UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange -
- -
Act of 1934
For the quarterly period ended June 29, 2001
Commission file Number 0-6508
IEC ELECTRONICS CORP.
-----------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 13-3458955
----------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Norton Street, Newark, New York 14513
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices (Zip Code)
(315) 331-7742
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0.01 Par Value - 7,677,751 shares as of July 31, 2001.
Page 1 of 14
PART 1 FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of :
June 29, 2001 (Unaudited) and September 30, 2000............. 3
Consolidated Statements of Operations
for the three months ended:
June 29, 2001 (Unaudited) and
June 30, 2000 (Unaudited).................................... 4
Consolidated Statements of Operations
for the nine months ended:
June 29, 2001 (Unaudited) and
June 30, 2000 (Unaudited).................................... 5
Consolidated Statement of Cash Flows
for the nine months ended:
June 29, 2001 (Unaudited) and
June 30, 2000 (Unaudited).................................... 6
Notes to Consolidated Financial
Statements (Unaudited)....................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 11
PART II
Item 1. Legal Proceedings.............................................. 13
Item 2. Changes in Securities.......................................... 13
Item 3. Defaults Upon Senior Securities................................ 13
Item 4. Submission of Matters to a Vote of Security Holders............ 13
Item 5. Other Information.............................................. 13
Item 6. Exhibits and Reports on Form 8-K............................... 13
Signature ............................................................. 14
Page 2 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 29, 2001 AND SEPTEMBER 30, 2000
(in thousands, except for per share data)
JUNE 29, 2001 SEPTEMBER 30,2000
---------------- ------------------
ASSETS (Unaudited)
Current Assets:
Accounts receivable $ 30,353 $ 27,915
Inventories 27,288 36,157
Other current assets 716 75
-------- --------
Total current assets 58,357 64,147
-------- --------
Property, Plant and Equipment, net 14,416 15,225
-------- --------
Other Assets:
Cost in excess of net assets acquired, net 9,555 9,820
Other assets 196 300
-------- --------
Total other assets 9,751 10,120
-------- --------
$ 82,524 $ 89,492
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,105 $ 2,105
Accounts payable 17,513 25,295
Accrued payroll and related expenses 2,710 2,572
Accrued income taxes 16 -
Accrued insurance 1,130 1,225
Accrued restructuring charges 1,101 358
Other accrued expenses 1,794 1,663
-------- --------
Total current liabilities 26,369 33,218
-------- --------
Long-Term Debt 20,798 15,266
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, par value $.01 per share
Authorized - 500,000 shares
Outstanding - 0 shares - -
Common stock, par value $.01 per share
Authorized - 50,000,000 shares
Outstanding - 7,659,230 shares and
7,626,565, respectively 77 76
Additional paid-in capital 38,382 38,332
(Accumulated deficit) Retained earnings (3,081) 2,611
Accumulated other comprehensive loss -
Cumulative translation adjustment (10) -
Treasury Stock, at cost - 573 shares (11) (11)
-------- --------
Total shareholders' equity 35,357 41,008
-------- --------
$ 82,524 $ 89,492
======== ========
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these balance sheets
</FN>
Page 3 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 29, 2001 AND JUNE 30, 2000
(in thousands, except per share data)
3 MONTHS ENDED 3 MONTHS ENDED
June 29, 2001 June 30, 2000
-------------- ------------------
(Unaudited) (Unaudited)
Net sales $40,032 $54,694
Cost of sales 38,897 53,991
------- -------
Gross profit 1,135 703
Selling and administrative expenses 2,495 3,051
Restructuring charge (reversal) 1,400 (92)
------- -------
Operating loss (2,760) (2,256)
Interest expense (488) (598)
Other income, net 12 41
------- -------
Loss before benefit from
income taxes (3,236) (2,813)
Benefit from income taxes (27) -
------- -------
Net loss $(3,209) $(2,813)
======= =======
Net loss per common and common equivalent
share:
Basic and diluted $ (0.42) $ (0.37)
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted 7,658 7,604
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
</FN>
Page 4 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 29, 2001 AND JUNE 30, 2000
(in thousands, except per share data)
9 MONTHS ENDED 9 MONTHS ENDED
