-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oz5cnVyZpUdmBb3YNF7aeVQzi4ETxro7eudcCXFyGSmD4dJc+UTmzQhY1ic/vXbb Q6wwrk80j9NqH+HLU865AA== 0001144204-05-002019.txt : 20050124 0001144204-05-002019.hdr.sgml : 20050124 20050124132505 ACCESSION NUMBER: 0001144204-05-002019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050124 DATE AS OF CHANGE: 20050124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEC ELECTRONICS CORP CENTRAL INDEX KEY: 0000049728 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 133458955 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06508 FILM NUMBER: 05543847 BUSINESS ADDRESS: STREET 1: 105 NORTON ST CITY: NEWARK STATE: NY ZIP: 14513 BUSINESS PHONE: 3153317742 MAIL ADDRESS: STREET 1: PO BOX 271 CITY: NEWARK STATE: NY ZIP: 14513 FORMER COMPANY: FORMER CONFORMED NAME: INTERCONTINENTAL ELECTRONICS CORP DATE OF NAME CHANGE: 19730601 10-Q 1 v11578_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2004 Commission file Number 0-6508 IEC ELECTRONICS CORP. ----------------------------------------------------- (Exact name of registrant as specified in its charter.) Delaware 13-3458955 ----------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 105 Norton Street, Newark, New York 14513 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices (Zip Code) (315) 331-7742 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $0.01 Par Value - 8,245,952 shares as of January 20, 2005. Page 1 of 13 PART 1 FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated Balance Sheets as of: December 31, 2004 (Unaudited) and September 30, 2004.......... 3 Consolidated Statements of Operations for the three months ended: December 31, 2004 (Unaudited) and December 26, 2003 (Unaudited)................................................... 4 Consolidated Statements of Cash Flows for the three months ended: December 31, 2004 (Unaudited) and December 26, 2003 (Unaudited)................................................... 5 Notes to Consolidated Financial Statements (Unaudited)........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 11 Item 4. Controls and Procedures.......................................... 11 PART II OTHER INFORMATION Item 1. Legal Proceedings.............................................. 12 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 12 Item 3. Defaults Upon Senior Securities................................ 12 Item 4. Submission of Matters to a Vote of Security Holders............ 12 Item 5. Other Information.............................................. 12 Item 6. Exhibits ...................................................... 13 Signatures............................................................. 13 Page 2 of 13 Part 1. Financial Information Item 1 -- Financial Statements IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2004 AND SEPTEMBER 30, 2004 (in thousands)
DECEMBER 31, SEPTEMBER 30, 2004 2004 ------------ ------------- ASSETS (Unaudited) CURRENT ASSETS: Cash $ 8 $ 0 Accounts receivable (net of allowance for 3,640 3,710 Doubtful accounts of $532 and $500 respectively) Inventories 1,515 1,882 Deferred income taxes 250 250 Other current assets 275 338 -------- -------- Total current assets 5,688 6,180 -------- -------- FIXED ASSETS: Land and land improvements 768 768 Building and improvements 3,995 3,995 Machinery and equipment 40,034 40,951 Furniture and fixtures 5,283 5,283 -------- -------- SUB-TOTAL GROSS PROPERTY 50,080 50,997 LESS ACCUMULATED DEPRECIATION (48,109) (48,761) -------- -------- 1,971 2,236 OTHER NON-CURRENT ASSETS 98 114 -------- -------- $ 7,757 $ 8,530 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short term borrowings $ 1,359 $ 1,905 Accounts payable 2,221 2,253 Accrued payroll and related expenses 520 549 Other accrued expenses 747 747 -------- -------- Total current liabilities 4,847 5,454 -------- -------- LONG TERM VENDOR NOTES 144 227 LONG TERM BANK DEBT 58 233 -------- -------- TOTAL LIABILITIES 5,049 5,914 -------- -------- SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, Authorized - 500,000 shares; None issued or outstanding -- -- Common stock, $.01 par value, Authorized - 50,000,000 shares; Issued - 8,246,525 and - 8,215,458 shares (net of 573 treasury shares) 71 71 Additional paid-in capital 38,517 38,507 Accumulated deficit (35,788) (35,870) Accumulated translation adjustments (92) (92) -------- -------- Total shareholders' equity 2,708 2,616 -------- -------- $ 7,757 $ 8,530 ======== ========
