CREDIT FACILITIES

6 Months Ended

Mar. 29, 2013

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 8. CREDIT FACILITIES

A summary of borrowings at period end follows:

	Fixed/				Interest Rate				Balances
	Variable				March 29,		September 30,		March 29,			September 30,
Debt	Rate		Maturity		2013		2012		2013			2012
					(percents)				(thousands)
M&T borrowings:
Revolving credit facility		v		01/18/16		2.50		3.00	$	3,603		$	6,588
Term loan A		f		02/01/22		3.98				9,815			-
Term loan B		v		02/01/23		2.70				13,882			-
SCB term loan		v		12/17/15				3.25		0			13,000
Albuquerque term loan		v		12/16/14				3.25		0			2,250
Albuquerque mortgage loan		v		03/30/18		2.75		3.25		3,133			3,267
Celmet term loan		v		07/30/15				3.25		0			1,166
Equipment loans (2)		v		12/17/13				3.25		0			672
Equipment loans (3)		f		11/01/12				2.93		0			108
Energy loan		f		04/02/13		2.08		2.08		3			23
Other borrowings:
Seller notes, Wire and Cable		f		06/01/13		3.00		3.00		149			463
Albuquerque industrial revenue bond		f		03/01/19		5.63		5.63		100			100
Total debt										30,685			27,637
Less: current portion										(2,929	)		(6,533	)
Long-term debt									$	27,756		$	21,104

Note: Sale-leaseback agreement with M&T is accounted for as an operating lease, and therefore is not included above.

Note: Rates noted above are before impact of interest rate swap.

M&T Credit Facilities

On January 18, 2013, the Company and M&T entered into the Fourth Amended and Restated Credit Facility Agreement (“2013 Credit Agreement”), replacing a prior agreement dated December 17, 2010 (“2010 Credit Agreement”). Many of the terms, conditions and covenants remain unchanged from the 2010 Credit Agreement. Borrowings under the 2013 Credit Agreement are secured by, among other things, the assets of IEC and its subsidiaries.

Individual debt facilities provided under the 2013 Credit Agreement are described below:

(a) Revolving Credit Facility (“Revolver”): Up to $20 million is available through January 18, 2016. The Company may borrow up to the lesser of (i) 85% of eligible receivables plus 35% of eligible inventories or (ii) $20 million. At IEC's election, another 35% of eligible inventories may be included in the borrowing base for limited periods of time during which a higher rate of interest is charged on the Revolver. Borrowings based on inventory balances are further limited to a cap of $3.75 million, or when subject to the higher percentage limit, $4.75 million. At March 29, 2013, the upper limit on Revolver borrowings was $19.6 million. Average available balances amounted to $13.3 million and $12.9 million during the six months ended March 29, 2013 and March 30, 2012, respectively.

The Company incurs quarterly unused commitment fees approximating 0.125% of the excess of $20 million over average borrowings under the Revolver. Fees incurred amounted to $11 thousand and $17 thousand during the six months ended March 29, 2013, and March 30, 2012, respectively. The fee percentage varies based on IEC's ratio of debt to EBITDARS.

(b) Term Loan A: $10.0 million was borrowed on January 18, 2013. Principal is being repaid in 108 monthly installments of $93 thousand.

(c) Term Loan B: $14.0 million was borrowed on January 18, 2013. Principal is being repaid in 120 monthly installments of $117 thousand.

(d) Albuquerque Mortgage Loan: $4.0 million was borrowed on December 16, 2009. The loan is effectively secured by real property in Albuquerque, NM, and principal is being repaid in 60 monthly installments of $22 thousand plus a balloon payment due at maturity.

(e) Energy Loan (also referred to as the "NYSERDA” loan): $0.2 million was borrowed on April 2, 2008 under this facility, for which interest at a fixed rate of 2.08% is subsidized by the State of New York. Principal is being repaid in 60 equal monthly installments.

The 2013 Credit Agreement also contains various affirmative and negative covenants including financial covenants. The Company is required to maintain (i) a minimum level of quarterly EBITDARS, (ii) a ratio of debt to twelve month EBITDARS that is below a specified limit, and (iii) a minimum fixed charge coverage ratio as described in the table below. The Company was in compliance with these three covenants at September 30, 2012 but was not in compliance with these financial covenants at March 29, 2013 and has obtained a waiver from M&T with respect to such noncompliance. In addition, on May 15, 2013 we have obtained an amendment to the 2013 Credit Agreement (the “2013 Covenant Amendment”) which modifies the total Debt to twelve months EBITDARS ratio and fixed charge coverage ratio covenants as follows:

· Debt to EBITDARS: (a)

2013 Credit Agreement, before amendment:

3/31/2013 through and including 9/29/2013	< 3.00 to 1.00
9/30/2013 and thereafter	<2.75 to 1.00

2013 Credit Agreement, after amendment:

6/28/2013 through and including 12/27/2013	< 3.25 to 1.00
12/28/2013 through and including 3/28/2014	<3.00 to 1.00
3/29/2014 and thereafter	< 2.75 to 1.00

· Fixed Charge Coverage Ratio: (b)

2013 Credit Agreement, before amendment:

3/31/2013 and thereafter < 1.25 to 1.00

2013 Credit Agreement, after amendment:

6/28/2013	>0.95 to 1.00
9/30/2013	>1.00 to 1.00
12/27/2013	>1.15 to 1.00
3/28/2014 and thereafter	>1.25 to 1.00

(a) The ratio of debt to earnings before interest, taxes, depreciation, amortization, rent expense and non-cash stock compensation expense.

