events to differ materially from those expressed or implied in our
forward-looking statements, see the "Risk Factors” and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections
elsewhere in this document. All forward-looking statements included
in this Report on Form-10-K are made only as of the date of this Report on
Form-10-K, and we do not undertake any obligation to publicly update or correct
any forward-looking statements to reflect events or circumstances that
subsequently occur or which we hereafter become aware of. You should read this
document and the documents that we incorporate by reference into this Annual
Report on Form-10-K completely and with the understanding that our actual future
results may be materially different from what we expect. We may not
update these forward-looking statements, even if our situation changes in the
future. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
PART
I
Overview
IEC Electronics Corp.,("IEC", "we",
"our", “us” the “Company”), is a premier provider of electronic manufacturing
services,(“EMS”), to advanced technology companies. We specialize in the custom
manufacture of high reliability, complex circuit cards, system level assemblies
and a wide array of custom cable/wire harness assemblies. We excel
where quality is paramount and where low to medium volume, high mix production
is the norm. We utilize state-of-the art, automated circuit card
assembly equipment coupled with a full complement of high reliability
manufacturing stress testing technologies. We have created a “high
intensity response culture” to react and adapt to our customer’s ever-changing
needs. Our customer focused approach offers a high degree of
flexibility while simultaneously complying with the industry’s rigorous quality
and on-time delivery standards. As a true extension of our customer’s
operation, we have applied industry leading Six Sigma and Lean Manufacturing
principles to eliminate waste and lower our customer’s total cost of ownership.
While many EMS services are viewed as a commodity, we have set ourselves apart
through an uncommon mix of features including:
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A
world class Technology Center that combines a dedicated prototype
manufacturing center with an on-site Materials Analysis Lab (headed by two
staff PhD’s) for the seamless introduction of complex
electronics
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A
sophisticated Lean/Sigma continuous improvement program supported by five
certified Six Sigma Blackbelts delivering best-in-class
results
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Industry-leading
Web Portal providing real-time access to a wide array of critical customer
data
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In-house
custom functional test development to support complex system-level
assembly, test, troubleshoot and end-order
fulfillment
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IEC Electronics Corp., a Delaware
corporation, is the successor by merger in 1990 to IEC Electronics Corp., a New
York corporation, which was organized in 1966. On May 30, 2008, IEC
acquired all of the stock of Val-U-Tech Corp., a wire and cable-harness
inter-connect business, located in Victor, New York. Val-U-Tech was
renamed IEC Electronics Wire and Cable, Inc. (“Wire and Cable”) during
2009. IEC Electronics Wire and Cable, Inc. is a premier cable and
wire harness manufacturer specializing in high-reliability applications for
companies in the military, medical, industrial and transportation market
sectors. Wire and Cable manufactures a diverse portfolio of custom
cable/wire harness assemblies, mechanical sub-assemblies, circuit card
assemblies and box builds with an emphasis on perfect quality delivered
precisely on time.
IEC is a world-class ISO 9001-2000,
AS9100 and ISO13485 certified company. The AS9100 certification enables IEC to
service the military and commercial aerospace markets. The ISO13485
certification supports the quality requirements of the medical device
markets. We are also ITAR registered and NSA approved under the
COMSEC standard. Our manufacturing processes encompass the best
aspects of Lean Manufacturing and Six Sigma Principles. Many customers consider
these certifications crucial when qualifying an EMS provider. Our
state-of-the-art Technology Center includes prototype assembly, design
engineering services, and an Advanced Materials Technology
Laboratory.
We continually evaluate emerging
technologies and maintain a technology road map to ensure relevant processes and
advances in new equipment are available to our customers when commercial and
design factors so indicate. The current generation of interconnection
technologies includes chip scale packaging and ball grid array (BGA) assembly
techniques. We have placed millions of plastic and ceramic BGA's
since 1994. Future advances will be directed by our Technology Center, which
combines Prototype and Pilot Build Services with the capabilities of our
Advanced Materials Technology Laboratory and our Design Engineering
Group.
Our experienced workforce has a high
level of technical expertise. Our emphasis is on building the most
challenging complex systems serving original equipment manufacturers (“OEMs”)
with advanced electronics technology. IEC has positioned itself as a
leader of lead-free solder assembly technology through early development and
technical publications. Lead-free was mandated by July 2006 for many
electronic products sold in Europe.
Our executive offices are located at
105 Norton Street, Newark, New York 14513. Our telephone number is
(315)331-7742, and our Internet address is
www.iec-electronics.com
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Electronics
Manufacturing Services: The Industry
The EMS
industry specializes in providing program management, technical support and
manufacturing expertise required to take a product from the early design and
prototype stages through volume production and
distribution. Primarily as a response to rapid technological change
and increased competition in the electronics industry, OEMs have recognized that
by utilizing EMS providers they can improve their competitive position, realize
an improved return on investment and concentrate on their core competencies such
as research, product design and development and marketing. In
addition, EMS providers allow OEMs to bring new products to market rapidly and
adjust more quickly to fluctuations in product demand; avoid additional
investment in plant, equipment and personnel; reduce inventory and other
overhead costs; and establish known unit costs over the life of a
contract. Many OEMs now consider EMS providers an integral part of
their business and manufacturing strategy.
OEMs increasingly require EMS providers
to provide complete turnkey manufacturing and material handling services, rather
than working on a consignment basis in which the OEM supplies all materials and
the EMS provider supplies labor. Turnkey contracts involve design, manufacturing
and engineering support, the procurement of all materials, and sophisticated
in-circuit and functional testing and distribution.
IEC's
Strategy
Our strategy is to cultivate strong
manufacturing partnerships with established and emerging OEMs in the ruggedized
industrial, communications, medical, homeland security, and military and
aerospace industries that require high reliability final
assemblies. These long-term business partnerships involve the joint
development of manufacturing and support strategies with OEM customers and
promote customer satisfaction. In implementing this strategy, we offer our
customers a full range of manufacturing solutions through flexibility in
production, high quality and fast-turnaround manufacturing services and
computer-aided testing.
We generally enter into formal
agreements with our significant customers. These agreements generally provide
for fixed prices for one year, absent any customer changes which impact cost of
labor or material, and rolling forecasts of customer
requirements. After establishing an OEM relationship, we offer our
consultation services with respect to the manufacturability and testability of
the product design. We often recommend design changes to reduce
manufacturing costs and to improve the quality of the finished
assemblies.
Products
and Services
We manufacture a wide range of
assemblies, which are incorporated into many different products. We provide
electronic manufacturing services primarily for wireless communication systems,
test diagnostic equipment, military and defense systems, transportation
products, and medical systems and instrumentation. During the fiscal
year ended September 30, 2009 we provided electronics and cable harness
manufacturing services to approximately 80 different customers. We provide
our services to multiple divisions and product lines of many of our customers
and typically manufacture successive product generations for our
customers. In some cases, we are the sole contract manufacturer for
the customer site or division, providing all services, prototype through box
build and functional test.
Materials
Management
We generally procure material only to
meet specific contract requirements. In addition, our agreements with
our significant customers generally provide for cancellation charges equal to
the costs, which are incurred by us as a result of a customer's cancellation of
contracted quantities. Our internal systems provide effective controls for all
materials, whether purchased by us or provided by the customer, through all
stages of the manufacturing process, from receiving to final
shipment.
Availability
of Components
Substantially all of our net sales are
derived from turnkey manufacturing in which we provide both materials
procurement and assembly services. We are well positioned with
supplier relationships and material procurement expertise to acquire needed
materials. However, availability of customer-consigned parts and
unforeseen shortages of components on the world market are beyond our control
and could adversely affect revenue levels and operating
efficiencies.
Suppliers
We operate in a strategic partnership
arrangement with our key distribution suppliers. These strategic partnerships
and associated automated trading methodologies provide benefits such as better
payment terms, consignment or bonded inventories, reduced procurement lead-time,
competitive pricing, reduced quotation processing, some protection during
periods of supply allocation and opens access to global resources. We
also have preferred supplier partnership agreements in place for custom
commodities such as printed circuit boards and metals.
Marketing
and Sales
Our sales increased during 2009,
primarily due to the addition of several new customers, and increased market
share with existing customers. These customers, along with the
customers we anticipate adding, are expected to generate further revenue growth
during 2010. We utilize a direct sales force as well as a nationwide
network of Manufacturers Representatives. Through this hybrid sales
approach, we execute a focused sales strategy targeting only those customers
with product profiles aligned with our core areas of expertise. For
example, we focus on customers developing complex, advanced technology products
for a wide array of market sectors ranging from satellite communications,
medical, military and ruggedized industrial.
Typically, the demand profiles
associated with these customers are in the low to moderate volume range with
high variability of quantity and mix requirements for end item
configurations. In fact, these products often represent emerging
technologies requiring high intensity of manufacturing support to seamlessly
transfer them from the early product development stage through prototyping onto
volume manufacturing. As these products exit the product development phase,
specialized capabilities are required to support rapid response prototyping
requirements in a dynamic engineering change environment. As a
result, the usual industry outsourcing models associated with these customers
rarely include supply alternatives in low cost labor regions such as Asia and
Mexico.
Our sales efforts are driven by focused
marketing and sales activities in targeted areas supported by customer
presentations. Sales leads resulting from these marketing activities
are assigned to a representative covering a customer's location for
qualification and further development. Referrals by existing
customers continue to be one of our sources of new opportunities.
Backlog
During fiscal 2009 our backlog remained
solid, an excellent result given the commercial turbulence of the last
year. We closed the year with backlog of $41.4 million as compared to
a fiscal 2008 closing backlog of $43.9 million. Backlog consists of
two categories; orders, and firm forecasted commitments. We also
receive orders during the quarter, to ship in the same period, that do not
appear in our backlog information. Substantially, the entire current
backlog is expected to be shipped within our current fiscal
year. Variations in the magnitude and duration of contracts received
by us, and customer delivery requirements may result in fluctuations in backlog
from period to period.
Governmental
Regulation
Our operations are subject to certain
federal, state and local regulatory requirements relating to environmental,
waste management, health and safety matters. Management believes that
our business is operated in compliance with all applicable regulations
promulgated by the Occupational Safety and Health Administration and the
Environmental Protection Agency and corresponding state agencies, which
respectively, pertain to health and safety in the work place and the use,
discharge, and storage of chemicals employed in the manufacturing
process. Current costs of compliance are not material to
us. However, new or modified requirements, not presently anticipated,
could be adopted creating additional expense for us.
Employees
The Company added 18 employees during
fiscal 2009. IEC's employees numbered 368 at September 30, 2009, including 295
employees engaged in manufacturing and manufacturing support, 38 in engineering,
and 35 in administrative and marketing functions. None of our
employees are covered by a collective bargaining agreement. We have
not experienced any work stoppages and believe that our employee relations are
good. We have access to a large work force by virtue of our northeast
location midway between Rochester and Syracuse, two upstate New York industrial
cities. IEC's employees numbered 350 at September 30, 2008, including
300 employees engaged in manufacturing and manufacturing support, 28 in
engineering, and 22 in administrative and marketing functions.
Patents
and Trademarks
We hold patents unrelated to
electronics manufacturing services and also employ various registered
trademarks. We do not believe that either patent or trademark
protection is material to the operation of our business.
OUR
OPERATING RESULTS MAY FLUCTUATE DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE
BEYOND OUR CONTROL.
Our annual and quarterly results may
vary significantly depending on various factors, including, but not limited to,
the following:
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adverse
changes in general economic
conditions
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the
level and timing of customer orders and the accuracy of their
forecasts
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the
level of capacity utilization of our manufacturing facility and associated
fixed costs
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price
competition
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market
acceptance of our customers
products
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business
conditions in our customers’ end
markets
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our
level of experience in manufacturing a particular
product
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change
in the sales mix of our customers
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the
efficiencies achieved in managing inventories and fixed
assets
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fluctuations
in materials costs and availability of
materials
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the
timing of expenditures in anticipation of future
orders
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changes
in cost and availability of labor and
components
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our
effectiveness in managing manufacturing
process.
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The EMS industry is impacted by the
state of the U.S. and global economies, which are both impacted by world
events. An economic slowdown, in particular in the industries served
by us, may result in our customers reducing their forecasts. The
demand for our services could weaken, which in turn could substantially
influence our sales, capacity utilization, margins and financial
results. Historically, we have seen periods, such as in fiscal 2003
and 2002, when EMS industry sales were adversely affected by a slowdown in
wireless/networking and wireless infrastructure sectors as a result of reduced
end-market demand and reduced availability of capital to fund existing and
emerging technologies.
WE
DEPEND ON A RELATIVELY SMALL NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THESE
CUSTOMERS OUR SALES AND OPERATING RESULTS COULD DECLINE
SIGNIFICANTLY.