June 29, 2001 June 30, 2000
-------------- ------------------
(Unaudited) (Unaudited)
Net sales $145,280 $162,802
Cost of sales 139,905 159,703
------- -------
Gross profit 5,375 3,099
Selling and administrative expenses 8,210 9,239
Restructuring charge (reversal) 1,400 (949)
------- -------
Operating loss (4,235) (5,191)
Interest expense (1,426) (1,512)
Life insurance proceeds - 2,000
Other income, net 41 55
------- -------
Loss before provision for
(benefit from) income taxes (5,620) (4,648)
Provision for(benefit from)income taxes 72 (5)
------- -------
Net loss $ (5,692) $ (4,643)
======= =======
Net loss per common and common equivalent
share:
Basic and diluted $ (0.75) $ (0.61)
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted 7,639 7,583
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
</FN>
Page 5 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 29, 2001 AND JUNE 30, 2000
(in thousands)
9 MONTHS 9 MONTHS
ENDED ENDED
JUNE 29, JUNE 30,
2001 2000
------------ ------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net loss $(5,692) $(4,643)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,106 5,361
Loss (gain) on disposal of fixed assets 215 (38)
Amortization of cost in excess of net assets acquired 264 265
Common Stock issued under Directors stock plan 51 22
Changes in operating assets and liabilities:
(Increase) decrease
Accounts receivable (2,438) (8,537)
Inventories 8,869 (5,526)
Income taxes receivable - 2,966
Other current assets (641) 229
Other assets 105 (316)
Increase (decrease)
Accounts payable (6,000) 3,369
Accrued payroll and related expenses 138 (1,401)
Accrued income taxes 16 -
Accrued insurance (95) 690
Accrued restructuring charges 743 (51)
Other accrued expenses 131 441
------- -------
Net cash used in operating activities (228) (7,169)
------- -------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (3,496) (654)
Proceeds from sale of equipment 23 1,369
Payments related to building/equipment restructuring (39) (142)
------- -------
Net cash (used in) provided by investing activities (3,512) 573
------- -------
Cash Flows from Financing Activities:
Net decrease in drafts payable (1,782) -
Borrowings under line of credit agreements 7,111 3,126
Principal payments on long-term debt (1,579) (526)
-------- -------
Net cash provided by financing activities 3,750 2,600
-------- -------
Net increase (decrease) in cash and cash equivalents 10 (3,996)
Effect of exchange rates changes (10) (11)
Cash and cash equivalents at beginning of period - 4,007
------- -------
Cash and cash equivalents at end of period $ - $ -
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid (received)during the period for:
Interest $ 1,365 $ 1,528
======= =======
Income taxes $ 56 $(2,950)
======= =======
Supplemental Disclosure of Noncash Information:
During the nine months ended June 30, 2000, the Company issued shares of its
common stock in the amount $102 thousand in the settlement of an accrued
liability
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
</FN>
Page 6 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2001
(1) Business and Summary of Significant Accounting Policies
Business
- --------
IEC Electronics Corp. (IEC) is an independent contract manufacturer of complex
printed circuit board assemblies and electronic products and systems. IEC offers
its customers a wide range of manufacturing and management services, on either a
turnkey or consignment basis, including material procurement and control,
manufacturing and test engineering support, statistical quality assurance and
complete resource management.
Consolidation
- -------------
The consolidated financial statements include the accounts of IEC and its
wholly-owned subsidiaries, IEC Electronicos de Mexico and IEC Electronics-
Ireland Limited (collectively, the "Company"). In December 1999, the Company
closed its underutilized Ireland operations and transferred some of the
customers served there to its other operations in New York and Texas. All
significant intercompany transactions and accounts have been eliminated.
Revenue Recognition
- -------------------
The Company recognizes revenues upon shipment of product for both turnkey and
consignment contracts.
In December 1999, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin 101, "Revenues Recognition in Financial
Statements" subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 as of the beginning of the fourth quarter of fiscal
2001. Management does not expect a material impact on the results of operations
from the implementation of SAB 101.