(b) The ratio compares (i) 12 month EBITDA plus non-cash stock compensation expense minus unfinanced capital expenditures minus cash taxes paid, to (ii) the sum of interest expense, principal payments, sale-leaseback payments and dividends, if any (fixed charges).

For the purpose of calculating compliance with the covenants, IEC's operating lease obligation to M&T for certain equipment sold to the bank on June 27, 2008 and leased back for a period of five years, is treated as debt. Rental payments for the remainder of the lease term ending June 2013 total $66 thousand. Although the financial covenants remained unchanged prior to the 2013 Covenant Amendment, it should be noted that the terms of the 2013 Credit Agreement did not require measurement of financial covenants for the first quarter of fiscal 2013. The waiver received by the Company for failure to comply with the financial covenants at March 29, 2013 does not affect the quarterly calculation of the applicable margin based upon Total Debt to EBITDARS that is added to the LIBOR Rate to determine the interest rate applicable to the Revolver and Albuquerque Mortgage Loan. The higher ratio based on financial covenant levels at March 29, 2013 will result in an increase of 0.5% in the effective rate applicable to those two loans and an increase of 0.375% in the unused commitment fee for the Revolver.

Significant modifications made in the 2013 Credit Agreement to the financing arrangements previously in effect under the 2010 Credit Agreement include:

· Consolidation of all outstanding term debt, except the Albuquerque Mortgage Loan and the Energy Loan, and an $8,876,237 portion of outstanding loans under the Revolver, into two new and increased term loans, described below (“Term Loan A” and “Term Loan B”);

· Creation of a new Term Loan A in the original principal amount of $10,000,000, bearing interest at the fixed rate of 3.98% per annum, payable in equal monthly principal payments of $92,593 each plus accrued interest, with a final maturity date of February 1, 2022;

· Creation of a new Term Loan B in the original principal amount of $14,000,000, bearing interest at a variable rate equal to 2.50 percentage points above the LIBOR in effect from time to time, payable in equal monthly principal payments of $116,667 each plus accrued interest, with a final maturity date of February 1, 2023;

· Extension of the maturity date of the Albuquerque Mortgage Loan from December 16, 2014 to February 1, 2018, with no change to the monthly principal payments of $22,222 each plus accrued interest;

· Modification of the interest rate applicable to the Albuquerque Mortgage Loan from (i) a range on the applicable quarterly adjustment date of 2.50% to 3.75% above LIBOR based upon the Company’s then ratio of Debt to EBITDARS (ranging from 1.75:1.00 to 3.25:1.00), to (ii) a range on the applicable quarterly adjustment date of 2.00% to 3.25% above LIBOR based upon the Company’s then ratio of Debt to EBITDARS (ranging from 0.75:1.00 to 2.75:1.00);

· Continuation of the Revolver in the maximum available principal amount of the lesser of $20,000,000 or the amount available under the borrowing base (the formula for which, and interest rate surcharge applicable to optional over-base advances, remains unchanged), with an outstanding principal balance immediately after the closing of $3,656,140;

· Extension of the maturity date of the Revolver from December 17, 2013 to January 18, 2016;

· Modification of the interest rate applicable to the Revolver from (i) a range on the applicable quarterly adjustment date of 2.25% to 3.50% above LIBOR based upon the Company’s then ratio of Debt to EBITDARS (ranging from 1.75:1.00 to 3.25:1.00), to (ii) a range on the applicable quarterly adjustment date of 1.75% to 3.00% above LIBOR based upon the Company’s then ratio of Debt to EBITDARS (ranging from 0.75:1.00 to 2.75:1.00);

· Modification of the unused fee applicable to the Revolver from (i) a range on the applicable quarterly adjustment date of 0.125% to 0.500% based upon the Company’s then ratio of Debt to EBITDARS (ranging from 1.75:1.00 to 3.25:1.00), to (ii) a range on the applicable quarterly adjustment date of 0.125% to 0.500% based upon the Company’s then ratio of Debt to EBITDARS (ranging from 0.75:1.00 to 2.75:1.00);

· Elimination of mandatory prepayments based upon excess cash flow;

· Continuation, unchanged, of existing financial covenants requiring minimum quarterly EBITDARS, a maximum Debt to twelve month EBITDARS ratio, and minimum Fixed Charge Coverage Ratio, all measured at the end of each quarter commencing with the quarter ending in March 2013 (but later modified in the 2013 Covenant Amendment); and

· Modification of the prohibition against dividends and stock repurchases to permit an aggregate maximum of $3,500,000 of such distributions prior to February 1, 2023 absent default at the time of the applicable payment.