A small number of customers are
responsible for a significant portion of our net sales. During fiscal
2009, 2008, and 2007, our five largest customers accounted for 55%, 62%, and 61%
of net sales, respectively. During fiscal 2009, 2008, and 2007, our
single largest customer in each year accounted for 15%, 21%, and 26% of net
sales, respectively. The percentage of IEC's sales to its major
customers may fluctuate from period to period. Our principal
customers have varied from period to period, and our principal customers may not
continue to purchase services from us at the current levels, or at
all.
WE
DEPEND ON THE ELECTRONICS INDUSTRY, WHICH CONTINUALLY PRODUCES TECHNOLOGICALLY
ADVANCED PRODUCTS WITH SHORT LIFE CYCLES.
Factors affecting the electronics
industry in general could seriously harm our customers and, as a result,
us. These factors include:
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the
inability of our customers to adapt to rapidly changing technology and
evolving industry standards, which result in short product life
cycles;
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the
inability of our customers to develop and market their products, some of
which are new and untested;
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the
potential that our customers' products may become obsolete or the failure
of our customers' products to gain widespread commercial acceptance;
and
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recessionary
periods in our customers'
markets.
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OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY
GLOBAL ECONOMIC AND FINANCIAL MARKETS CONDITIONS.
Current global economic and financial
markets conditions, including severe disruptions in the credit markets and the
potential for a significant and prolonged global economic recession, may
materially and adversely affect our results of operations and financial
condition. These conditions may also materially impact our customers
and suppliers. Economic and financial market conditions that
adversely affect our customers may cause them to terminate existing purchase
orders or to reduce the volume of products they purchase from us in the
future. We may have significant balances owing from customers that
operate in cyclical industries and under leveraged conditions that may impair
the collectability of those receivables. Failure to collect a
significant portion of those receivables could have a material adverse effect on
our results of operations and financial condition. Adverse economic
and financial credit terms our suppliers extend to us, such as shortening the
required payment period for outstanding accounts receivable or reducing the
maximum amount of trade credit available to us could have an adverse effect on
our results of operations and financial condition. Changes of this
type could significantly affect our liquidity and could have a material adverse
effect on our results of operations and financial condition. If we
are unable to successfully anticipate changing economic and financial markets
conditions, we may be unable to effectively plan for and respond to those
changes, and our business could be negatively affected.
FALILURE
TO MANAGE GROWTH AND CONTRACTION, IF ANY, MAY SERIOUSLY HARM OUR
BUSINESS
In late 2006 and early 2007 we expanded
our operations and added many new employees. These actions resulted
in additional costs and start-up inefficiencies. If we are unable to
effectively manage the currently anticipated growth or if the anticipated net
sales are not realized, our operating results could be adversely
affected.
ENERGY
PRICE INCREASES MAY NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS
Certain of the components used in our
manufacturing activities are petroleum-based. In addition, we, along
with our suppliers and customers, rely on various energy sources (including oil)
in our transportation activities. Over the past several years, energy
prices have sharply increased and have experienced significant
volatility. These increased energy prices have resulted in an
increase to our raw material costs and transportation costs. In
addition, the transportation costs of certain of our suppliers and customers
have increased, and some of these increased costs may be passed along to
us. We may not be able to increase our product prices enough to
offset these increased costs. In addition, any increase in our
product prices may reduce our future customer orders and
profitability.
START-UP
COSTS AND INEFFICIENCIES RELATED TO NEW OR TRANSFERRED PROGRAMS CAN ADVERSELY
AFFECT OUR OPERATING RESULTS AND MAY NOT BE RECOVERABLE.
Start-up costs, the management of labor
and equipment resources in connection with establishing new programs and new
customer relationships, and the need to estimate required resources, and the
timing of those resources in advance of production, can adversely affect our
gross margins and operating margins. If new programs or new customer
relationships are terminated or delayed, our operating results may be harmed,
particularly in the near term. We may not be able to recoup our
start-up costs or quickly replace anticipated new program revenues.
MOST
OF THE CUSTOMERS IN OUR INDUSTRY DO NOT COMMIT TO LONG-TERM PRODUCTION
SCHEDULES, WHICH CAN MAKE IT DIFFICULT FOR US TO SCHEDULE
PRODUCTION.
Customers may cancel their orders,
change production quantities or delay production for a number of reasons that
are beyond our control. Cancellations, reductions or delay by a
significant customer or by a group of customers could negatively impact our
operating results. Such cancellations, reductions or delays have
occurred and may continue to occur. The volume and timing of sales to
our customers may vary due to:
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variation
in demand for our customers' products in their end
markets
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our
customers' attempts to manage their
inventory
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electronic
design changes
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changes
in our customers' manufacturing
strategy
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recessionary
conditions in customers' industries
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Due in part to these factors, most of
our customers do not commit to firm production schedules. We make significant
decisions based on our estimates of customers’ requirements, including deciding
on the levels of business that we will seek, production schedules, component
procurement commitments, equipment requirements, personnel needs and other
resource requirements. The short-term nature of our customers’
commitments and the possibility of rapid changes in demand for their products
reduce our ability to accurately estimate and forecast the future requirements
of those customers. Since many of our costs and operating expenses are
relatively fixed, a reduction in customer demand can impact our revenue and harm
our gross margins and operating results.
INCREASED
COMPETITION MAY RESULT IN DECREASED DEMAND OR REDUCED PRICES FOR OUR
SERVICES.
The
EMS industry is highly fragmented and is characterized by intense
competition. We may be operating at a cost disadvantage compared to
other EMS providers who have greater direct buying power from component
suppliers, distributors and raw material suppliers or who have lower cost
structures as a result of their geographic location. As a result,
competitors may have a competitive advantage. Our manufacturing
processes are generally not subject to significant proprietary protection, and
companies with greater resources or a greater market presence may enter our
market or increase their competition with us. We also expect our competitors to
continue to improve the performance of their current products or services, to
reduce their current products or service sales prices and to introduce new
products or services that may offer greater performance and improved
pricing. Any of these could cause a decline in sales, loss of market
acceptance of our products or services, profit margin compression, or loss of
market share.
THE
INTEGRATION OF ACQUIRED OPERATIONS MAY POSE DIFFICULTIES FOR US.
In May 2008, we completed our
acquisition of Wire and Cable. We may continue to acquire additional
businesses in the future. This acquisition and future acquisitions
involve risks, including:
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integration
and management of the operations;
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retention
of key personnel;
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integration
of information systems, internal procedures, accounts receivable and
management, financial and operational
controls;
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retention
of customer base of acquired
businesses;
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diversion
of management’s attention from other ongoing business concerns;
and
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exposure
to unanticipated liabilities of acquired
companies.
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These and
other factors could harm our ability to achieve anticipated levels of
profitability or realize other anticipated benefits of an acquisition and could
adversely affect our business and operating results.
IF
WE DO NOT MANAGE OUR BUSINESS EFFECTIVELY, OUR PROFITABILITY COULD
DECLINE.
Our ability to manage our business
effectively will require us to continue to implement and improve our
operational, financial and management information systems; continue to develop
the management skills of our managers and supervisors; and continue to train,
motivate and manage our employees. Our failure to effectively do so
could harm our business.
WE
DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR COMPONENTS THAT ARE CRITICAL TO OUR
MANUFACTURING PROCESSES. A SHORTAGE OF THESE COMPONENTS OR AN
INCREASE IN THEIR PRICE COULD INTERRUPT OUR OPERATIONS AND REDUCE OUR
PROFITS.
Much of our net revenue is derived from
turnkey manufacturing in which we provide materials
procurement. While some of our customer agreements permit periodic
adjustments to pricing based on decreases and increases in component prices and
other factors, we typically bear the risk of component price increases that
occur between any such re-pricing or, if such re-pricing is not permitted,
during the balance of the term of the particular customer
contract. Accordingly, certain component price increases could
adversely affect our gross profit margins.
Almost all of the products we
manufacture require one or more components that are available from a limited
number of suppliers. Some of these components are allocated from time to time in
response to supply shortages. In some cases, supply shortages could
substantially curtail production of those assemblies using a particular
component. At times, component shortages have been prevalent in our
industry, and such shortages may be expected to recur from time to
time. In some cases, supply shortages and delays in deliveries of
particular components have resulted in curtailed or delayed production of
assemblies, which contributed to an increase in our inventory
levels. An increase in economic activity could result in shortages,
if manufacturers of components do not adequately anticipate the increased orders
and/or have previously excessively cut back their production capabilities in
view of reduced activity in recent years. World events, armed
conflict and epidemics, could also affect our supply chain. An
inability to obtain sufficient components on a timely basis could harm
relationships with our customers.
In addition, due to the specialized
nature of some components and the needs of our customers’ products, we may be
required to use suppliers which are the sole provider of certain
components. Such suppliers may encounter financial difficulties or
may not have adequate financial resources, which could preclude them from
delivering components on time or at all.
OUR
TURNKEY MANUFACTURING SERVICES INVOLVE INVENTORY RISK
Most of our services are provided on a
turnkey basis, where we purchase some or all of the materials required for
product assembling and manufacturing. These services involve greater
resource investment and inventory risk management than consignment services,
where the customer provides materials. Accordingly, various component
price increases and inventory obsolescence could adversely affect our selling
price, gross margins and operating results.
In our turnkey operations, we must
order parts and supplies based on customer forecasts, which may be for a larger
quantity of product than is included in the firm orders ultimately received from
those customers. Customers' cancellation or reduction of orders can result in
additional expense to us. While most of our customer agreements
typically include provisions which require customers to reimburse us for excess
inventory specifically ordered to meet their forecasts, we actually may not be
reimbursed on these obligations. In that case, we could have excess
inventory and/or cancellation or return charges from our suppliers.
In addition, we are starting to provide
managed inventory programs for some of our customers under which we hold and
manage finished goods inventories. This managed inventory program may
result in higher finished goods inventory levels, further reduce our inventory
turns and increase our financial exposure with such customers. Even
though they will generally have contractual obligations to purchase such
inventories from us, we may remain subject to the risk of enforcing those
obligations.
PRODUCTS
WE MANUFACTURE MAY CONTAIN MANUFACTURING DEFECTS, WHICH COULD RESULT IN REDUCED
DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST US.
We manufacture products to our
customers' specifications, which are highly complex and may, at times, contain
design or manufacturing errors or failures. Despite our quality
control and quality assurance efforts, defects may occur. Defects in the
products we manufacture, whether caused by a customer design, manufacturing or
component failure or error, may result in delayed shipments to customers or
reduced or cancelled customer orders and may affect our business
reputation. In addition, these defects may result in liability claims
against us. Even if customers or component suppliers are responsible
for the defects, they may be unwilling or unable to assume responsibility for
any costs or payments.
WE
MAY NOT BE ABLE TO MAINTAIN OUR ENGINEERING, TECHNOLOGICAL AND MANUFACTURING
PROCESS EXPERTISE.
The markets for our manufacturing and
engineering services are characterized by rapidly changing technology and
evolving process development. The continued success of our business
will depend upon our ability to:
|
|
▪
|
hire
and retain our qualified engineering and technical
personnel;
|
|
|
▪
|
maintain
and enhance our technological leadership;
and
|
|
|
▪
|
develop
and market manufacturing services that meet changing customer
needs.
|
Although we believe that our operations
provide the assembly and testing technologies, equipment and processes that are
currently required by our customers, we cannot be certain that we will develop
the capabilities required by our customers in the future. The
emergence of new technology industry standards or customer requirements may
render our equipment, inventory or processes obsolete or
noncompetitive. In addition, we may have to acquire new assembly and
testing technologies and equipment to remain competitive. The
acquisition and implementation of new technologies and equipment may require
significant expense or capital investment, which could reduce our operating
margins and our operating results. Our failure to anticipate and
adapt to our customers' changing technological needs and requirements could have
an adverse effect on our business.
FAILURE
TO ATTRACT AND RETAIN KEY PERSONNEL AND SKILLED EMPLOYEES COULD HURT OUR
OPERATIONS.
Our continued success depends to a
large extent on our ability to recruit, train, and retain skilled employees,
particularly executive management and technical employees. The
competition for these individuals is significant; hence the loss of the services
of certain of these key employees or an inability to attract or retain qualified
employees could negatively impact us. While we do have an employment
agreement with W. Barry Gilbert, our Chief Executive Officer, we do not have
employment agreements or non-competition agreements with any of our other key
employees.
COMPLIANCE
OR THE FAILURE TO COMPLY WITH CURRENT AND FUTURE ENVIRONMENTAL REGULATIONS COULD
CAUSE US SIGNIFICANT EXPENSE.
We are subject to a variety of federal,
state, and local environmental regulations relating to the use, storage,
discharge and disposal of hazardous chemicals used during our manufacturing
process. If we fail to comply with any present and future
regulations, we could be subject to future liabilities or the suspension of
production. In addition, such regulations could restrict our ability to expand
our facilities or could require us to acquire costly equipment, or to incur
other significant expenses to comply with environmental
regulations. While we are not currently aware of any violations, we
may have to spend funds to comply with present and future regulations or be
required to perform site remediation.