The accompanying notes are an integral part of these financial statements. Page 3 of 13 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 26, 2003 (in thousands, except share and per share data) 3 MONTHS ENDED 3 MONTHS ENDED DECEMBER 31, DECEMBER 26, 2004 2003 -------------- -------------- (Unaudited) (Unaudited) Net sales $ 6,223 $ 6,519 Cost of sales 5,434 5,948 ------- ------- Gross profit 789 570 ------- ------- Selling and administrative expenses 628 579 Restructuring charge 53 -- ------- ------- Operating profit 108 (9) Interest and financing expense (98) (90) Other income 72 231 ------- ------- Net income before income taxes 82 132 Provision for income taxes -- -- --------- ---------- Net income $ 82 $ 132 ========= ========== Net income per common and common equivalent share: Basic $ 0.01 $ 0.02 Diluted $ 0.01 $ 0.02 Weighted average number of common and common equivalent shares outstanding: Basic 8,230,497 8,042,188 Diluted 8,512,307 8,764,870 The accompanying notes are an integral part of these financial statements. Page 4 of 13 IEC ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 26, 2003 (in thousands) 3 MONTHS ENDED 3 MONTHS ENDED DECEMBER 31, DECEMBER 26, 2004 2003 -------------- -------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 82 $ 132 Non-cash adjustments: Depreciation 281 290 Gain on sale of fixed assets (72) (215) Issuance of director's fees in stock 6 -- Changes in operating assets and liabilities: Accounts receivable 71 864 Inventories 367 (243) Other current assets 63 211 Accounts payable (32) (1,143) Accrued expenses (27) (149) --------- --------- Net cash flows from operating activities 739 (253) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property 72 215 Purchases of plant, property & equipment -- (7) --------- --------- Net cash flows from investing activities 72 208 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments under loan agreements (286) (315) Borrowings (payments) on line of credit (519) -- Proceeds from exercise of stock options 4 2 --------- --------- Net cash flows from financing activities (801) (313) --------- --------- Cash (used in) from discontinued operations (2) 61 --------- --------- Change in cash and cash equivalents 8 (297) Cash and cash equivalents at beginning of period -- 793 --------- --------- Cash and cash equivalents at end of period $ 8 $ 496 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 102 $ 90 Income taxes $ -- $ -- The accompanying notes are an integral part of these financial statements. Page 5 of 13 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 (1) Business and Summary of Significant Accounting Policies IEC Electronics Corp. ("IEC", the "Company") is an independent electronics manufacturing services ("EMS") provider of complex printed circuit board assemblies and electronic products and systems. The Company provides high quality electronics manufacturing services with state-of-the-art manufacturing capabilities and production capacity. Utilizing automated manufacturing and test machinery and equipment, IEC provides manufacturing services employing surface mount technology ("SMT") and pin-through-hole ("PTH") interconnection technologies. As an independent full-service EMS provider, the Company offers its customers a wide range of manufacturing services, on either a turnkey or consignment basis. These services include product development, prototype assembly, material procurement, volume assembly, test engineering support, statistical quality assurance, order fulfillment and repair services. The Company's strategy is to cultivate strong manufacturing relationships with established and emerging original equipment manufacturers ("OEMs"). Consolidation The consolidated financial statements include the accounts of IEC and its Wholly-owned subsidiary, IEC Electronicos de Mexico ("Mexico"), (collectively, "IEC"). Operations in Texas and Mexico were closed in July 2002. All significant intercompany transactions and accounts have been eliminated. Revenue Recognition The Company recognizes revenue upon shipment of product for both turnkey and consignment contracts. Allowance for Doubtful Accounts The Company establishes an allowance for uncollectable trade accounts receivable based on the age of outstanding invoices and management's evaluation of collectibility of outstanding balances. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company's cash and cash equivalents are held and managed by institutions that follow the Company's investment policy. The fair value of the Company's financial instruments approximates carrying amounts due to the relatively short maturities and variable interest rates of the instruments, which approximate current market interest rates. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The major classifications of inventories are as follows at period end (in thousands): DECEMBER 31, 2004 September 30, 2004 ----------------- ------------------ (Unaudited) Raw materials $ 963 $1,162 Work-in-process 547 711 Finished goods 5 9 ----------------- ---------------- $1,515 $1,882 ================= ================ Unaudited Financial Statements The accompanying unaudited financial statements as of December 31, 2004, and for the three months ended December 31, 2004 have been prepared in accordance with generally accepted accounting principles for interim financia1 information. In the opinion of management, all adjustments considered necessary for a fair presentation, which consist solely of normal recurring adjustments, have been included. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2004 Annual Report on Form 10-K. Page 6 of 13 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 Earnings Per Share Net income per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the weighted-average shares outstanding, assuming conversion of all potentially dilutive stock options. New Pronouncements In December 2002, the Financial Accounting Standards Board issued FASB Statement No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure". SFAS 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, the Statement amends the previous disclosure requirements of SFAS 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported financial results and require these disclosures in interim financial information. IEC continues to account for stock-based employee compensation under APB Opinion 25, but has adopted the new disclosure requirements of SFAS 148 beginning in the second quarter of fiscal 2003. In November 2004, the FASB issued SFAS No. 151 "Inventory Costs" (SFAS 151). This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to costs of conversion be based upon the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory cost incurred in fiscal years beginning after June 15, 2005. As such, the Company is required to adopt these provisions at the beginning of fiscal 2006. The Company is currently evaluating the impact of SFAS 151 on its consolidated financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is effective for all interim periods beginning after June 15, 2005 and, thus, will be effective for the Company beginning with the fourth quarter of fiscal 2005. Retroactive application of the provisions of SFAS 123R to the beginning of the fiscal year that includes the effective date is permitted, but not required. The Company is currently evaluating the impact of SFAS 123R on its financial statements. On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from fair value measurement in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance of SFAS No. 153. (2) Financing Agreements The Company's financing agreements contain various affirmative and negative covenants including, among others, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). The Company was compliant with these covenants on December 31, 2004. (3) Stock Option Plans The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its stock option plans. SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", requires disclosure of pro forma net income per share as if the fair valued-based method had been applied in measuring compensation cost for the stock-based awards. The following table illustrates the effect on net earnings and earnings per share had the Company adopted the fair value based method of accounting for stock-based employee compensation for all periods presented. Page 7 of 13 IEC ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 3 MONTHS ENDED 3 MONTHS ENDED DECEMBER 31, 2004 DECEMBER 26, 2003 (Unaudited) (Unaudited) ----------------- ----------------- Net earnings, as reported $ 82 $ 132 Pro forma net earnings $ 36 $ 116 Earnings per share: Basic - as reported $ 0.01 $ 0.02 Basic - pro forma $ 0.00 $ 0.01 Diluted - as reported $ 0.01 $ 0.02 Diluted - pro forma $ 0.00 $ 0.01 (4) Litigation Except as set forth below, there are no material legal proceedings pending to which the Company or any of its subsidiaries is a party or to which any of the Company or its subsidiaries' property is subject. To our knowledge, there are no material legal proceedings to which any director, officer or affiliate of the Company, or any beneficial owner of more than 5 percent (5%) of Common Stock, or any associate of any of the foregoing, is a party adverse to the Company or any of its subsidiaries. An action was commenced in United States District Court for the Southern Division of Texas against the Company and several other corporate defendants on August 12,2002. Three plaintiffs alleged a "toxic tort" action against the defendants for exposure to lead, lead dust, chemicals and other substances used in the manufacture of products by various defendants. The essence of the complaint relates to alleged "in utero" exposure to the circulatory system of their unborn children, resulting in alleged tissue toxicity through the mothers, causing damage to the central nervous system, brain and other organs of the fetus. The complaint alleges theories of negligence, gross negligence, strict liability, breach of warranty and fraud/negligent misrepresentation, and claims unspecified damages for pain and suffering, a variety of special damages, punitive damages and attorneys' fees. Royal & Sunalliance Insurance Company has agreed to provide a defense of the claims with a reservation of rights, but has expressly excluded any coverage for the claim for punitive damages. The company denied liability. The parties have arrived at a settlement, which will not materially impact the Company. A hearing to obtain court approval for the settlement was held on November 30, 2004. The court approved the settlement, subject to the satisfaction of certain