NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1—OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our Business
IEC Electronics Corp. (“IEC,” or the “Company”) provides electronic manufacturing services (“EMS”) to advanced technology companies that produce life-saving and mission critical products for the medical, industrial, aerospace and defense sectors. The Company specializes in delivering technical solutions for the custom manufacture of complex full system assemblies by providing on-site analytical testing laboratories, custom design and test engineering services combined with a broad array of manufacturing services encompassing electronics, interconnect solutions, and precision metalworking. As a full service EMS provider, IEC holds all appropriate certifications for the market sectors it supports including ISO 9001:2008, AS9100C, and ISO 13485, and we are Nadcap accredited. IEC is headquartered in Newark, NY and also has operations in Rochester, NY and Albuquerque, NM. Additional information about IEC can be found on its web site at
www.iec-electronics.com
. The contents of this website are not incorporated by reference into this quarterly report.
Generally Accepted Accounting Principles
IEC’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).
Fiscal Calendar
The Company’s fiscal year ends on September 30th and the first three quarters generally end on the Friday closest to the last day of the calendar quarter. For the fiscal year ending
September 30, 2019
(“fiscal
2019
”), the fiscal quarters end on
December 28, 2018
,
March 29, 2019
and
June 28, 2019
. For the fiscal year ended
September 30, 2018
(“fiscal
2018
”), the fiscal quarters ended on
December 29, 2017
,
March 30, 2018
and
June 29, 2018
.
Consolidation
The condensed consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries: IEC Electronics Corp-Albuquerque (“Albuquerque”); IEC Analysis & Testing Laboratory, LLC (“ATL”); and IEC California Holdings, Inc. The Rochester unit operates as a division of IEC. All intercompany transactions and accounts are eliminated in consolidation.
Unaudited Financial Statements
The accompanying unaudited condensed consolidated financial statements for the
three and six months ended
March 29, 2019
and
March 30, 2018
have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include certain of the information the footnotes require by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, required for a fair presentation of the information have been made. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2018
.
Cash
The Company’s cash represents deposit accounts with Manufacturers and Traders Trust Company (“M&T Bank”), a banking corporation headquartered in Buffalo, NY. The Company’s cash management system provides for the funding of the disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks in excess of the bank balance create a book overdraft. Book overdrafts are presented in accounts payable in the condensed consolidated balance sheets. Book overdrafts were
$1.7 million
and
$2.6 million
as of
March 29, 2019
and
September 30, 2018
, respectively. Changes in the book overdrafts are presented within net cash flows provided by operating activities within the condensed consolidated statements of cash flows.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that the likelihood of collection is remote.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value under the first-in, first-out method. The Company regularly assesses slow-moving, excess and obsolete inventory and maintains balance sheet reserves in amounts required to reduce the recorded value of inventory to the lower of cost or net realizable value.
Property, Plant and Equipment
Property, plant and equipment (“PP&E”) are stated at cost and are depreciated over various estimated useful lives using the straight-line method. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. At the time of retirement or other disposition of PP&E, cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded in earnings.
Depreciable lives generally used for PP&E are presented in the table below. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the improvement.
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|
PP&E Lives
|
|
Estimated
Useful Lives
|
|
|
|
(years)
|
|
Land improvements
|
|
10
|
|
Buildings and improvements
|
|
5 to 40
|
|
Machinery and equipment
|
|
3 to 5
|
|
Furniture and fixtures
|
|
3 to 7
|
|
Software
|
|
3 to 10
|
Reviewing Long-Lived Assets for Potential Impairment
Accounting Standards Codification (“ASC”) 360-10 (Property, Plant and Equipment) requires the Company to test long-lived assets (PP&E and definite lived assets) for recoverability whenever events or circumstances indicate that the carrying amount may not be recoverable. If carrying value exceeds undiscounted future cash flows attributable to an asset, it is considered impaired and the excess of carrying value over fair value must be charged to earnings.
No
impairment charges were recorded by IEC for long-lived assets during either of the
three and six months ended
March 29, 2019
and
March 30, 2018
.
Leases
At the inception of a lease covering equipment or real estate, the lease agreement is evaluated under criteria discussed in ASC 840-10-25 (Leases). Leases meeting one of four key criteria are accounted for as capital leases and all others are treated as operating leases. Under a capital lease, the discounted value of future lease payments becomes the basis for recognizing an asset and a borrowing, and lease payments are allocated between debt reduction and interest. For operating leases, payments are recorded as rent expense. Criteria for a capital lease include (i) transfer of ownership during the lease term; (ii) existence of a bargain purchase option under terms that make it likely to be exercised; (iii) a lease term equal to 75 percent or more of the economic life of the leased property; and (iv) minimum lease payments that equal or exceed 90 percent of the fair value of the property.
Legal Contingencies
When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, ASC 450-10 (Contingencies) requires the Company to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.