IF
WE ARE UNABLE TO MAINTAIN EFFECTIVE INTERNAL CONTROL OVER OUR FINANCIAL
REPORTING, INVESTORS COULD LOSE CONFIDENCE IN THE RELIABILITY OF OUR FINANCIAL
STATEMENTS, WHICH COULD RESULT IN A REDUCTION IN THE VALUE OF OUR COMMON
STOCK.
As required by Section 404 of the
Sarbanes-Oxley Act, the SEC adopted rules requiring public companies to include
a report of management on the company’s internal control over financial
reporting in their annual reports on Form 10-K; that report must contain an
assessment by management of the effectiveness of our internal control over
financial reporting.
We are continuing our comprehensive
efforts to comply with Section 404 of the Sarbanes-Oxley Act. If we
are unable to maintain effective internal control over financial reporting, this
could lead to a failure to meet reporting obligations to the SEC, which in turn
could result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements.
THE
AGREEMENTS GOVERNING OUR DEBT CONTAIN VARIOUS COVENANTS THAT IMPACT THE
OPERATION OF OUR BUSINESS.
The agreements and instruments
governing our existing debt and our secured credit facility contain various
restrictive covenants that, among other things, require us to comply with or
maintain certain financial tests and ratios 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, rent and lease payments and stock option
expense(EBITDARS) and restrict our ability to:
|
|
▪
|
incur
debt;
|
|
|
▪
|
incur
or maintain liens;
|
|
|
▪
|
make
acquisitions of businesses or
entities;
|
|
|
▪
|
make
investments, including loans, guarantees and
advances;
|
|
|
▪
|
engage
in mergers, consolidations or certain sales of
assets;
|
|
|
▪
|
engage
in transactions with affiliates;
and
|
|
|
▪
|
pay
dividends or engage in stock redemptions or
repurchases.
|
Our credit facilities are secured by a
general security agreement in the assets of the Company and its subsidiaries, a
pledge of the Company’s equity interest in its subsidiary, a negative pledge on
the Company’s real property, and a guarantee by the Company’s
subsidiary.
Our ability to comply with covenants
contained in our existing debt and secured credit facility may be affected by
events beyond our control, including prevailing economic, financial and industry
conditions. Our failure to comply with our debt-related covenants
could result in an acceleration of our indebtedness and cross-defaults under our
other indebtedness, which may have a material adverse effect on our financial
condition. We are currently in compliance with all of our
covenants.
OUR
STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL.
Our Common Stock is traded on the NYSE
AMEX. The market price of our Common Stock has fluctuated
substantially in the past and could fluctuate substantially in the future, based
on a variety of factors, including future announcements concerning us or our key
customers or competitors, government regulations, litigation, fluctuations in
quarterly operating results, or general conditions in the EMS
industry.
None
We own our administrative and main
manufacturing facility which is located in Newark, New York and contains an
aggregate of approximately 300,000 square feet. We also lease a
manufacturing facility in Victor, New York, which contains an aggregate of
approximately 18,000 square feet. We believe that our properties are
generally in good condition, are well maintained, and are generally suitable and
adequate to carry on our business in its current form.
There are no material legal proceedings
pending to which IEC or its subsidiary is a party or of which any of their
property is the 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 five percent (5%) of Common Stock of IEC, or any
associate of any of the foregoing, is a party adverse to IEC or its subsidiary
or has a material interest adverse to IEC or its subsidiary.
During
the fourth quarter of fiscal 2009, no matters were submitted to vote of security
holders.
IEC's
executive officers as of September 30, 2009, were as follows:
|
Name
|
Age
|
Position
|
||
|
W.
Barry Gilbert
|
63
|
Chairman
of the Board, and Chief Executive Officer
|
||
|
Jeffrey
T. Schlarbaum
|
43
|
Executive
Vice President and President of IEC Contract
Manufacturing
|
||
|
Donald
S. Doody
|
43
|
Senior
Vice President of Operations
|
||
|
Michael
R. Schlehr
|
|
47
|
|
Vice
President and Chief Financial
Officer
|
W. Barry Gilbert has served as Chief
Executive Officer since June 2002. He has been a director of IEC
since February 1993, and Chairman of the Board since February 2001. He is an
adjunct faculty member at the William E. Simon Graduate School of Business
Administration of the University of Rochester. Mr. Gilbert previously held the
position of President of the Thermal Management Group of Bowthorpe (now known as
Spirent) and was corporate Vice President and President of the Analytical
Products Division of Milton Roy Company, a manufacturer of analytical
instrumentation. He holds an MBA from the University of Rochester in
Applied Economics and Finance.
Jeffrey T. Schlarbaum was promoted to
Executive Vice President and President of IEC Contract Manufacturing in May
2008. He joined IEC in May 2004 as Vice President of Sales and
Marketing and in November 2006 he was appointed Executive Vice President of
Sales and Marketing. Before joining IEC, he had over 15 years of
sales experience in the electronics industry. Most recently, he
served as Regional Vice President of Sales for Plexus Corp., a contract
manufacturer of electronics products, Neenah, Wisconsin. Prior to
that, he worked as Vice President of Sales, Eastern Region for MCMS as well as
holding various senior sales and marketing management positions with MACK
Technologies and Conner Peripherals. He holds a Bachelors of Business
Administration degree from National University, and an MBA from Pepperdine
University.
Donald S. Doody, was promoted to Senior
Vice President of Operations in May 2008. He joined IEC in November 2004 as Vice
President of Operations. Before joining IEC, he had more than 8 years
of experience in the contract electronics manufacturing industry. He started his
career with GE Transportation and Industrial Systems and became a Master Black
Belt/Supplier Quality Engineer. Mr. Doody was a senior manufacturing engineer at
Plexus Corporation, then became VP/GM of MCMS’s North Carolina facility. When
Plexus acquired MCMS he became responsible for leading Lean Manufacturing and
Six Sigma initiatives throughout the company. Mr. Doody holds a Bachelor’s
degree in Engineering from the State University of New York, College at Buffalo
and a M.S. degree in Industrial Sciences from Colorado State
University.
Michael R. Schlehr joined IEC in
February of 2008 with more than 20 years experience in operations and financial
management for manufacturers in diverse industries. Mr. Schlehr started
his career with RJR Nabisco in various facility accounting roles and eventually
as a Senior Investment Analyst at the corporate level. He was a Controller
and Production Manager for a subsidiary of Smurfit/Stone. Mr. Schlehr held
positions of Operations Manager and Corporate Controller before relocating to
Rochester, NY for Birdseye Foods, Inc. where he functioned as Director of
Operations Accounting. Mr. Schlehr’s most recent position was Vice
President of Finance and Administration for the Process Solutions Division of
Robbins & Myers, Inc. He holds a BS degree with Honors in dual majors
of Accounting and Management from Canisius College in Buffalo,
NY.
PART
II
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
(a) Market
Information.
IEC's Common Stock began trading on the
NYSE Amex on June 9, 2009 under the symbol "IEC". Prior to that,
IEC's Common Stock was traded on The Over-the-Counter Bulletin Board ("OTCBB")
under the symbol "IECE.OB".
The following table sets forth, for the
fiscal quarter indicated, the high and low closing sales prices for the Common
Stock as reported on the OTCBB or NYSE Amex, as applicable. The
quotations on the OTCBB reflect inter-dealer prices, without mark-up, mark-down
or commission, and may not represent actual transactions.
|
Quarter
|
High
|
Low
|
||||||
|
October
1, 2007 – December 28, 2007
|
$ | 2.50 | $ | 1.60 | ||||
|
December
29, 2007 – March 28, 2008
|
$ | 1.90 | $ | 1.60 | ||||
|
March
29, 2008 – June 27, 2008
|
$ | 2.20 | $ | 1.50 | ||||
|
June
28, 2008 – September 30, 2008
|
$ | 2.20 | $ | 1.76 | ||||
|
October
1, 2008 – December 26, 2008
|
$ | 1.90 | $ | 1.40 | ||||
|
December
27, 2008 – March 27, 2009
|
$ | 1.60 | $ | 1.19 | ||||
|
March
28, 2009 – June 26, 2009
|
$ | 3.98 | $ | 1.35 | ||||
|
June
27, 2009 – September 30, 2009
|
$ | 7.45 | $ | 3.30 | ||||
The
closing price of IEC's Common Stock on the NYSE Amex on November 9, 2009, was $
4.57 per share.
(b)
Holders.
As of November 9, 2009, there were
approximately 165 holders of record of IEC's Common Stock, which does not
include shareholders whose stock is held through securities position
listings. Many of our shares of Common Stock are held in street name
by brokers and other institutions, and we are unable to estimate the number of
their beneficial stockholders.
(c)
Dividends.
IEC has never paid dividends on its
Common Stock. It is the current policy of the Board of Directors of
IEC to retain earnings for use in our business. Certain financial
covenants set forth in IEC's current loan agreement prohibit IEC from paying
cash dividends. We do not plan to pay cash dividends on our Common
Stock in the foreseeable future.
(d)
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth
information concerning IEC's equity compensation plans as of September 30,
2009.
|
Number of securities
|
||||||||||||
|
Number of securities
|
remaining available for
|
|||||||||||
|
to be issued upon
|
Weighted-average
|
future issuance under
|
||||||||||
|
exercise of
|
exercise price of
|
equity compensation plans
|
||||||||||
|
outstanding options,
|
outstanding options,
|
(excluding securities
|
||||||||||
|
Plan Category
|
warrants and rights
|
warrants and rights
|
reflected in column
(a))
|
|||||||||
|
(a)(2)
|
(b)
|
(c)(3)
|
||||||||||
|
Equity
compensation plans:
|
||||||||||||
|
approved
by security holders(1)
|
971,988 | $ | 1.10 | 602,786 | ||||||||
|
not
approved by security holders
|
-0- | N/A | -0- | |||||||||
|
Total
|
971,988 | $ | 1.10 | 602,786 | ||||||||
(1) Consists
of IEC's 2001 Stock Option and Incentive Plan (the "2001 Plan")
(2) Under
the 2001 Plan, in addition to options, we have granted share-based compensation
awards to outside directors, restricted stock awards, other stock-based awards
and stock purchase programs. As of September 30, 2009, there were
545,602 such awards under the 2001 Plan, all of which shares were issued and
outstanding.
(3) These
shares may be issued in the form of stock options, restricted stock, performance
shares or other share-based awards.
|
Issuance
of Unregistered Securities:
|
Not
Applicable
|
|
Repurchases
of IEC Securities:
|
We
repurchased no shares during the last quarter of Fiscal
2009.
|
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
SELECTED
FINANCIAL DATA
(in
thousands, except per share data)
|
Years
Ended September 30,
|
2009(#1)
|
2008(#1)
|
2007
|
2006
|
2005
|
|||||||||||||||
|
INCOME
STATEMENT DATA
|
||||||||||||||||||||
|
Net
sales
|
$ | 67,811 | $ | 51,092 | $ | 40,914 | $ | 22,620 | $ | 19,066 | ||||||||||
|
Gross
profit
|
$ | 10,826 | $ | 6,217 | $ | 3,877 | $ | 2,753 | $ | 2,630 | ||||||||||
|
Percent
of net sales
|
16.0 | % | 12.2 | % | 9.5 | % | 12.2 | % | 13.8 | % | ||||||||||
|
Operating
income
|
$ | 4,819 | $ | 2,392 | $ | 985 | $ | 598 | $ | 346 | ||||||||||
|
Percent
of net sales
|
7.1 | % | 4.7 | % | 2.4 | % | 2.6 | % | 1.8 | % | ||||||||||
|
Net
income before tax
|
$ | 4,718 | $ | 1,634 | $ | 503 | $ | 215 | $ | 257 | ||||||||||
|
Net
income
|
$ | 4,956 | $ | 10,477 | $ | 875 | $ | 215 | $ | 285 | ||||||||||
|
Net
income (loss) per common and common equivalent share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.57 | $ | 1.22 | $ | 0.11 | $ | 0.03 | $ | 0.03 | ||||||||||
|
Diluted
|
$ | 0.52 | $ | 1.12 | $ | 0.10 | $ | 0.03 | $ | 0.03 | ||||||||||
|
Common
and common equivalent shares
|
||||||||||||||||||||
|
Basic
|
8,729 | 8,554 | 8,114 | 7,973 | 8,261 | |||||||||||||||
|
Diluted
|
9,554 | 9,337 | 8,896 | 8,276 | 8,571 | |||||||||||||||
|
BALANCE
SHEET DATA
|
||||||||||||||||||||
|
Working
capital(#2)
|
$ | 11,295 | $ | 9,247 | $ | 3,985 | $ | 5,775 | $ | 2,038 | ||||||||||
|
Total
assets
|
$ | 34,469 | $ | 34,184 | $ | 12,344 | $ | 11,894 | $ | 5,538 | ||||||||||
|
Long-term
debt, including current maturities(#3)
|
$ | 7,747 | $ | 10,008 | $ | 1,751 | $ | 4,164 | $ | 937 | ||||||||||
|
Shareholders'
equity
|
$ | 20,254 | $ | 15,976 | $ | 4,163 | $ | 3,092 | $ | 3,020 | ||||||||||
Notes:
#1.)