Accounts Payable
- ----------------
Trade accounts payable include drafts payable of $2.6 million and $4.4 million
at June 29, 2001, and September 30, 2000, respectively.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include money market and bank account balances. 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.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market. The
major classifications of inventories are as follows at period end (in
thousands):
June 29, 2001 September 30, 2000
---------------- ----------------
(Unaudited)
Raw materials $18,960 $23,331
Work-in-process 7,261 8,418
Finished goods 1,067 4,408
---------------- ----------------
$27,288 $36,157
================ ================
Foreign Currency Translation
- ----------------------------
The assets and liabilities of the Company's foreign subsidiary are translated
based on the current exchange rate at the end of the period for the balance
sheet and a weighted-average rate for the period of the consolidated statement
of operations. Translation adjustments are recorded as a separate component of
equity. Transaction gains or losses are included in operations.
Page 7 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2001
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements as of June 29, 2001, and for the
three and nine months ended June 29, 2001 have been prepared in accordance with
generally accepted accounting principles for the interim financia1 information.
In the opinion of management, all adjustments considered necessary for a fair
presentation, which consist solely of normal recurring adjustments have been
included. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
September 30, 2000 Annual Report on Form 10-K.
Net Loss per Common and Common Equivalent Share
- --------------------------------------------------------
(in thousands, except for share and per share data)
(Loss) Shares Per Share
Three Months Ended (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
June 29, 2001
Basic EPS
Loss available to common shareholders $(3,209) 7,658,215 $(0.42)
====================================
June 30, 2000
Basic EPS
Loss available to common shareholders $(2,813) 7,604,146 $(0.37)
====================================
(Loss) Shares Per Share
Nine Months Ended (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
June 29, 2001
Basic EPS
Loss available to common shareholders $(5,692) 7,638,691 $(0.75)
====================================
June 30, 2000
Basic EPS
Loss available to common shareholders $(4,643) 7,582,992 $(0.61)
====================================
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted-average common shares outstanding during the three and
nine month period. No reconciliation is provided as the effect would be
antidilutive.
(2) Comprehensive Loss
--------------------
Comprehensive loss, which includes net loss and foreign currency translation
adjustments, was as follows for the three and nine months ended June 29, 2001
and June 30, 2000.(in thousands):
3 MONTHS 3 MONTHS
ENDED ENDED
June 29, June 30,
2001 2000
---------- -----------
(Unaudited) (Unaudited)
Net loss $ (3,209) $ (2,813)
Other comprehensive loss:
Foreign currency translation adjustments (4) (4)
---------- -----------
Comprehensive loss $ (3,213) $ (2,817)
---------- ----------
9 MONTHS 9 MONTHS
ENDED ENDED
June 29, June 30,
2001 2000
---------- -----------
(Unaudited) (Unaudited)
Net loss $ (5,692) $ (4,643)
Other comprehensive loss:
Foreign currency translation adjustments (10) (11)
---------- -----------
Comprehensive loss $ (5,702) $ (4,654)
---------- -----------
Page 8 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2001
(3) Restructuring Plans
-------------------
In April 2001, the Company's Board of Directors approved a restructuring plan to
consolidate its Texas and Mexico business operations including reducing its cost
structure and improving working capital. As part of the business-restructuring
plan, the Company recorded a charge to earnings of $1.4 million for the third
quarter of fiscal 2001. The charge relates to facility consolidations ($1.0
million) and headcount reductions ($400,000). This restructuring plan will allow
the Company to concentrate its investments, resources and management attention
on lower cost, high volume production at its Mexico operations. As of June 29,
2001, a reserve balance of approximately $800,000 still remained. There have
been no significant reallocations or re-estimates of this restructuring charge
to date.
In September 1999, the Company announced its plan to close its underutilized
Irish operation (Longford) and transfer some of the customers served there to
its other operations in New York and Texas. Accordingly, a restructuring charge
of approximately $4.0 million was recorded in the fourth quarter of fiscal 1999.