In connection with the 2013 Credit Agreement, on January 18, 2013, the Company and M&T entered into an interest rate swap arrangement (“Swap Transaction”). The Swap Transaction is for a notional amount of $14,000,000 with an effective date of February 1, 2013 and a termination date of February 1, 2023. The Swap Transaction is designed to reduce the variability of future interest payments with respect to Term Loan B by effectively fixing the annual interest rate payable on outstanding principal of Term Loan B. Pursuant to the interest rate swap, the Company’s one month LIBOR rate is swapped for a fixed rate of 1.32%. When the swap fixed rate is added to the Term Loan B Spread of 2.50%, the Company’s interest rate applicable to Term Loan B is effectively fixed at 3.82%.

The 2010 Credit Agreement provided for various debt facilities as detailed below. The revolving credit facility and term loan borrowings under the 2010 Credit Agreement bear interest at Libor plus a margin that varies between 2.25% and 3.75% based on the Company's ratio of Debt to EBITDARS.

The 2010 Credit Agreement was modified on November 17, 2011 by a letter agreement that extended the equipment line to December 17, 2013 and made all loans under such line due and payable no later than that date. The 2010 Credit Agreement required prepayments of term loans equal to 50% of excess cash flow for fiscal years ending after September 30, 2010 and the letter agreement changed that requirement to fiscal years ending after September 30, 2011.

Individual debt facilities provided under the 2010 Credit Agreement are described below:

(a) Revolving Credit Facility (“Revolver”): Up to $20 million was available through December 17, 2013. The Company could borrow up to the lesser of (i) 85% of eligible receivables plus 35% of eligible inventories or (ii) $20 million. At IEC's election, another 35% of eligible inventories would be included in the borrowing base for limited periods of time during which a higher rate of interest is charged on the Revolver. Borrowings based on inventory balances were further limited to a cap of $3.75 million, or when subject to the higher percentage limit, $4.75 million.

(b) SCB Term Loan: $20 million was borrowed on December 17, 2010 and principal was being repaid in 60 equal monthly installments. This loan was paid off in January 2013.

(c) Albuquerque Term Loan: $5 million was borrowed on December 16, 2009, and principal was being repaid in 60 equal monthly installments. This loan was paid off in January 2013.

(d) Albuquerque Mortgage Loan: $4 million was borrowed on December 16, 2009. The loan is effectively secured by real property in Albuquerque, NM, and principal is being repaid in 60 monthly installments of $22 thousand plus a balloon payment due at maturity.

(e) Celmet Term Loan: $2 million was borrowed on July 30, 2010, and principal was being repaid in 60 equal monthly installments. This loan was paid off in January 2013.

(f) Equipment Line of Credit: Up to $1.5 million, reduced by outstanding loans, was available through December 17, 2013. The line was available for purchases of capital equipment. Borrowings under the line were supported by individual notes that specify interest and principal repayment terms. The Company had the option to select whether the interest rate was fixed or variable. Equal payments of principal were being made over 48 months for two of the loans and over 60 months for one loan. These loans were paid off in January 2013.

(g) Energy Loan (also referred to as the "NYSERDA” loan): $0.2 million was borrowed on April 2, 2008 under this facility, for which interest at a fixed rate of 2.08% is subsidized by the State of New York. Principal is being repaid in 60 equal monthly installments.

Other Credit Facilities

(h) Seller Notes: The May 2008 acquisition of Wire and Cable was financed in part by three promissory notes payable to the sellers and totaling $3.8 million. These notes are subordinated to borrowings under the Credit Agreement and are being repaid in quarterly installments of $160 thousand, including interest. Effective October 1, 2011, the interest rate on the notes was reduced from 4.0% to 3.0% without altering any other terms of the borrowings.

(i) Albuquerque Industrial Revenue Bond: When IEC acquired Albuquerque, the Company assumed responsibility for a $100 thousand Industrial Revenue Bond issued by the City of Albuquerque. Interest on the bond is paid semiannually, and principal is due in its entirety at maturity. 

A summary of contractual principal payments under IEC's borrowings for the next five years taking into consideration the 2013 Credit Agreement follows:

		Contractual
		Principal
Debt Repayment Schedule		Payments
		(thousands)
Twelve months ending March 29,
	2014	$	2,929
	2015		2,778
	2016*		6,381
	2017		2,778
	2018 and thereafter		15,819
		$	30,685

*Includes Revolver balance of $3,603 as of March 29, 2013.