Comparability of 2009 to prior year is affected by 2008 late-year acquisition of
Wire and Cable.
#2.) 2009
Customer deposits included in current liabilities. Previously an
offset to assets.
#3.)
Revolving Line of Credit categorized as Long Term Debt.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this Management's
Discussion & Analysis should be read in conjunction with the accompanying
financial statements, the related Notes to Consolidated Financial Statements and
the Five-Year Summary of Financial Data. Forward-looking statements
in this Management's Discussion and Analysis are qualified by the cautionary
statement preceding Item 1 of this Form 10-K.
Overview
During 2004, we refocused our sales
efforts on high technology products that are less likely to migrate to offshore
suppliers due to proprietary technology content, governmental restriction or
volume considerations. Since then we have continued to expand our
business adding new customers and new markets. Our customer base is
stronger and more diverse than ever. We continue to expand in areas
we view as important for our continued growth. IEC is ISO-9001:2000
registered, and an NSA approved supplier under the COMSEC
standard. Both IEC and Wire and Cable, our cable harness and
interconnect business, are AS9100 certified to service the military and
commercial aerospace market sector and ISO13485 certified to service the medical
market sector. We have identified and gained entry into advantageous
markets by leveraging our ability to provide products of the highest quality and
reliability, including significantly complex, low-run volume
assemblies. Currently, the markets we serve include military,
governmental agencies, aerospace, communications, medical, computing and a
variety of industrial sectors. During fiscal 2009 our backlog
remained solid, an excellent result given the commercial turbulence of the last
year. We closed the year with backlog of $41.4 million as compared to
a fiscal 2008 closing backlog of $43.9 million. Backlog consists of
two categories; orders, and firm forecasted commitments. We also
receive orders during the quarter, to ship in the same period, that do not
appear in our backlog information. Substantially, the entire current
backlog is expected to be shipped within our current fiscal
year. Variations in the magnitude and duration of contracts received
by us, and customer delivery requirements may result in fluctuations in backlog
from period to period. We continue to improve our internal bench
strength and skills, our reliability testing capabilities and our machinery and
equipment infrastructure to optimize production performance and effectively
manage the steady growth in volume and complexity that we are
experiencing. Despite the recessionary outlook for the economy,
based upon cautiously optimistic comments from our customers in the military and
aerospace sectors, we expect continued growth in both revenue and profitability
throughout fiscal 2010.
Analysis
of Operations
|
Sales
(dollars in millions)
|
||||||||||||
|
For
Year Ended September 30,
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 67.8 | $ | 51.1 | $ | 40.9 | ||||||
IEC continues to experience strong
top-line growth. Revenue has increased 33% over 2008 and 66% over the
sales achieved in 2007. While the current fiscal year included twelve
months of Wire and Cable revenues compared to four months in the previous fiscal
year, the Company also enjoyed healthy organic growth in its core
business. This significant growth has been fueled by the expansion of
product offerings and by market segment diversification as discussed
above. Because of our execution, our customers have rewarded us with
ongoing programs and additional business. The ongoing programs have
become a stable core of our operation. The most significant revenue growth in
recent years has occurred for IEC in the aerospace, medical and industrial
market sectors.
| Gross Profit (dollars in thousands and as a % of Net Sales) | ||||||||||||
|
For
Year Ended September 30,
|
2009
|
2008
|
2007
|
|||||||||
|
Gross
profit
|
$ | 10,826 | $ | 6,217 | $ | 3,877 | ||||||
|
Gross
profit percent
|
16.0 | % | 12.2 | % | 9.5 | % | ||||||
IEC continues to show an increasing
Gross Profit measured as a percentage of Net Sales. Versus the prior
year, fiscal 2009 gross profit as a percentage of net sales improved over 2008
by 3.8%. Since fiscal 2007, the Company has increased its gross
profit as a percentage of net sales by 6.5%. This trend of
significant increase, at a materially higher revenue level, further demonstrates
the strength of our Company. This improvement in gross margin was
expected and was discussed in the 2007 year end SEC filing. In fiscal
2007 IEC transitioned from low volume prototype work to new programs with larger
production volumes. The associated learning curves for new employees
and for new products affected our efficiency and therefore our
profitability. In fiscal 2008 and 2009 labor efficiency improved
through effective training of production employees, investments in capital
equipment that served to modernize some processes, and through further
implementation of continuous improvement and lean manufacturing
principles. Our workforce has expanded in size and in
capability. Our continued increases in productivity and improvements
in execution have resulted in further penetration into profitable market
sectors.
| Selling and Administrative Expense (dollars in thousands and as a % of Net Sales) | ||||||||||||
|
For
Year Ended September 30,
|
2009
|
2008
|
2007
|
|||||||||
|
Selling
and administrative expense
|
$ | 6,007 | $ | 3,825 | $ | 2,892 | ||||||
|
Selling
and administrative expense percent
|
8.9 | % | 7.5 | % | 7.1 | % | ||||||
Selling and administrative expenses as
a percentage of sales increased to 8.9% in fiscal 2009. Fiscal 2009 included
twelve months of Wire and Cable SG&A costs as compared to fiscal 2008 which
included only four months of Wire and Cable SG&A costs. This
accounts for $618 of the increase in SG&A costs. Incremental
costs were also incurred in fiscal 2009 to strengthen our sales and marketing
team. Sales commissions, advertising, public relations and travel
costs were higher as would be expected with incremental sales efforts and our
efforts to expand into newer markets. Additionally, costs were
incurred to improve our information systems and technology
infrastructure. We also have accrued for plant-wide performance-based
incentives which includes a provision for the next segment of Mr. Gilbert’s
contractual incentives.
|
Other
Income and Expense
(dollars
in millions)
|
||||||||||||
|
For
Year Ended September 30,
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
and financing expense
|
$ | 0.4 | $ | 0.5 | $ | 0.4 | ||||||
|
Other
(income)/expense
|
$ | (0.3 | ) | $ | 0.3 | $ | - | |||||
Interest and financing expense was
reduced in 2009. Favorable interest rates and reduced debt levels
resulted in lower financing costs. The Company has consistently
remained ahead of schedule with respect to the reduction of debt associated with
its acquisition of the Wire and Cable business. From fiscal year end 2008 to
fiscal year end 2009 the Company’s debt was reduced by $2.3 million. Total cash
available to reduce debt was offset by $1.8 million of capital investments and
$2.0 million of payments to suppliers to capture discounts.
We had “Other income” of $0.3 million
during fiscal 2009 versus $0.3 million of “Other expense” in fiscal
2008. Other Income for the current year is comprised mainly of a
refund of sales tax, penalties and accrued interest from the State of Alabama
and the City of Arab, Alabama in settlement of a long standing dispute over a
previous sales tax assessment. Additionally, we received a rebate on
utilities associated with our recent capital project to reduce electricity usage
for plant lighting.
|
Income
Taxes (dollars in thousands)
|
||||||||||||
|
For
Year Ended September 30,
|
2009
|
2008
|
2007
|
|||||||||
|
Effective
tax (benefit)
|
$ | (238 | ) | $ | (8,843 | ) | $ | (372 | ) | |||
Our 2009 tax benefit included a $1.9
million reversal of the valuation allowance against our deferred tax
asset. Our 2008 tax benefit included an $8.9 million reversal of the
valuation allowance against our deferred tax asset. (See Note #4 in
Notes to Consolidated Financial Statements)
Liquidity
and Capital Resources
Cash Flow provided by (used in)
operating activities was $3.0 million for the fiscal year ended September 30,
2009 compared to $0.1 million for fiscal 2008. The principal reason
for this variance of $2.9 million versus prior year is the improvement in Net
Income Before Tax. Improved cash inflows from collections on customer
receivables was offset by cash used to reduced payables and capture vendor
discounts which was a benefit to earnings.
Cash Flow provided by (used in)
investing activities was ($1.8) million for the fiscal year end versus ($4.4)
million for fiscal 2008. The prior year’s investing activities
included the cash investment in Wire and Cable. During fiscal 2009 we
invested ($1.8) million in new production equipment to improve efficiency and
capacity.
Cash Flow provided by (used in)
financing activities was a use of ($1.2) million in fiscal 2009 versus a net
source of cash of $4.4 million in fiscal 2008. In fiscal 2009 we
reduced our term debt and our revolving debt by an aggregate total of $2.2
million. We also borrowed $0.8 million on our capital financing line
of credit. The prior year included the funding from our new credit
facility which enabled the acquisition of Wire and Cable.
At September 30, 2009 we had a $3.9
million balance under our revolving credit facility. The maximum
borrowing limit under our revolving credit facility is limited to the lesser of
(i) $9.0 million or (ii) an amount equal to the sum of 85% of the receivables
borrowing base and 35% of the inventory borrowing base. On September
30, 2009, the remaining availability under the collateralized portion of our
line of credit was $5.1 million. We believe that our liquidity is
adequate to cover operating requirements for the next 12 months.
The Company entered into a $14.2
million senior secured loan agreement (Credit Agreement) and Sale Leaseback
agreement with Manufacturers and Traders Trust Company (M&T Bank) on May 30,
2008. The following is a summary of the Credit and Sale Leaseback
agreements:
|
|
§
|
A
revolving credit facility up to $9.0 million, available for direct
borrowings. The facility is based on a borrowing base formula
equal to the sum of 85% of eligible receivables and 35% of eligible
inventory. As of September 30, 2009, outstanding loans under
the revolving credit facility were $3.9 million. The credit
facility matures on May 30, 2013. Interest on the revolver is
either prime or a stated rate over LIBOR, whichever is lower based on
certain ratios. On September 30, 2009 the interest rate on our
revolving line balance was 1.75
%.
|
|
|
§
|
A
$1.7 million term loan amortized equally over 60 months beginning July
2008. IEC’s interest rate is fixed at 6.7%. The
outstanding balance at September 30, 2009 was $0.8 million. One
year prior, at September 30, 2008, the outstanding balance of our term
loan was $1.1 million.
|
|
|
§
|
An
available $1.5 million equipment line of credit. The capital
credit facility is amortized equally over 60 months and matures on May 30,
2013. Interest on the equipment line is either prime or a
stated rate over LIBOR, whichever is lower based on certain ratios at the
time of borrowing. Using this capital credit line the Company
was able to secure additional interest rate subsidies from New York
State’s Linked Deposit Program and has used a total of $0.8 million of the
$1.5 million available line as of September 30, 2009. New
equipment was purchased to continue driving our increased operating
efficiencies. For the year ended September 30, 2009 the
weighted average interest rate on capital financing was 3.08%. The
outstanding balance at September 30, 2009 was $0.7
million.
|
|
|
§
|
A
$2.0 million Sale Leaseback of the Company’s fixed assets amortized
equally over 60 months beginning June 27, 2008. Annual payments
are fixed and are $388,800 per year with a total for the five years of
$1.9 million. Assets sold had a cost of $15.6 million inclusive of $1.2
million of assets purchased during the nine months ended June 27, 2008,
and an accumulated depreciation of $13.6 million. A minimal
loss will be amortized over the five year period of the
lease. At September 30, 2009 our remaining unpaid balance for
the lease was $1.5 million compared to $1.8 million at September 30,
2008.
|
|
|
§
|
All
loans and the Sale-Leaseback are secured by a security interest in the
assets of the Company and Wire and Cable; a pledge of all the Company’s
equity interest in Wire and Cable, a negative pledge on the Company’s real
property and a guaranty by Wire and
Cable.
|
In connection with the acquisition of
Wire and Cable and the payment of the purchase price to the sellers, a portion
of the purchase price was paid in the form of promissory notes (the "Seller
Notes") in the aggregate principal amount of $3.9 million with interest at the
rate of 4% per annum. The remaining balance at September 30, 2009 is
$2.2 million.
The Company’s financing agreements
contain various affirmative and negative covenants concerning the ratio of
“EBITDARS” (Earnings Before Interest, Taxes, Depreciation, Amortization, Rent
Expense under the Sale Leaseback and Stock Option Expense) to total debt and to
fixed charges. These are calculated on a twelve month rolling
basis. The Company must also maintain a minimum EBITDARS level of
$350,000 per individual quarter. The Company was compliant with
these covenants as of September 30, 2009. The table below provides
details on the Company’s performance relative to each of the three covenants as
of September 30, 2009:
|
Covenant
|
Requirement
|
Actual
Performance
|
|||||||||
|
▪
|
Minimum
quarterly EBITDARS
|
≥ | $ | 350,000 | $ | 1,641,000 | |||||
|
▪
|
Fixed
Charge Coverage
|
≥ | 1.1 | x | 3.03 | x | |||||
| ▪ |
Total
Debt to EBITDARS
|
<
|
3.75 | x | 1.56 | x | |||||
If evaluated on an annual basis rather
than quarterly, the Company’s performance with respect to the “Minimum EBITDARS
Covenant” was $5,902,000 versus a four-quarter aggregate required minimum of
$1,400,000.