The components of the charge are as follows: the write-down of assets to be
disposed of to their fair market value ($1.1 million), the write-down of
goodwill ($670,000), severance and employee benefits ($619,000), accrual of the
remaining lease payments and related building maintenance costs ($895,000) and
repayment of a grant provided by the Irish Development Agency ($681,000). In
February 2000 a third party purchased from the Company certain assets of
Longford and assumed the lease of the Longford facility. This resulted in a
benefit of $1.0 million from the reversal of a previously established
restructuring reserve which included $800,000 relating to the lease and $200,000
from a guarantee from Ohshima. The Company recorded charges against the accrual
of approximately $100,000 during the nine months ending June 29, 2001, and
approximately $2.9 million through fiscal year-ended September 30, 2000.
In October 1998, the Company closed its underutilized Alabama facility and
transferred many of the customers to its other operations in New York and Texas.
Accordingly, a restructuring charge of $4.7 million was recorded in the fourth
quarter of fiscal 1998. The components of the charge are as follows: the
write-down of assets to be disposed of to their fair market value ($2.2
million), the write-down of goodwill ($1.3 million), and severance and employee
benefits ($1.2 million). The Company recorded charges against the accrual of
approximately $100,000 during the nine months ending June 29, 2001, and
approximately $3.1 million through fiscal year-ended September 30, 2000. During
the nine months ended June 29, 2001, the Company reallocated approximately
$300,000 of the restructuring charge from severance and employee benefits to
building maintenance costs. There have been no other significant reallocations
or re-estimates of this restructuring charge to date.
At June 29, 2001, approximately $1.1 million of the above restructuring charges
are classified as a current liability. The balance is recorded to reduce the
property, plant and equipment to its net realizable value.
The restructuring plans are in compliance with revised financial covenants.
(4) Financing Arrangements
----------------------
On December 28, 1999, the Company entered into a three-year secured asset-based
facility for $35.0 million. The credit facility as amended on March 30, 2000,
December 1, 2000, and April 24, 2001, consists of two components, the first a
$25.0 million revolving credit facility based on eligibility criteria for
receivables and inventory. Amounts borrowed are limited to 85 percent of
qualified accounts receivable, 20 percent of raw materials, and 30 percent of
finished goods inventory, respectively. The second component consists of a $10
million three-year term loan with monthly principal installments based on a
five-year amortization which began in April 2000. At June 29, 2001, $22.9
million was outstanding consisting of $15.5 million and $7.4 million relating to
the revolving credit facility and term loan, respectively, with $3.7 million
available under the revolving credit facility.
Interest on this revolving credit facility is determined at the Company's option
on a LIBOR or prime rate basis, plus a margin. A facility fee is paid on the
unused portion of the facility.
The credit facility contains specific affirmative and negative covenants,
including, among others, the maintenance of certain financial covenants, as well
as limitations on amounts available under the lines of credit relating to the
borrowing base, capital expenditures, lease payments and additional debt. The
more restrictive of the covenants requires the Company to maintain a minimum
tangible net worth, minimum net income after taxes, maximum debt-to-tangible
worth ratio, and minimum cash flow coverage. As of the date of this filing, the
Company is in compliance with these debt covenants. Management believes that the
Company is at risk of default on certain of these covenants during the fourth
quarter of this fiscal year. However, Management intends to seek such amendments
and/or waivers that are necessary to meet these covenants.
Page 9 of 14
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2001
The Company's liquidity is dependent upon its ability to generate positive cash
flow from operations, completion of the planned sales of its Alabama and Texas
facilities and/or obtaining additional debt or equity financing if required, of
which there can be no assurance.
(5) Life Insurance Proceeds
-----------------------
The Company's President and Chief Executive Officer died suddenly on December
11, 1999. In the second quarter of fiscal 2000, the Company received non-taxable
income from insurance proceeds of approximately $2.0 million.
(6) Litigation
-------------
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions (or
settlements) may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
(7) IEC Electronicos de Mexico
--------------------------
In December 1998, the Company entered into a Shelter Services Agreement with a
Texas Limited Partnership and its Mexican corporate subsidiary which leased
50,000 square feet in a newly constructed industrial park in Reynosa, Mexico.
This Maquiladora facility thereafter commenced manufacturing printed circuit
board assemblies and wire harnesses and began shipping in April 1999 as
IEC Electronicos de Mexico.