conditions, none of which is material and all of which are expected to be consummated by January 31, 2005. On August 13, 2003 General Electric Company ("GE") commenced an action in the state of Connecticut against the Company and Vishay Intertechnology, Inc. The action alleges causes of action for breach of a manufacturing services contract, which had an initial value of $4.4 million, breach of express warranty, breach of implied warranty and a violation of the Connecticut Unfair Trade Practices Act. Vishay supplied a component that the Company used to assemble printed circuit boards for GE that GE contends failed to function properly requiring a product recall. GE claims damages "in excess of $15,000" plus interest and attorneys' fees. The Company has made a motion to dismiss the action in Connecticut for lack of jurisdiction and the motion is pending. GE has filed a motion seeking leave to file an amended complaint, which the Company has opposed. This motion is also pending. The position of the Company is that the contract with GE was substantially completed and that it has meritorious defenses and basis for a cross claim against Vishay. GE, IEC and Vishay have agreed to engage in non-binding mediation which has not yet occurred. (5) Restructuring During May 2004, the Company commenced a restructuring initiative in an attempt to more closely align resources to customer requirements. During the first quarter of 2005, the Company paid $53,000 in severance and hiring costs related to this initiative. (6) New Financing Agreement On January 7, 2005, IEC amended its Loan Agreement with Keltic Financial Partners LP. The agreement included a new $750,000 term loan, payment of the existing SunTrust Term Loan, a moratorium on principal payments until October 1, 2005, adjustments to the existing loan covenants, and a termination date of January 14, 2009. Page 8 of 13 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Three Months Ended December 31, 2004, Compared to the Three Months Ended December 26, 2003. Net sales for the three month period ended December 31, 2004, were $6.2 million, compared to $6.5 million for the comparable period of the prior fiscal year, a decrease of 5 percent. The decrease in sales is due to a decline in orders from two of our major customers that was not completely offset by the addition of orders from new customers. Our five largest customers accounted for 73% of our sales for the quarter ended December 31, 2004, and 85% of our sales for the quarter ended December 26, 2003. Gross profit was $0.8 million or 13 percent of sales for the three month period ended December 31, 2004, versus $0.6 million or 9 percent of sales in the comparable period of the prior fiscal year. The increase in gross profit percentage was largely due to our restructuring efforts. Selling and administrative expenses were $0.6 million for the three month period ended December 2004, and $0.6 million for the comparable period of the prior fiscal year. Selling and administrative expenses were 10 percent of sales during the current period, compared to 9 percent of sales during the same quarter of the prior fiscal year. Restructuring costs were $53,000 for the three month period ended December 31, 2004. The costs were primarily related to hiring and severance costs associated with senior operations executives. Interest expense was $98,000 for the three month period ended December 31, 2004, up from $90,000 in the comparable period of the prior fiscal year. The increase was primarily due to an increase in borrowing from our line of credit. Other income was $72,000 for the three month period ended December 31, 2004, and $231,000 for the three month period ended December 26, 2003. The other income for both periods was primarily due to gains on the sale of excess equipment. Net income for the three months ended December 31, 2004 was $0.1 million versus a net income of $0.2 million in the comparable quarter of the prior fiscal year. Diluted income per share was $0.01 as compared to diluted income per share of $0.02 in the comparable quarter of the prior fiscal year. Page 9 of 13 Liquidity and Capital Resources Availability under our line of credit was $2.0 million on December 31, 2004. As reflected in the Consolidated Statements of Cash Flows for the three months ending December 31, 2004, net cash from operating and investing activities was $0.8 million. Cash was used to pay down debt. On December 31, 2004 we had a $4,450,000 Senior Secured Facility (the "Facility") with Keltic Financial Partners L.P. ("Keltic") and a $2,200,000 Secured Term Loan (the "Term Loan") with SunTrust Bank ("SunTrust"). The Facility had an original maturity date of January 14, 2006, and had an interest rate of prime plus 2%. It involved a revolving line of credit for up to $3,850,000 based upon advances on eligible accounts receivable and inventory and a term loan of $600,000, secured by machinery and equipment, to be amortized over a 36 month period. The Term Loan was secured by a general security agreement, and