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.
FASB ASC 605-10 (Prior Authoritative
Literature: 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.
FASB ASC 360-10 (Prior Authoritative
Literature: Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets), requires that we evaluate our
long-lived assets for financial impairment on a regular basis. We
evaluate the recoverability of long-lived assets not held for sale by measuring
the carrying amount of the assets against the estimated undiscounted 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.
FASB ASC 450-10 (Prior Authoritative
Literature: Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies"), requires that when, from time to time, we are subject to
various legal proceedings and claims, the outcomes of which are subject to
significant uncertainty, 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.
FASB ASC 740 (Prior Authoritative
Literature: 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.
Impact of
Inflation
To date, the impact of inflation has
been minimal due to the fact that we have been able to adjust many of our bids
to reflect most inflationary increases in costs; however it is not clear this
will continue and in turn could affect our margins.
RECENTLY
ISSUED ACCOUNTING STANDARDS
FASB ASC 805 (Prior Authoritative
Literature: Financial Accounting Standards Board Statement of Financial
Accounting Standards (“SFAS”) No. 141(R), “Business Combinations”),
establishes principles and requirements for how the acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree, recognizes
and measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. FASB ASC 805 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
As such, the Company is required to adopt these provisions at the beginning of
the fiscal year ended September 30, 2010. The Company is currently evaluating
the impact of FASB ASC 805 but does not expect it to have a material effect on
its consolidated financial statements.
FASB ASC 810-10-65 (Prior Authoritative
Literature: Financial Accounting Standards Board Statement of Financial
Accounting Standard (“SFAS”) No. 160, "Non-controlling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51”), establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. FASB ASC 810-10-65 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. As such, the Company is required to adopt
these provisions at the beginning of the fiscal year ended September 30,
2010. The Company is currently evaluating the impact of FASB ASC
810-10-65 but does not expect it to have a material effect on its consolidated
financial statements.
FASB ASC
855-10 (Prior Authoritative Literature: Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standard (“SFAS”) No.165, "Subsequent
Events"), establishes requirements for subsequent events. FASB ASC 855-10 is
effective for interim or annual periods ending after June 15,
2009. The Company is required to adopt this standard in the current
period. Adoption of FASB ASC 855 did not have a significant effect on
the Company’s consolidated financial statements.
Quantitative and Qualitative
Disclosures about Market Risk represents the risk of loss that may impact the
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 Revolving
Credit borrowings under the Credit Agreement, due to the variable interest rate
pricing. Management believes that interest rate fluctuations will not
have a material impact on IEC's results of operations.
The information required by this item
is incorporated herein by reference to pages 25 through 38 of this Form 10-K and
is indexed under Item 15(a)(1) and (2).
There have been no changes in or
disagreements on accounting and financial disclosure matters.
(a) Evaluation of disclosure controls
and procedures
An evaluation was performed under the
supervision and with the participation of IEC's management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the disclosure controls and procedures as of the end of
the period covered by this Annual Report on Form 10-K 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 have
concluded that the business has disclosure controls and procedures that were
effective as of the end of the period covered by this Annual Report on Form 10-K
to provide reasonable assurance that information required to be disclosed by IEC
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 and that such information is accumulated and communicated to our
management (including the Chief Executive Officer and Chief Financial Officer)
to allow timely decisions regarding disclosures.
(b) Changes in internal control over
financial reporting
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 year ended September 30, 2009, that
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
(c) Management's Report on Internal
Control over Financial Reporting.
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Our internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America. The Company’s
internal control over financial reporting includes those policies and procedures
that:
|
(i)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the
Company,
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company, and
|
|
(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on financial
statements.
|
An
evaluation, based on the framework entitled Internal Controls - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission(COSO), was performed under the supervision and with the participation
of our management, including the principal executive officer and the principal
financial officer, of the effectiveness of the design and operation of our
procedures and internal control over financial reporting. Based on this
evaluation, our management, including the principal executive officer and the
principal financial officer, concluded that our internal control over financial
reporting was effective in providing reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial
statements for external purposes in accordance with generally accepted
accounting principles as of September 30, 2009.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report on internal control over financial reporting was not subject
to attestation by our independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit us to
provide only management's report in this annual report.
|
(d)
|
Inherent
Limitations of Internal Controls.
|
In
designing and evaluating our internal control system, we recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance of achieving the desired control
objectives and that the effectiveness of any system has inherent limitations
including, but not limited to, the possibility of human error and the
circumvention or overriding of controls and procedures. Management, including
the principal executive officer and the principal financial officer, is required
to apply judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Because of the inherent limitations in a cost-effective
control system, internal control over financial reporting may not prevent or
detect misstatements. Although unlikely, misstatements due to error or fraud may
occur and not be detected in a timely manner.
None.
PART
III
The
information required by this item is presented under the captions entitled
"Election of Directors” and “Section 16 (a) Beneficial Ownership Reporting
Compliance” contained in the definitive proxy statement issued in connection
with the 2010 Annual Meeting of Stockholders and is incorporated in this report
by reference thereto. The information regarding Executive Officers of
the Registrant is found in Part I of this report.
IEC has
adopted a Code of Business Conduct and Ethics (the “Code”), which applies to all
of its directors, officers (including IEC’s Chief Executive Officer, Chief
Financial Officer, and other senior financial officers), and
employees. The Code, a copy of which was filed as Exhibit 14 to IEC’s
Current Report on Form 8-K filed on September 1, 2004, may be viewed on IEC’s
website,
www.iec-electronics.com
,
under its “Investor Relations – Corporate Governance” captions, and is available
in print (free of charge) to any person upon request to Chief Financial Officer,
IEC Electronics Corp., 105 Norton Street, Newark, NY 14513, telephone
(315) 331-7742. Any amendment to, or waiver of, a provision of the
Code which applies to IEC’s Chief Executive Officer, Chief Financial Officer, or
other senior financial officers and relates to the elements of a “code of
ethics” as defined by the Securities and Exchange Commission will also be posted
on the website.
The
information required by this item is presented under the captions entitled
"Compensation of Named Executive Officers and Directors” and “Election of
Directors – Compensation Committee Interlocks and Insider Participation”
contained in the definitive proxy statement issued in connection with the 2010
Annual Meeting of Stockholders and is incorporated in this report by reference
thereto, except, however, the section entitled “Compensation Committee Report”
shall not be deemed to be “soliciting material” or to be filed with the
Commission or subject to Regulation 14A or 14C, or to the liabilities of Section
18 of the Exchange Act of 1934, as amended.
The
information required by this item is presented under the caption
entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the definitive proxy statement issued in connection
with the 2010 Annual Meeting of Stockholders and is incorporated in this report
by reference thereto. Information relating to Equity Compensation
Plans is found in Item 5 of Part II of this report.
The
information required by this item is presented under the captions “Certain
Relationships and Related Person Transactions” and “Election of Directors”
contained in the definitive proxy statement issued in connection with the 2010
Annual Meeting of Stockholders and is incorporated in this report by reference
thereto.
The
information required by this item is presented under the caption "Ratification
of Selection of Independent Registered Public Accounting Firm” contained in the
definitive proxy statement issued in connection with the 2010 Annual Meeting of
Stockholders and is incorporated in this report by reference
thereto.
PART
IV
|
|
(a)
|
The
following documents are filed as part of this report and as response to
Item 8:
|
|
Page
|
||
|
(1)
|
Consolidated
Financial Statements and Supplementary Schedules
|
|
|
Report
of Independent Registered Public Accounting Firm
|
23
|
|
|
Consolidated
Balance Sheets as of
|
||
|
September
30, 2009 and 2008
|
24
|
|
|
Consolidated
Statements of Operations for the years
|
||
|
ended
September 30, 2009, 2008 and 2007
|
25
|
|
|
Consolidated
Statements of Comprehensive Income and Shareholders'
|
||
|
Equity
for the years ended September 30, 2009, 2008 and 2007
|
26
|
|
|
Consolidated
Statements of Cash Flows for the years
|
||
|
ended
September 30, 2009, 2008 and 2007
|
27
|
|
|
Notes
to Consolidated Financial Statements
|
28
|
|
|
Selected
Quarterly Financial Data (unaudited
|
35
|
|
|
All
other schedules are either inapplicable or the information is included
in
|
||
|
the
consolidated financial statements and, therefore, have been
omitted.
|
||
|
(2)
|
Financial
Statement Schedules required to be filed by Item 8 of this Form
10-K:
|
|
|
Valuation
of Qualifying Accounts
|
36
|
|
|
(3)
|
Exhibits
|
|
Exhibit No.
|
Title
|
Page
|
||
|
2.1
|
Agreement
and Plan of Merger by and among IEC Electronics Corp., VUT
Merger Corp. and Val-U-Tech Corp. dated as of May 23, 2008 (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 27, 2008)
|
|||
|
3.1
|
Amended
and Restated Certificate of Incorporation of DFT Holdings Corp.
(incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
|
|||
|
3.2
|
Amended
Bylaws of IEC Electronics Corp. (incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended September
30, 2002).
|
|||
|
3.3
|
Agreement
and Plan of Merger of IEC Electronics into DFT Holdings Corp.
(incorporated by reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
|
|||
|
3.4
|
Certificate
of Merger of IEC Electronics Corp. into DFT Holdings Corp. - New York.
(incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
|
|||
|
3.5
|
Certificate
of Ownership and Merger merging IEC Electronics Corp. into DFT Holdings
Corp. - Delaware. (incorporated by reference to Exhibit 3.5 to the
Company's Registration Statement on Form S-1, Registration No.
33-56498)
|
|||
|
3.6
|
Certificate
of Merger of IEC Acquisition Corp. into IEC Electronics Corp.
(incorporated by reference to Exhibit 3.6 to the Company’s Registration
Statement on Form S-1, Registration No. 33-56498)
|
|||
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation of IEC Electronics Corp.
filed with the Secretary of State of the State of Delaware
on Feb. 26, 1998 (incorporated by reference to Exhibit 3.1 to
the Company’s Quarterly Report on Form 10-Q for the Quarter ended March
27, 1998)
|
|||
|
3.8
|
Certificate
of Designations of the Series A Preferred Stock of IEC Electronics Corp.
filed with the Secretary of State of the State of Delaware on June 3,
1998. (incorporated by reference to Exhibit 3.8 of the Company's Annual
Report on Form 10-K for the year ended September 30, 1998)
|
|
4.1
|
Specimen
of Certificate for Common Stock. (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-56498)
|
|||
|
10.1
|
Credit
Facility Agreement dated as of May 30, 2008 by and among IEC Electronics
Corp. and Manufacturers and Traders Trust Company (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 27, 2008)
|
|||
|
10.2
|
First
Amendment to Credit Facility Agreement made July 29, 2008 to be effective
as of May 30, 2008 between IEC Electronics Corp.
and Manufacturers and Traders Trust Company (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended September 30, 2008)
|
|||
|
10.3*
|
Form
of Indemnity Agreement between the Company and its directors and executive
officers. (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2,
1993)
|
|||
|
10.4*
|
IEC
Electronics Corp. 2001 Stock Option and Incentive Plan, as amended
on February 4, 2009
|
|||
|
10.5*
|
Form
of Incentive Stock Option Agreement pursuant to 2001 Stock Option
and Incentive Plan
|
|||
|
10.6*
|
Form
of Outside Director Stock Option Agreement pursuant to 2001 Stock Option
and Incentive Plan
|
|||
|
10.7*
|
Form
of Restricted Stock Award Agreement pursuant to 2001 Stock Option and
Incentive Plan
|
|||
|
10.8*
|
Form
of Challenge Award Option Agreement granted to senior management in Fiscal
2005 (Incorporated by reference to Exhibit 10.14 to the Company’s Annual
Report on Form 10-K for the year ended September 30, 2005)
|
|||
|
10.9*
|
Form
of First Amendment to Challenge Award Option Agreement dated as of
September 29, 2006 (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended September 30,
2007)
|
|||
|
10.10*
|
Form
of Second Amendment to Challenge Award Option Agreement dated as
of January 23, 2008 (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for the year ended September
30, 2008)
|
|||
|
10.11*
|
Form
of Sales Restriction Agreement between IEC Electronics Corp. and certain
option holders, dated as of August 24,2005 (incorporated by reference to
Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year
ended September 30, 2005)
|
|||
|
10.12*
|
Option
Award Agreement between the Company and W. Barry Gilbert dated as of
August 12, 2003 (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended September 30,
2008)
|
|||
|
10.13*
|
First
Amendment to Option Award Agreement between the Company and W. Barry
Gilbert dated as of August 4, 2006 (incorporated by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the year
ended September 30, 2008)
|
|||
|
10.14*
|
Restricted
Stock Award Agreement between the Company and Jeffrey T. Schlarbaum dated
as of May 14, 2008 (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 2008)
|
|||
|
10.15*
|
Restricted
Stock Award Agreement between the Company and Donald S. Doody dated as of
May 14, 2008 (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 2008)
|
|||
|
10.16*
|
Separation
Agreement between the Company and Brian Davis dated February 15, 2008
(incorporated by reference to Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the year ended September 30,
2008)
|
|||
|
10.17*
|
Independent
Consulting Agreement between the Company and Brian Davis dated February
15, 2008 (incorporated by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended September 30,
2008)
|
|||
|
10.18*
|
Employment
Agreement between the Company and W. Barry Gilbert, effective April 24,
2009 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed April 30, 2009)
|
|||
|
10.19*
|
Summary
of the Company's Fiscal 2009 Management Incentive Plan
|
|||
|
10.20*
|
Summary
of the Company's Long-Term Incentive Plan
|
|||
|
10.21*
|
IEC
Electronics Corp. Management Deferred Compensation Plan, effective January
1, 2009
|
|||
|
10.22*
|
IEC
Electronics Corp. Board of Directors Deferred Compensation Plan,
effective January 1, 2009
|
|||
|
10.23
|
Settlement
Agreement dated March 17, 2009 by and among the Company, Val-U-Tech
Corp., Kathleen Brudek, Michael Brudek and Nicholas Vaseliv
(incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K filed on March 23, 2009)
|
|||
|
14
|
Code
of Business Conduct and Ethics (incorporated by reference to Exhibit 14 to
the Company’s Current Report on Form 8-K filed on September 1,
2004)
|
|||
|
21.1
|
Subsidiaries
of IEC Electronics Corp.