Effective February 1, 2001, the Company terminated the Shelter Services
Agreement and exercised its option to acquire the Mexican subsidiary of the
Texas Limited Partnership for one U.S. dollar ($1.00). On March 28, 2001, the
subsidiary, now wholly owned by the Company, executed a new five-year lease
agreement with a five-year renewal option combining the original 50,000 square
feet with an additional 62,000 square feet at the Reynosa facility. Effective
May 1, 2001, the Mexican subsidiary, IEC Electronicos de Mexico, S. De R. L.
De C.V. occupied the entire 112,000 square foot facility.
(8) New Accounting Pronouncements
-----------------------------
Goodwill and Other Intangible Assets:
During June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142) which addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS No. 142
supercedes APB Opinion No. 17, Intangible Assets. The Company is required to
adopt SFAS No. 142 during the first quarter of its fiscal year ended September
30, 2002. Management is in the process of assessing the potential impact on the
results of operations.
Business Combinations:
During June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations".
This FASB addresses financial accounting and reporting for business combinations
and supercedes APB Opinion No. 16, Business Combinations. The provision of this
statement applies to all business combinations initiated after June 30, 2001.
Page 10 of 14
Management's Discussion and Analysis
------------------------------------
Results of Operations - Three Months Ended June 29, 2001, Compared to the
- --------------------------------------------------------------------------
Three Months Ended June 30, 2000.
- ----------------------------------
Net sales for the three months ended June 29, 2001, were $40.0 million, compared
to $54.7 million for the comparable period of the prior fiscal year, a decrease
of 26.9%. The decrease in sales is primarily due to a downturn in the
telecommunications and industrial sectors of the U.S. economy. Visibility for
the fourth quarter is limited, and sales are expected to continue to trend
downward. Turnkey sales for the quarter represented 97.7% and 97.1% of net sales
for the comparable period of the prior fiscal year.
Gross profit was $1.1 million or 2.8% of net sales for the three month period
ended June 29, 2001, versus $0.7 million or 1.3% of sales in the comparable
period of the prior fiscal year. The increase in gross profit is due to improved
direct labor costs and lower cost of materials being offset by lower sales
volume and less efficient manufacturing absorption.
Selling and administrative expenses decreased to $2.5 million for the three
months ended June 29, 2001, from $3.1 million in the comparable quarter of the
prior fiscal year. This decrease is primarily due to decreases in office and
other expenses. As a percentage of net sales, selling and administrative
expenses increased to 6.3% from 5.6% in the comparable period
of the prior fiscal year.
The Company recorded an income tax benefit relating to foreign operations in the
amount of $27,000. The benefit was due to a change in calculating Mexican income
taxes from using safe harbor rules to using transfer-pricing rules. The Company
has recorded no benefit from U.S. income tax as a result of the net loss, and
accordingly, has a full valuation allowance against its net deferred tax asset
including the net operating loss carry-forward.
Net loss for the quarter was $(3.2)million versus $(2.8)million in the
comparable period of the prior fiscal year. Loss per share was $(0.42)
as compared to loss per share of $(0.37) in the comparable period of
prior fiscal year. Excluding the restructuring charge to consolidate the Texas
and Mexico business operations, the net loss would have been $(1.8)million, or
$(0.24) per share in the current period. Excluding the reversal of the
previously established restructuring charge for the closure of the Longford
facility of $92,000, the net loss would have been $(2.9) million or $(0.38)
per share in the prior period.
At quarter-end the inventory level was $27.3 million, down from $36.2 million
since the beginning of the fiscal year. This represents annualized turnover of
5.2. Inventory levels, which adequately support current production demand, are
a major focus item at IEC.
Results of Operations - Nine months Ended June 29, 2001, compared to nine
- ------------------------------------------------------------------------
months ended June 30, 2000.
- ----------------------------
Net sales for the nine months ended June 29, 2001, were $145.3 million, as
compared to $162.8 million for the comparable period of the prior fiscal year, a
decrease of 10.7%. The decrease in sales is primarily due to a downturn in the
telecommunications and industrial sectors of the U.S. economy. Visibility for
the fourth quarter is limited, and sales are expected to continue to trend
downward. Turnkey sales represented 96.4% and 96.8% of net sales for the
comparable period of the prior fiscal year.