indirectly by the assignment of a certain promissory note and a first mortgage on the IEC plant in Newark, New York. It was payable with interest at prime plus 3.0% in monthly installments over a period of 3 years, maturing on January 14, 2006. $506,000, $217,000, and $542,000 were outstanding at December 31, 2004 under the revolving line of credit with Keltic, the term loan with Keltic and the SunTrust loan, respectively. On January 7, 2005, we amended our Loan Agreement with Keltic. The agreement includes a new $750,000 term loan that is secured by a first mortgage on the IEC plant in Newark, and has an interest rate of prime plus 2%. The proceeds were used, in part, to pay off the balance of the Term Loan with SunTrust. The amendment includes a moratorium on principal payments until October 2005, adjustments to the existing loan covenants, and a new termination date of January 14, 2009. The financing agreements contain various affirmative and negative covenants including, among others, limitations on the amount available under the revolving line of credit relative to the borrowing base, capital expenditures, fixed charge coverage ratios, and minimum earnings before interest, taxes, depreciation and amortization (EBITDA). We were compliant with these covenants at December 31, 2004. Application of Critical Accounting Policies Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for us include revenue recognition, impairment of long-lived assets, accounting for legal contingencies and accounting for income taxes. We recognize revenue in accordance with Staff Accounting Bulletin No.101, "Revenue Recognition in Financial Statements." Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. We evaluate our long-lived assets for financial impairment on a regular basis in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We evaluate the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated discounted future cash flows associated with them. At the time such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies", requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could impact our financial position or our results of operations. Page 10 0f 13 Impact of Inflation The impact of inflation on our operations has been minimal due to the fact that we have been able to adjust our bids to reflect any inflationary increases in costs. New Pronouncements In December 2002, the Financial Accounting Standards Board issued FASB Statement No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure". SFAS 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, the Statement amends the previous disclosure requirements of SFAS 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported financial results and require these disclosures in interim financial information. IEC continues to account for stock-based employee compensation under APB Opinion 25, but has adopted the new disclosure requirements of SFAS 148 beginning in the second quarter of fiscal 2003. In November 2004, the FASB issued SFAS No. 151 "Inventory Costs" (SFAS 151). This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to costs of conversion be based upon the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory cost incurred in fiscal years beginning after June 15, 2005. As such, the Company is required to adopt these provisions at the beginning of fiscal 2006. The Company is currently evaluating the impact of SFAS 151 on its consolidated financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is effective for all interim periods beginning after June 15, 2005 and, thus, will be effective for the Company beginning with the fourth quarter of fiscal 2005. Retroactive application of the provisions of SFAS 123R to the beginning of the fiscal year that includes the effective date is permitted, but not required. The Company is currently evaluating the impact of SFAS 123R on its financial statements. On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces the exception from fair value measurement in APB Opinion No. 29 for nonmonetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is to be applied prospectively, and is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance of SFAS No. 153. We have not yet determined what the effects of adopting this standard will have on us. Item 3 -- Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures about Market Risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of IEC due to adverse changes in financial rates. We are exposed to market risk in the area of interest rates. One exposure is directly related to our Term Loan and Revolving Credit borrowings under the Credit Agreement, due to their variable interest rate pricing. Management believes that interest rate fluctuations will not have a material impact on IEC's results of operations. Item 4 -- Controls and Procedures An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q as required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the Quarterly Report on 10-Q to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC rules and forms. In connection with the evaluation described above, our management, including our Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2004, that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Page 11 of 13 Forward-looking Statements Forward-looking statements in this Form 10-Q include, without limitation, statements relating to the Company's plans, future prospects, strategies, objectives, expectations, intentions and adequacy of resources and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by their use of words like "plans", "expects", "aims", "believes", "projects", "anticipates", "intends", "estimates", "will", "should", "could", and other expressions that indicate future events and trends. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic and business conditions, the timing of orders and shipments, availability of material, product mix, changes in customer requirements and in the volume of sales to principal customers, competition and technological change, the ability of the Company to control manufacturing and operating costs, and satisfactory relationships with vendors. The Company's actual results of operations may differ significantly from those contemplated by such forward-looking statements as a result of these and other factors, including factors set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 2004 and in other filings with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 1 -- Legal Proceedings The description of the Company's legal proceedings set forth in Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended Septmber 30, 2004 is incorporated herein by reference. During the quarter ended December 31, 2004, the following developments occurred in such proceedings: (a) Proceeding in U.S. District Court for the Southern District of Texas A hearing to obtain court approval for the settlement was held on November 30, 2004. The court approved the settlement, subject to the satisfaction of certain conditions, none of which is material and all of which are expected to be consummated by January 31, 2005. (b) GE, IEC, Vishay legal proceeding GE, IEC and Vishay have agreed to engage in non-binding mediation, which has not yet occurred. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds None. Item 3 -- Defaults Upon Senior Securities None. Item 4 -- Submission of Matters to a Vote of Security Holders None Item 5 -- Other Information None. Page 12 of 13 Item 6 -- Exhibits The following documents are filed as exhibits to this Report: 10.1 Second Amendment, dated as of January 7, 2005, to the Loan Agreement dated January 14, 2003, as amended by the First Amendment to the Loan Agreement, dated March 23, 2004, by and between Keltic Financial Partners, L.P. and IEC Electronics Corp. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on January 13, 2005. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IEC ELECTRONICS CORP. REGISTRANT Dated: January 24, 2005 /s/ W. Barry Gilbert ----------------------------- W. Barry Gilbert Chairman and Chief Executive Officer Dated: January 24, 2005 /s/ Brian H. Davis ------------------------------ Brian H. Davis Chief Financial Officer and Controller Page 13 of 13 EX-31.1 2 v11578_ex31-1.txt Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, W. Barry Gilbert, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended December 31, 2004 of IEC Electronics Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15 d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and, c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: January 24 2005 /s/ W. Barry Gilbert ------------------------ W. Barry Gilbert Chairman and Chief Executive Officer Page 1 of 1 EX-31.2 3 v11578_ex31-2.txt Exhibit 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Brian H. Davis, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended December 31, 2004 of IEC Electronics Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15 d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and, c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: January 24 2005 /s/ Brian H. Davis ------------------------ Brian H. Davis Vice President, Chief Financial Officer, and Controller Page 1 of 1 EX-32.1 4 v11578_ex32-1.txt Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In connection with the quarterly report of IEC Electronics Corp., (the "Company") on Form 10-Q for the quarterly period ended December 31, 2004 as filed with Securities and Exchange Commission on the date hereof (the "Report"), we, W. Barry Gilbert, Chief Executive Officer of the Company and Brian H. Davis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1.) The Report fully complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2.) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 24 2004 /s/ W. Barry Gilbert ------------------------ W. Barry Gilbert Chairman and Chief Executive Officer Dated: January 24 2004 /s/ Brian H. Davis ------------------------ Brian H. Davis Vice President, Chief Financial Officer and Controller -----END PRIVACY-ENHANCED MESSAGE-----