|
|||
|
23.1
|
Consent
of EFP Rotenberg, LLP
|
|||
|
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
|
*Management
contract or compensatory plan or arrangement
SIGNATURES
Pursuant
to the requirement of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated:
November 12, 2009.
|
IEC
Electronics Corp.
|
|
By:/s/ W. Barry Gilbert
|
|
W.
Barry Gilbert
|
|
Chief
Executive Officer and Chairman of the
Board
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/W. Barry Gilbert
|
Chief
Executive Officer and
|
|||
|
(W.
Barry Gilbert)
|
Chairman
of the Board
|
November
12, 2009
|
||
|
/s/Michael R. Schleh
r
|
Vice
President and
|
|||
|
(Michael
R. Schlehr)
|
Chief
Financial Officer
|
November
12, 2009
|
||
|
/s/Carl E. Sassano
|
Director
|
November
12, 2009
|
||
|
(Carl
E. Sassano)
|
||||
|
/s/Jerold L. Zimmerman
|
Director
|
November
12, 2009
|
||
|
(Jerold
L. Zimmerman)
|
||||
|
/s/Eben S. Moulton
|
Director
|
November
12, 2009
|
||
|
(Eben
S. Moulton)
|
||||
|
/s/Amy L. Tait
|
Director
|
November
12, 2009
|
||
|
(Amy
L. Tait)
|
||||
|
/s/James C. Rowe
|
Director
|
November
12, 2009
|
||
|
(James
C. Rowe)
|
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
SEPTEMBER
30, 2009 AND 2008
(in
thousands)
ASSETS
|
2009
|
2008
|
|||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$ | - | $ | - | ||||
|
Accounts
receivable (net of allowance for doubtful
|
10,354 | 10,345 | ||||||
|
Accounts
of $85 and $145 respectively)
|
||||||||
|
Inventories
|
6,491 | 6,230 | ||||||
|
Deferred
income taxes
|
2,050 | 1,908 | ||||||
|
Other
current assets
|
110 | 61 | ||||||
|
Total
Current Assets
|
19,005 | 18,544 | ||||||
|
FIXED
ASSETS:
|
||||||||
|
Land
and land improvements
|
742 | 742 | ||||||
|
Building
and improvements
|
4,339 | 4,368 | ||||||
|
Machinery
and equipment
|
10,335 | 8,567 | ||||||
|
Furniture
and fixtures
|
4,131 | 4,083 | ||||||
|
Sub-Total
Gross Property
|
19,547 | 17,760 | ||||||
|
Less
Accumulated Depreciation
|
(17,156 | ) | (16,907 | ) | ||||
|
Net
Fixed Assets
|
2,391 | 853 | ||||||
|
NON-CURRENT
ASSETS:
|
||||||||
|
Deferred
income taxes
|
13,026 | 14,727 | ||||||
|
Other
Non Current Assets
|
47 | 60 | ||||||
|
Total
Non-Current Assets
|
13,073 | 14,787 | ||||||
|
Total
Assets
|
$ | 34,469 | $ | 34,184 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
2009
|
2008
|
|||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Short
term borrowings
|
$ | 1,147 | $ | 1,098 | ||||
|
Accounts
payable
|
4,183 | 6,125 | ||||||
|
Accrued
payroll and related expenses
|
1,564 | 808 | ||||||
|
Other
accrued expenses
|
531 | 603 | ||||||
|
Customer
deposits
|
190 | 664 | ||||||
|
Total
current liabilities
|
7,615 | 9,298 | ||||||
|
Long
term debt
|
6,600 | 8,910 | ||||||
|
Total
Liabilities
|
14,215 | 18,208 | ||||||
|
SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock, $.01 par value, Authorized
|
||||||||
|
-
500,000 shares; Issued and outstanding - none
|
- | - | ||||||
|
Common
stock, $.01 par value, Authorized
|
||||||||
|
-
50,000,000 shares; Issued - 9,747,283 and
|
||||||||
|
9,326,582
shares
|
97 | 93 | ||||||
|
Treasury
Shares at Cost 1,012,873 and 412,873 shares
|
(1,413 | ) | (223 | ) | ||||
|
Additional
paid-in capital
|
40,632 | 40,124 | ||||||
|
Accumulated
deficit
|
(19,062 | ) | (24,018 | ) | ||||
|
Total
shareholders' equity
|
20,254 | 15,976 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 34,469 | $ | 34,184 | ||||
The
accompanying notes are an integral part of these financial
statements.
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE
YEARS ENDED SEPTEMBER 30, 2009, 2008 AND 2007
(in
thousands, except per share and share data)
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 67,811 | $ | 51,092 | $ | 40,914 | ||||||
|
Cost
of sales
|
56,985 | 44,875 | 37,037 | |||||||||
|
Gross
profit
|
10,826 | 6,217 | 3,877 | |||||||||
|
Selling
and administrative expenses
|
6,007 | 3,825 | 2,892 | |||||||||
|
Operating
income
|
4,819 | 2,392 | 985 | |||||||||
|
Interest
and financing expense
|
389 | 452 | 440 | |||||||||
|
Other
(income)/expense
|
(287 | ) | 306 | 42 | ||||||||
|
Net
income before income taxes
|
4,718 | 1,634 | 503 | |||||||||
|
(Benefit
from) income taxes (footnote #4)
|
(238 | ) | (8,843 | ) | (372 | ) | ||||||
|
Net
income
|
$ | 4,956 | $ | 10,477 | $ | 875 | ||||||
|
Net
income per common and common equivalent share:
|
||||||||||||
|
Basic
Income available to common shareholders
|
$ | 0.57 | $ | 1.22 | $ | 0.11 | ||||||
|
Diluted
Income available to common shareholders
|
$ | 0.52 | $ | 1.12 | $ | 0.10 | ||||||
|
Weighted
average number of common and common equivalent shares
outstanding:
|
||||||||||||
|
Basic
|
8,728,930 | 8,553,635 | 8,114,491 | |||||||||
|
Diluted
|
9,553,526 | 9,337,097 | 8,895,819 | |||||||||
The
accompanying notes are an integral part of these financial
statements.
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME AND SHAREHOLDERS' EQUITY
FOR THE
YEARS ENDED SEPTEMBER 30, 2009, 2008 AND 2007
(in
thousands)
|
Additional
|
Retained
|
Total
|
||||||||||||||||||||||
|
Comprehensive
|
Common
|
Treasury
|
Paid-In
|
Earnings
|
Shareholders
|
|||||||||||||||||||
|
Income
|
Stock
|
Stock
|
Capital
|
(Deficit)
|
Equity
|
|||||||||||||||||||
|
BALANCE,
September 30, 2006
|
$ | 84 | $ | (223 | ) | $ | 38,601 | $ | (35,370 | ) | $ | 3,092 | ||||||||||||
|
Shares
issued and expensed Under Directors and Employee Stock
Plan
|
$ | 3 | - | $ | 193 | - | $ | 196 | ||||||||||||||||
|
Net
Income
|
$ | 875 | - | - | - | $ | 875 | $ | 875 | |||||||||||||||
|
Comprehensive
income
|
$ | 875 | ||||||||||||||||||||||
|
BALANCE,
September 30, 2007
|
$ | 87 | $ | (223 | ) | $ | 38,794 | $ | (34,495 | ) | $ | 4,163 | ||||||||||||
|
Shares
issued and expensed Under Directors and Employee Stock
Plan
|
$ | 1 | - | $ | 285 | - | $ | 286 | ||||||||||||||||
|
Shares
Issued for Wire and Cable Acquisition
|
$ | 5 | - | $ | 1,045 | - | $ | 1,050 | ||||||||||||||||
|
Net
Income
|
$ | 10,477 | - | - | - | $ | 10,477 | $ | 10,477 | |||||||||||||||
|
Comprehensive
income
|
$ | 10,477 | ||||||||||||||||||||||
|
BALANCE,
September 30, 2008
|
$ | 93 | $ | (223 | ) | $ | 40,124 | $ | (24,018 | ) | $ | 15,976 | ||||||||||||
|
Shares
issued and expensed Under Directors and Employee Stock
Plan
|
$ | 4 | - | $ | 508 | - | $ | 512 | ||||||||||||||||
|
Acquisition
of Treasury Stock
|
$ | (1,190 | ) | $ | (1,190 | ) | ||||||||||||||||||
|
Net
Income
|
$ | 4,956 | - | - | - | $ | 4,956 | $ | 4,956 | |||||||||||||||
|
Comprehensive
income
|
$ | 4,956 | ||||||||||||||||||||||
|
BALANCE,
September 30, 2009
|
$ | 97 | $ | (1,413 | ) | $ | 40,632 | $ | (19,062 | ) | $ | 20,254 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements.
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED SEPTEMBER 30, 2009, 2008 AND 2007
(in
thousands)
The
accompanying notes are an integral part of these financial
statements.
IEC
ELECTRONICS CORP. AND ITS SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009, 2008 AND 2007
1.
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business
IEC
Electronics Corp.,("IEC", "we", "our", “us” the “Company”), is a premier
provider of electronic manufacturing services,(“EMS”), to advanced technology
companies. We specialize in the custom manufacture of high reliability, complex
circuit cards, system level assemblies and a wide array of custom cable/wire
harness assemblies. We excel where quality is paramount and where low
to medium volume, high mix production is the norm. We utilize
state-of-the art, automated circuit card assembly equipment coupled with a full
complement of high reliability manufacturing stress testing
technologies. We have created a “high intensity response culture” to
react and adapt to our customer’s ever-changing needs. Our customer
focused approach offers a high degree of flexibility while simultaneously
complying with the industry’s rigorous quality and on-time delivery
standards. As an extension of our customer’s operation, we have
applied industry leading Six Sigma and Lean Manufacturing principles to
eliminate waste and lower our customer’s total cost of ownership. While many EMS
services are viewed as a commodity, we have set ourselves apart through an
uncommon mix of features including:
|
|
§
|
A
world class Technology Center that combines a dedicated prototype
manufacturing center with an on-site Materials Analysis Lab (headed by a
staff PhD) for the seamless introduction of complex
electronics
|
|
|
§
|
A
sophisticated Lean/Sigma continuous improvement program supported by five
certified Six Sigma Blackbelts delivering best-in-class
results
|
|
|
§
|
Industry-leading
Web Portal providing real-time access to a wide array of critical customer
data
|
|
|
§
|
In-house
custom functional test development to support complex system-level
assembly, test, troubleshoot and end-order
fulfillment
|
Fiscal
Calendar
The
Company’s fiscal quarters end on the last Friday of the final month of each
quarter, except that our fiscal year ends on September 30.
Change of
Name of Wholly Owned Subsidiary
Effective
June 17, 2009 the name of IEC Electronics’ wholly owned subsidiary, formerly
known as Val-U-Tech Corp., was changed to IEC Electronics Wire and Cable, Inc.
(“Wire and Cable”)
Consolidation
The
consolidated financial statements include the accounts of IEC and its wholly
owned subsidiary, Wire and Cable, from May 31, 2008. All significant
inter-company transactions and accounts have been eliminated.
Reclassifications
Certain
amounts in the prior year financial statements have been reclassified to conform
with the current year presentation. Customer deposits for raw
materials, previously shown as offsets to inventory, have been reclassified on
the balance sheet as Other Current Liabilities.