Gross profit was $5.4 million or 3.7% of sales in fiscal 2001 versus $3.1
million or 1.9% of sales in the comparable period of the prior fiscal year.
The increase was due to improved direct labor costs and lower cost of
materials as a percent of sales.
Selling and administrative expenses decreased to $8.2 million for the nine
months ended June 29, 2001, from $9.2 million in the comparable period of the
prior fiscal year. This decrease is primarily due to decreases in sales
commissions, office and other expenses. As a percentage of net sales, selling
and administrative expenses decreased to 5.6% from 5.7% in the comparable period
of the prior fiscal year.
The Company recorded an income tax expense relating to foreign operations in the
amount of $72,000. The Company has recorded no benefit from U.S. income tax as a
result of the net loss, and accordingly, has a full valuation allowance against
its net deferred tax asset including the net operating loss carry-forward.
Net loss for the nine months was $(5.7) million versus $(4.6) million in the
comparable period of the prior fiscal year. Loss per share was $(0.75) as
compared to loss per share of $(0.61) per share in the comparable period of the
prior fiscal year. Excluding the restructuring charge to consolidate the Texas
and Mexico business operations, the net loss would have been $(4.3) million or
$(0.56) per share in the current period. Excluding the reversal of the
previously established restructuring charge for the closure of the Longford
facility of approximately $1.0 million, and the life insurance proceeds of $2.0
million, the net loss would have been $(7.6) million or $(1.00) per share in the
previous period.
Page 11 of 14
Restructuring Plans
- -------------------
In April 2001, the Company's Board of Directors approved a restructuring plan to
consolidate its Texas and Mexico business operations including reducing its cost
structure and improving working capital. As part of the business-restructuring
plan, the Company recorded a charge to earnings of $1.4 million for the third
quarter of fiscal 2001. The charge relates to facility consolidations ($1.0
million) and headcount reductions ($400,000). This restructuring plan will allow
the Company to concentrate its investments, resources and management attention
on lower cost, high volume production at its Mexico operations. As of June 29,
2001, a reserve balance of $800,000 still remained. There have been no
significant reallocations or re-estimates of this restructuring charge to date.
In September 1999, the Company announced its plan to close its underutilized
Irish operation (Longford) and transfer some of the customers served there to
its other operations in New York and Texas. Accordingly, a restructuring charge
of approximately $4.0 million was recorded in the fourth quarter of fiscal 1999.
The components of the charge are as follows: the write-down of assets to be
disposed of to their fair market value ($1.1 million), the write-down of
goodwill ($670,000), severance and employee benefits ($619,000), accrual of the
remaining lease payments and related building maintenance costs ($895,000) and
repayment of a grant provided by the Irish Development Agency ($681,000). In
February 2000 a third party purchased from the Company certain assets of
Longford and assumed the lease of the Longford facility. This resulted in a
benefit of $1.0 million from the reversal of a previously established
restructuring reserve which included $800,000 relating to the lease and $200,000
from a guarantee from Ohshima. The Company recorded charges against the accrual
of approximately $100,000 during the nine months ending June 29, 2001, and
approximately $2.9 million through fiscal year-ended September 30, 2000.
In October 1998, the Company closed its underutilized Alabama facility and
transferred many of the customers to its other operations in New York and Texas.
Accordingly, a restructuring charge of $4.7 million was recorded in the fourth
quarter of fiscal 1998. The components of the charge are as follows: the
write-down of assets to be disposed of to their fair market value ($2.2
million), the write-down of goodwill ($1.3 million), and severance and employee
benefits ($1.2 million). The Company recorded charges against the accrual of
approximately $100,000 during the nine months ending June 29, 2001, and
approximately $3.1 million through fiscal year-ended September 30, 2000. During
the nine months ended June 29, 2001, the Company reallocated approximately
$300,000 of the restructuring charge from severance and employee benefits to
building maintenance costs. There have been no other significant reallocations
or re-estimates of this restructuring charge to date.
At June 29, 2001, approximately $1.1 million of the above restructuring charges
are classified as a current liability. The balance is recorded to reduce the
property, plant and equipment to its net realizable value.
The restructuring plans are in compliance with revised financial covenants.