Cash and
Cash Equivalents
The
Company’s cash received is applied against its revolving line of credit on a
daily basis reducing interest expense. 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 which
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.
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
collectability of outstanding balances.
Inventory
Valuation
Inventories
are stated at the lower of weighted average cost (first-in, first-out) or
market. The Company regularly assesses slow-moving, excess and
obsolete inventory and maintains a balance sheet reserve against these
risks.
Property,
Plant and Equipment
Property,
plant, and equipment are stated at cost and are depreciated over various
estimated useful lives using the straight-line method.
Maintenance
and repairs are charged to expense as incurred; renewals and improvements are
capitalized. At the time of retirement or other disposition of
property, plant, and equipment, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in other
income.
Depreciation
and amortization was $0.3 million, $0.4 million, and $0.4 million for the years
ended September 30, 2009, 2008 and 2007, respectively.
The
principal depreciation and amortization lives used are as follows:
|
Description
|
Estimated Useful Lives
|
|||
|
Land
improvements
|
10
years
|
|||
|
Buildings
and improvements
|
5
to 40 years
|
|||
|
Machinery
and equipment
|
3
to 5 years
|
|||
|
Furniture
and fixtures
|
3
to 7 years
|
|||
Long-Lived
Assets
FASB ASC
360-10 (Prior Authoritative Literature: Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets), requires that we evaluate our long-lived assets for financial
impairment on a regular basis. We evaluate the recoverability of
long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted 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.
Fair
Value of Financial Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable and
payable, accrued liabilities, and debt. The carrying amount of cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value. The fair value of the Company's
debt is estimated based upon similar market rate debt issues.
Revenue
Recognition
FASB ASC
605-10 (Prior Authoritative Literature: 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. 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 reasonable assured. Service related revenues are
recognized upon completion of the services. The Company assumes no
significant obligations after product shipment.
Stock
Based Compensation
FASB ASC
718 (Prior Authoritative Literature: SFAS No. 123(R), Share-Based Payment),
requires the measurement of the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. The cost is recognized over the period during which an employee is
required to provide service in exchange for the award.
Income
Tax/Deferred Tax Policy
FASB ASC
740 (Prior Authoritative Literature: SFAS No. 109, Accounting for Income
Taxes), requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on differing treatment of items for financial
reporting and income tax reporting purposes. The deferred tax balances are
adjusted to reflect tax rates by tax jurisdiction, based on currently enacted
tax laws, which will be in effect in the years in which the temporary
differences are expected to reverse. We have provided deferred income tax
benefits on net operating loss carry-forwards to the extent we believe we will
be able to utilize them in future tax filings.
Earnings
Per Share
FASB ASC
260 (Prior Authoritative Literature: SFAS No. 128, "Earnings Per
Share"). Basic earnings per common share are 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
are calculated by adjusting the weighted-average shares outstanding assuming
conversion of all potentially dilutive stock options, warrants and convertible
securities.
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 amount
Of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENTLY
ISSUED ACCOUNTING STANDARDS
FASB ASC
805 (Prior Authoritative Literature: Financial Accounting Standards Board
Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business
Combinations”), establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the acquiree,
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. FASB ASC 805 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after
December 15, 2008. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30, 2010. The
Company is currently evaluating the impact of FASB ASC 805 but does not expect
it to have a material effect on its consolidated financial
statements.
FASB ASC
810-10-65 (Prior Authoritative Literature: Financial Accounting Standards Board
Statement of Financial Accounting Standard (“SFAS”) No. 160, "Non-controlling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51”),
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. FASB ASC
810-10-65 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. As such, the Company
is required to adopt these provisions at the beginning of the fiscal year ended
September 30, 2010. The Company is currently evaluating the impact of
FASB ASC 810-10-65 but does not expect it to have a material effect on its
consolidated financial statements.
FASB ASC
855-10 (Prior Authoritative Literature: Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standard (“SFAS”) No.165, "Subsequent
Events"), establishes requirements for subsequent events. FASB ASC 855-10 is
effective for interim or annual periods ending after June 15,
2009. The Company is required to adopt this standard in the current
period. Adoption of FASB ASC 855 did not have a significant effect on
the Company’s consolidated financial statements.
2.
INVENTORIES
Inventories
are stated at the lower of weighted average cost (first-in, first-out) or
market. The Company regularly assesses slow-moving, excess and
obsolete inventory and maintains a balance sheet reserve against these
risks. The major classifications of inventories are as follows at
period end (in thousands):
|
2009
|
2008
|
|||||||
|
Raw
Materials
|
$ | 3,365 | $ | 3,775 | ||||
|
Work-in-process
|
2,555 | 1,743 | ||||||
|
Finished
goods
|
571 | 712 | ||||||
| $ | 6,491 | $ | 6,230 | |||||
The Company negotiates deposits from
customers covering its raw material exposure when the customer significantly
delays its original shipping date. These customer deposits, when
received, are carried as other current liabilities on the balance
sheet. Current customer deposits total $190,000 and $664,000 at
September 30, 2009 and 2008, respectively.
3. CREDIT
FACILITIES:
Debt
consists of the following at September 30 (in thousands):
|
2009
|
2008
|
|||||||
|
Short
Term Portion
|
$ | 1,147 | $ | 1,098 | ||||
|
Long
Term Portion
|
6,600 | 8,910 | ||||||
| $ | 7,747 | $ | 10,008 | |||||
The
Company entered into a $14.2 million new senior secured loan agreement (Credit
Agreement) and Sale Leaseback agreement with Manufacturers and Traders Trust
Company (M&T Bank) on May 30, 2008. The following is a summary of
the Credit and Sale Leaseback agreements:
|
|
§
|
A
revolving credit facility up to $9.0 million, available for direct
borrowings. The facility is based on a borrowing base formula
equal to the sum of 85% of eligible receivables and 35% of eligible
inventory. As of September 30, 2009, outstanding loans under
the revolving credit facility were $3.9 million. The credit
facility matures on May 30, 2013. Interest on the revolver is
either prime or a stated rate over LIBOR, whichever is lower based on
certain ratios. On September 30, 2009 the interest rate on our
revolving line balance was 1.75
%.
|
|
|
§
|
A
$1.7 million term loan amortized equally over 60 months beginning July
2008. IEC’s interest rate is fixed at 6.7%. The
outstanding balance at September 30, 2009 was $0.8 million. At
September 30, 2008, the outstanding balance of our term loan was $1.1
million.
|
|
|
§
|
An
available $1.5 million equipment line of credit. The capital
credit facility is amortized equally over 60 months and matures on May 30,
2013. Interest on the equipment line is either prime or a
stated rate over LIBOR, whichever is lower based on certain ratios at the
time of borrowing. Using this capital credit line the company
was able to secure additional interest rate subsidies from New York
State’s Linked Deposit Program and has used a total of $0.8 million of the
$1.5 million available line as of September 30, 2009. For the
year ended September 30, 2009 the weighted average interest rate on
capital financing was 3.08%. The outstanding balance at September 30, 2009
was $0.7 million.
|
|
|
§
|
A
$2.0 million Sale Leaseback of the Company’s fixed assets amortized
equally over 60 months beginning June 27, 2008. Annual payments
are fixed and are $388,800 per year with a total for the five years of
$1.9 million. Assets sold had a cost of $15.6 million inclusive of $1.2
million of assets purchased during the nine months ended June 27, 2008,
and an accumulated depreciation of $13.6 million. A minimal
loss will be amortized over the five year period of the
lease. At September 30, 2009 our remaining unpaid balance for
the lease was $1.5 million compared to $1.8 million at September 30,
2008.
|
|
|
§
|
All
loans and the Sale-Leaseback are secured by a security interest in the
assets of the Company and Wire and Cable; a pledge of all the Company’s
equity interest in Wire and Cable, a negative pledge on the Company’s real
property and a guaranty by Wire and
Cable.
|
In connection with the acquisition of
Wire and Cable in May 2008 and the payment of the purchase price to the sellers,
a portion of the purchase price was paid in the form of promissory notes (the
"Seller Notes") in the aggregate principal amount of $3.9 million with interest
at the rate of 4% per annum. Quarterly payments of principal and interest were
to be made in 20 equal installments. These payments began September 1, 2008. The
Seller Notes were subject to a final reconciliation to determine the total
increase or decrease depending upon the sales by Wire and Cable to its largest
customer in calendar year 2009. The Company waived its right to any further
purchase price adjustment under the original acquisition agreement as part of
the settlement agreement disclosed in the Company’s Current Report on Form 8-K
filed on March 23, 2009. As of September 30, 2009 the remaining aggregate
principal balance of the Seller Notes was $2.2 million. Each Seller Note is
subordinated to the indebtedness of the Company under the Credit
Agreement.
The
Company’s financing agreements contain various affirmative and negative
covenants concerning the ratio of “EBITDARS” (Earnings Before Interest, Taxes,
Depreciation, Amortization, Rent Expense under the Sale Leaseback and Stock
Option Expense) to total debt and to fixed charges. These are
calculated on a twelve month rolling basis. The Company must also
maintain a minimum EBITDARS level of $350,000 per individual
quarter. The Company was compliant with these covenants as of
September 30, 2009. The table below provides details on the Company’s
performance relative to each of the three covenants as of September 30,
2009:
|
Covenant
|
Requirement
|
Actual
Performance
|
|||||||||
|
▪
|
Minimum
quarterly EBITDARS
|
≥ | $ | 350,000 | $ | 1,641,000 | |||||
|
▪
|
Fixed
Charge Coverage
|
≥ | 1.1 | x | 3.03 | x | |||||
| ▪ |
Total
Debt to EBITDARS
|
<
|
3.75 | x | 1.56 | x | |||||
The
Company has outstanding an energy loan ("NYSERDA Loan") from M&T Bank in the
principal amount of $0.2 million. The NYSERDA Loan is a low interest loan,
subsidized by New York State, to facilitate energy conservation projects. The
NYSERDA Loan is for a term of 5 years and has an effective interest rate of
2.08%. The maturity date is May 1, 2013. As amended, the NYSERDA Loan is
subject to the same financial covenants as those contained in the
Credit Agreement.
Annual
maturities of debt (in thousands) for the five years following September 30,
2009 are:
|
Year
1
|
Year
2
|
Year
3
|
Year
4
|
Year
5
|
||||||||||||||
| $ | 1,147 | $ | 1,170 | $ | 948 | $ | 4,482 | * | $ | - | ||||||||
*includes
revolver of $3,881
4. INCOME
TAXES:
The
provision for (benefit from) income taxes in fiscal 2009, 2008 and 2009 is
summarized as follows (in thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | 95 | $ | 38 | $ | 15 | ||||||
|
State/Other
|
2 | 2 | 3 | |||||||||
|
Deferred
Tax Expense (Benefit)
|
||||||||||||
|
Federal
|
(325 | ) | (8,617 | ) | (370 | ) | ||||||
|
State/Other
|
(10 | ) | (266 | ) | ( 20 | ) | ||||||
|
Provision
for (Benefit from)
|
||||||||||||
|
Income
taxes, net
|
$ | (238 | ) | $ | (8,843 | ) | $ | (372 | ) | |||
The
components of deferred tax assets at September 30 are as follows (in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Net
operating loss and AMT
credit carryovers
|
$ | 13,939 | $ | 15,598 | $ | 15,848 | ||||||
|
Accelerated
depreciation
|
546 | 596 | 500 | |||||||||
|
New
York State investment tax credits
|
3,265 | 3,312 | 3,276 | |||||||||
|
Inventories
|
140 | 140 | 95 | |||||||||
|
Other
|
292 | 301 | 327 | |||||||||
| 18,182 | 19,947 | 20,046 | ||||||||||
|
Remaining
Valuation allowance
|
(3,107 | ) | (3,312 | ) | (19,406 | ) | ||||||
| $ | 15,076 | * | $ | 16,635 | * | $ | 640 | |||||
* includes
deferred tax assets acquired in the Wire and Cable
acquisition.(The
cost of the acquisition in excess of the fair
value of
assets acquired was assigned to deferred tax assets.)
The
Company has a net operating loss carry-forward of $39.1 million (expiring in
years through 2025). The Company has available approximately $5.0
million in New York State investment tax credits (expiring in years through
2017). FASB ASC 740 requires the Company to establish an asset on the
balance sheet to reflect the future value associated with the ability to utilize
these losses and credits against future income tax obligations.
At the
end of the first quarter of fiscal 2009, and as described in the Company’s
Quarterly Report on Form 10-Q for the three month period ended December 26,
2008, the Company decreased the Seller Notes by $844,000 based upon the terms
and conditions of the Wire and Cable acquisition agreement. The
offset to the Seller Note decrease was a reduction of the Company’s deferred tax
asset. Subsequently, during the second quarter of fiscal 2009, as
part of its settlement agreement with Wire and Cable, the Company received back
the 500,000 shares of IEC stock, with a value of $1,050,000, that had been
issued to the sellers of Wire and Cable as part of the purchase
price. The settlement agreement with Wire and Cable is described in
the Company’s Current Report on
Form 8-K,
filed on March 23, 2009. The offset to the increase in treasury stock
was an additional reduction of the Company’s deferred tax asset. FASB
ASC 740 requires that the company establish an asset on the balance sheet to
reflect the future value associated with the Company’s ability to utilize its
past losses and credits against future income tax obligations. To
comply with FASB ASC 740 the Company performed an interim evaluation of its
deferred tax asset valuation allowance and, based upon expected performance,
determined that there is a high probability that the majority of the deferred
tax asset would be utilized. Accordingly, adjustments to deferred tax
assets, as noted above, were credited to income tax expense in the current
quarter. A valuation allowance of $3,107,000 remains appropriate due
to the Company's probable inability to realize the majority of the tax benefits
from New York State investment tax credits. These credits fully expire in
2017 and cannot be used until the Company exhausts all of its NY State net
operating loss carry-forwards for state taxes. Due to a low allocation of
income to New York, our effective state tax rate is
minimal. Therefore it is unlikely that the Company will use 100% of
its state net operating losses before 2017.
The
differences between the effective tax rates and the statutory federal income tax
rates for fiscal years 2009, 2008 and 2007 are summarized as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Federal
Tax at statutory rates
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
|
State
tax, net of Federal Benefit
|
1.0 | 1.0 | 5.0 | |||||||||
|
Carryforwards
|
- | - | - | |||||||||
|
Valuation
Allowance
|
(40.0 | ) | (576.2 | ) | (39.0 | ) | ||||||
| (5.0 | )% | (541.2 | )% | - | % | |||||||
5. Stock
Based Compensation
a.) Stock
Option Plan
Under
IEC's 2001 Stock Option and Incentive Plan (the "2001 Plan"), officers, key
employees, directors and other key individuals may be granted various types of
equity awards, including stock options, restricted stock and other stock
awards. The option price for incentive options must be at least 100
percent of the fair market value at date of grant, or if the holder owns more
than 10 percent of total common stock outstanding at the date of grant, then not
less than 110 percent of the fair market value at the date of
grant. Stock options issued to employees under the 2001 Plan
generally terminate seven years from date of grant.
Generally,
incentive stock options granted during the period between July 2002 through
January 2007 vest in annual increments of 25 percent. Starting in
March 2007, some incentive stock options were granted that vest 50% after three
years from the date of grant, and 50% after four years from the date of
grant. In fiscal 2005, the Board of Directors granted certain
incentive stock options that vest on the attainment of certain performance goals
rather than on the basis of time. Nonqualified stock options granted
to directors during fiscal years 2002 through 2009 vest in increments of 33 1/3
percent six months, one year, and two years from the date of grant.
The fair
value of options issued during fiscal years 2007 through 2009 was estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
|
2009
|
2008
|
2007
|
||||||||||
|
Risk
free interest rate
|
2.25 | % | 2.7 | % | 4.8 | % | ||||||
|
Expected
term
|
4.5
years
|
4.7
years
|
5.0
years
|
|||||||||
|
Volatility
|
66 | % | 50 | % | 52 | % | ||||||
|
Expected
annual dividends
|
none
|
none
|
none
|
|||||||||
The
weighted average fair value of options granted during 2009 was $0.92 with an
aggregate value of $71,680. The weighted average fair value of
options granted during 2008 was $0.81 with an aggregate total value of
$163,410. The weighted average fair value of options granted during
2007 was $0.81 with an aggregate total value of $113,980. There were
no dividends.
The
Company’s expensing of stock-based compensation decreased both our basic and
diluted net income per share by less than $0.02 for the fiscal years ended
September 30, 2009 and by less than $0.01 for fiscal year ended September 30,
2008.
Changes
in options status under the 2001 Plan at September 30 are summarized as
follows:
|
Weighted
|
||||||||||||||||
|
Shares
|
Average
|
|||||||||||||||
|
Under
|
Exercise
|
Available
|
||||||||||||||
|
September
30,
|
Option
|
Price
|
for
Grant
|
Exercisable
|
||||||||||||
|
2006
(fiscal year end)
|
1,459,459 | 363,440 | 700,580 | |||||||||||||
|
Options
granted
|
141,250 | 1.68 | ||||||||||||||
|
Options
exercised
|
(239,007 | ) | 0.32 | |||||||||||||
|
Options
forfeited
|
(13,625 | ) | 1.79 | |||||||||||||
|
2007
(fiscal year end)
|
1,348,077 | 203,930 | 704,447 | |||||||||||||
|
Options
granted
|
201,500 | 1.80 | ||||||||||||||
|
Options
exercised
|
(111,720 | ) | 0.80 | |||||||||||||
|
Options
forfeited
|
(25,320 | ) | 0.73 | |||||||||||||
|
2008
(fiscal year end)
|
1,412,537 | 582,118 | 587,549 | |||||||||||||
|
Options
granted
|
78,000 | 1.80 | ||||||||||||||
|
Options
exercised
|
(380,917 | ) | 0.82 | |||||||||||||
|
Options
forfeited
|
(137,632 | ) | 0.97 | |||||||||||||
|
2009
(fiscal year end)
|
971,988 | 602,786 | 622,734 | |||||||||||||
The
following table summarizes stock options outstanding as of September 30,
2009:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
|
Number
|
Weighted
|
Number
|
||||||||||||||||||||
|
Outstanding
|
Average
|
Weighted
|
Exercisable
|
Weighted
|
||||||||||||||||||
|
Range
of
|
at
|
Remaining
|
Average
|
at
|
Average
|
|||||||||||||||||
|
Exercise
|
September
30,
|
Contractual
|
Exercise
|
September
30,
|
Exercise
|
|||||||||||||||||
|
Prices
|
2009
|
Life
|
Price
|
2009
|
Price
|
|||||||||||||||||
| $ | 0.40 - $ 0.73 | 445,236 | 1.65 | $ | 0.54 | 442,736 | $ | 0.54 | ||||||||||||||
| $ | 0.95 - $ 1.29 | 177,000 | 2.17 | $ | 1.08 | 148,332 | $ | 1.05 | ||||||||||||||
| $ | 1.43 - $ 2.19 | 329,752 | 4.94 | $ | 1.74 | 31,666 | $ | 1.55 | ||||||||||||||
| $ | 2.25 - $ 3.50 | 20,000 | 6.73 | $ | 3.27 | - | - | |||||||||||||||
| 971,988 | 622,734 | |||||||||||||||||||||
b.)
Restricted Stock Awards - The Company granted 10,000 shares of restricted
stock during fiscal 2009. The stock vests 50% in 2012 and 50% in
2013.
6. MAJOR
CUSTOMER CONCENTRATIONS and CREDIT RISK:
Five
customers accounted for 55% of our revenue during the fiscal year ended
September 30, 2009. No single customer exceeded 15% of total Company
sales revenue for the current fiscal year. Comparatively, five
customers accounted for 62% and 61% of our revenue during the fiscal years ended
September 30, 2008 and September 30, 2007 respectively. For fiscal
2008 and 2007, no single customer exceeded 25% of total Company sales
revenue.
At
September 30, 2009, amounts due from two customers represented 14 percent and 10
percent of trade accounts receivable. At September 30, 2008, amounts
due from two customers represented 24 and 14 percent of trade accounts
receivable. At September 30, 2007, amounts due from two customers
represented 28 and 19 percent of trade accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
positions payment history and generally does not require
collateral.
7.
LITIGATION:
There are
no material legal proceedings pending to which IEC or its subsidiary is a party
or of which any of their property is the 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 five percent (5%) of
Common Stock of IEC, or any associate of any of the foregoing, is a party
adverse to IEC or its subsidiary or has a material interest adverse to IEC or
its subsidiary.
8.
COMMITMENTS AND CONTINGENCIES:
a.)
Operating Leases - The Company is obligated under non-cancelable operating
leases, primarily for manufacturing equipment, buildings, and office
equipment. The buildings are leased under a non-cancelable operating
lease which expires in December 2012. These operating leases
generally contain renewal options and provisions for payment of the lease by the
Company for executory costs (taxes, maintenance and
insurance). Annual minimum lease obligations are approximated as
follows:
|
Fiscal
Year
|
Amount
|
|||
|
2010
|
628,521 | |||
|
2011
|
636,242 | |||
|
2012
|
638,814 | |||
|
2013
|
368,708 | |||
|
Total
minimum lease payments
|
$ | 2,272,285 | ||
9.
RETIREMENT PLAN:
The
Company has a retirement savings plan, established pursuant to Sections 401(a)
and 401(k) of the Internal Revenue Code. This plan is for the
exclusive benefit of its eligible employees and
beneficiaries. Eligible employees may elect to contribute a portion
of their compensation each year to the plan. The plan allows the
Company to make discretionary contributions as determined by the Board of
Directors. There were no discretionary contributions for fiscal 2009,
2008, or 2007.
10.
SUBSEQUENT EVENTS:
There
have been no material subsequent events. Subsequent events were
evaluated through November 12, 2009, the date these financial statements were
issued.
|
SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||
|
YEAR
ENDED SEPTEMBER 30,2009:
|
||||||||||||||||
|
Net
sales
|
$ | 15,857 | $ | 16,335 | $ | 17,346 | $ | 18,273 | ||||||||
|
Gross
profit
|
2,233 | 2,607 | 2,790 | 3,196 | ||||||||||||
|
Net
income
|
532 | 2,618 | 903 | 903 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.06 | $ | 0.30 | $ | 0.11 | $ | 0.10 | ||||||||
|
Diluted
earnings per share
|
$ | 0.06 | $ | 0.29 | $ | 0.10 | $ | 0.09 | ||||||||
|
YEAR
ENDED SEPTEMBER 30,2008:
|
||||||||||||||||
|
Net
sales
|
$ | 11,160 | $ | 11,940 | $ | 11,888 | $ | 16,104 | ||||||||
|
Gross
profit
|
1,147 | 1,383 | 1,413 | 2,274 | ||||||||||||
|
Net
income
|
420 | 673 | 868 | 8,516 | ||||||||||||
|
Basic
earnings per share
|
$ | 0.05 | $ | 0.08 | $ | 0.10 | $ | 0.99 | ||||||||
|
Diluted
earnings per share
|
$ | 0.05 | $ | 0.07 | $ | 0.09 | $ | 0.91 | ||||||||
|
YEAR
ENDED SEPTEMBER 30,2007:
|
||||||||||||||||
|
Net
sales
|
$ | 9,246 | $ | 10,899 | $ | 11,165 | $ | 9,604 | ||||||||
|
Gross
profit
|
208 | 1,529 | 1,315 | 825 | ||||||||||||
|
Net
income
|
(576 | ) | 603 | 553 | 295 | |||||||||||
|
Basic
earnings per share
|
$ | ( 0.07 | ) | $ | 0.08 | $ | 0.07 | $ | 0.03 | |||||||
|
Diluted
earnings per share
|
$ | ( 0.07 | ) | $ | 0.07 | $ | 0.07 | $ | 0.03 | |||||||
|
VALUATION
AND QUALIFYING ACCOUNTS
|
||||||||||||||||
|
September
|
Charged
to
|
September
|
||||||||||||||
|
30,
2008
|
Expense
|
Deductions
|
30,
2009
|
|||||||||||||
|
Allowance
for doubtful accounts
|
145 | 9 | (69 | )** | 85 | |||||||||||
|
Inventory
reserves
|
564 | 66 | (51 | ) | 579 | |||||||||||
|
Warranty
reserves
|
198 | 52 | (139 | )* | 111 | |||||||||||
|
Deferred
tax valuation allowance
|
3,312 | - | (205 | ) | 3,107 | |||||||||||
|
*
|
final
payment for GE settlement
|
|
**
|
A/R
collections success
|
|
September
|
Charged
to
|
September
|
||||||||||||||
|
30,
2007
|
Expense
|
Deductions
|
30,
2008
|
|||||||||||||
|
Allowance
for doubtful accounts
|
100 | 73 | (28 | ) | 145 | |||||||||||
|
Inventory
reserves
|
506 | 128 | (70 | ) | 564 | |||||||||||
|
Warranty
reserves
|
115 | (9 | ) | 92 | * | 198 | ||||||||||
|
Deferred
tax valuation allowance
|
19,406 | - | (16,094 | ) | 3,312 | |||||||||||
|
*
|
accrued
for GE settlement
|
|
September
|
Charged
to
|
September
|
||||||||||||||
|
30,
2006
|
Expense
|
Deductions
|
30,
2007
|
|||||||||||||
|
Allowance
for doubtful accounts
|
59 | 46 | (5 | ) | 100 | |||||||||||
|
Inventory
reserves
|
516 | (58 | ) | 48 | 506 | |||||||||||
|
Warranty
reserves
|
140 | 26 | (51 | ) | 115 | |||||||||||
|
Deferred
tax valuation allowance
|
19,946 | - | (540 | ) | 19,406 | |||||||||||
36