Liquidity and Capital Resources
- -------------------------------
As reflected in the Consolidated Statement of Cash Flows for the nine months
ending June 29, 2001, net cash provided by financing activities was $3.7
million, of which $200,000 was used to support operating activities and $3.5
million was used in net investing activities. An overall slowdown in the
Electronics Manufacturing Services industry has resulted in fewer orders,
reducing inventory levels by $8.9 million since inventory is not being replaced
as existing orders are being filled. Similarly, accounts payable has decreased
by $6.0 million due to fewer purchase orders being processed. The slowdown has
also resulted in $2.8 million of receivable growth from raw material having been
sold back to customers. Capital additions were $3.5 million and were primarily
used to upgrade the manufacturing capabilities of the Company.
On December 28, 1999, the Company entered into a three-year secured asset-based
facility for $35.0 million. The credit facility as amended on March 30, 2000,
December 1, 2000, and April 24, 2001, consists of two components, the first a
$25.0 million revolving credit facility based on eligibility criteria for
receivables and inventory. Amounts borrowed are limited to 85 percent of
qualified accounts receivable, 20 percent of raw materials, and 30 percent of
finished goods inventory, respectively. The second component consists of a $10
million three-year term loan with monthly principal installments based on a
five-year amortization which began in April 2000. At June 29, 2001, $22.9
million was outstanding consisting of $15.5 million and $7.4 million relating to
the revolving credit facility and term loan, respectively, with $3.7 million
available under the revolving credit facility.
The Company is required to meet certain financial covenants in relation to its
aforementioned credit facilities. At June 29, 2001, and through the date of this
filing, the Company was in compliance with these debt covenants. Management
believes that the Company is at risk to default on certain of these covenants
during the fourth quarter of this fiscal year. However, Management intends to
seek such amendments and/or waivers that are necessary to meet these covenants.
The Company's liquidity is dependent upon its ability to generate positive cash
flow from operations, completion of the planned sales of its Alabama and Texas
facilities and/or obtaining additional debt or equity financing if required, of
which there can be no assurance.
The impact of inflation on the Company's operations has been minimal due to the
fact that it is able to adjust its bids to reflect any inflationary increases in
cost.
Page 12 of 14
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Quantitative and Qualitative Disclosures about Market Risk represents the risk
of loss that may impact the consolidated financial position, results of
operations or cash flows of the Company due to adverse changes in financial
rates. The Company is exposed to market risk in the area of interest rates.
This exposure is directly related to its Term Loan and Revolving Credit
borrowings under the Credit Agreement, due to their variable interest rate
pricing. Management believes that interest rate fluctuations will not have a
material impact on the Company's results of operations.
New Accounting Pronouncements
- -----------------------------
Goodwill and Other Intangible Assets:
During June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142) which addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS No. 142
supercedes APB Opinion No. 17, Intangible Assets. The Company is required to
adopt SFAS No. 142 during the first quarter of its fiscal year ended September
30, 2002. Management is in the process of assessing the potential impact on the
results of operations.
Business Combinations:
During June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations".
This FASB addresses financial accounting and reporting for business combinations
and supercedes APB Opinion No. 16, Business Combinations. The provision of this
statement applies to all business combinations initiated after June 30, 2001.
Forward-looking Statements
- --------------------------
Except for historical information, statements in this quarterly report are
forward-looking made pursuant to the safe harbor created by the Private
Securities Litigation Reform Act of 1995 and are therefore subject to certain
risks and uncertainties including timing of orders and shipments, availability
of material, product mix and general market conditions that could cause actual
results to differ materially from those projected in the forward looking
statements. Investors should consider the risks and uncertainties discussed in
the Company's Form 10K for the fiscal year ending September 30, 2000 and its
other filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Reports on Form 8-K
None.
Page 13 of 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEC ELECTRONICS CORP.
REGISTRANT
Dated: August 3, 2001 /s/Thomas W. Lovelock
-----------------------------
Thomas W. Lovelock
President and
Chief Executive Officer
Dated: August 3, 2001 /s/Richard L. Weiss
------------------------------
Richard L. Weiss
Vice President and
Chief Financial Officer
Page 14 of 14