When it is considered probable that a loss has been incurred but the amount of loss cannot be estimated, disclosure but not accrual of the probable loss is required. Disclosure of a loss contingency is also required when it is reasonably possible, but not probable, that a loss has been incurred.
Legal Expense Accrual
The Company records legal expenses as they are incurred, based on invoices received or estimates provided by legal counsel. Future estimated legal expenses are not recorded until incurred.
Customer Deposits
Customer deposits represent amounts invoiced to customers for which the revenue has not yet been earned and therefore represent a commitment for the Company to deliver goods or services in the future. Deposits are generally short term in nature and are recognized as revenue when earned.
Fair Value Measurements
Under ASC 825 (Financial Instruments), the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value. The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and borrowings. IEC believes that recorded value approximates fair value for all cash, accounts receivable, accounts payable and accrued liabilities.
ASC 820 (Fair Value Measurements and Disclosures) defines fair value, establishes a framework for measurement, and prescribes related disclosures. ASC 820 defines fair value as the price that would be received upon sale of an asset or would be paid to transfer a liability in an orderly transaction. Inputs used to measure fair value are categorized under the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable market data.
Level 3: Model-derived valuations in which one or more significant inputs are unobservable.
The Company deems a transfer between levels of the fair value hierarchy to have occurred at the beginning of the reporting period. There were no such transfers during each of the
three and six months ended
March 29, 2019
and
March 30, 2018
.
Stock-Based Compensation
ASC 718 (Stock Compensation) requires that compensation expense be recognized for equity awards based on fair value as of the date of grant. For stock options, the Company uses the Black-Scholes pricing model to estimate grant date fair value. Costs associated with stock awards are recorded over requisite service periods, generally the vesting period. If vesting is contingent on the achievement of performance objectives, fair value is accrued over the period the objectives are expected to be achieved only if it is considered probable that the objectives will be achieved. The Company also has an employee stock purchase plan (“ESPP”) that provides for the purchase of Company common stock at a discounted stock purchase price.
Income Taxes and Deferred Taxes
ASC 740 (Income Taxes) requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns, but not in both. Deferred tax assets are also established for tax benefits associated with tax loss and tax credit carryforwards. Such deferred tax balances reflect tax rates that are scheduled to be in effect, based on currently enacted legislation, in the years the book/tax differences reverse and tax loss and tax credit carryforwards are expected to be realized. An allowance is established for any deferred tax asset for which realization is not likely.
ASC 740 also prescribes the manner in which a company measures, recognizes, presents and discloses in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained following examination by taxing authorities, based on technical merits of the position. The Company believes that it has no material uncertain tax positions.
Any interest incurred is reported as interest expense. Any penalties incurred are reported as tax expense. The Company’s income tax filings are subject to audit by various tax jurisdictions and current open years are the fiscal year ended September 30, 2014 through fiscal year ended September 30, 2017.
Dividends
IEC does not pay dividends on its common stock as it is the Company’s current policy to retain earnings for use in the business. Furthermore, the Company’s Fifth Amended and Restated Credit Facility Agreement, as amended, with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in
Note 6—Credit Facilities
.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Significant items subject to such estimates include: allowance for doubtful accounts, excess and obsolete inventory, warranty reserves, the valuation of deferred income tax assets and revenue recognition related to the accounts for over time contracts. Actual results may differ from management’s estimates.
Statements of Cash Flows
The Company presents operating cash flows using the indirect method of reporting under which non-cash income and expense items are removed from net income.
Segments
The Company’s results of operations for the
three and six months ended
March 29, 2019
and
March 30, 2018
represent a single operating and reporting segment, referred to as contract manufacturing within the EMS industry. The Company strategically directs production between its various manufacturing facilities based on a number of considerations to best meet its customers’ requirements. The Company shares resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. The Company’s operations as a whole reflect the level at which the business is managed and how the Company’s chief operating decision maker assesses performance internally.
Recently Issued Accounting Standards Adopted
Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASC 606”) was issued in May 2014 and updated the principles for recognizing revenue. This ASU superseded most of the existing revenue recognition requirements in GAAP. Under the new standard, revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. The standard creates a five-step model that generally requires companies to use more judgment and make more estimates than under previous guidance when considering the terms of contracts along with all relevant facts and circumstances. These include the identification of customer contracts and separating performance obligations, the determination of the transaction price that potentially includes an estimate of variable consideration, allocating the transaction price to each separate performance obligation, and recognizing revenue in line with the pattern of transfer. Additionally, disclosures required for revenue recognition include qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from costs to obtain or fulfill a contract. Such disclosures are more extensive than what was required under previous GAAP.
The guidance was effective for the Company beginning with the first quarter of fiscal 2019. The Company evaluated the guidance and approved a transition method during fiscal 2018. The Company assessed the impact of the new guidance, which resulted in a change of the Company’s revenue recognition model for electronics manufacturing services from “point in time” upon physical delivery to an “over time” model. The Company implemented ASC 606 using the modified retrospective approach with the cumulative effect on accumulated deficit on adoption of
$0.4 million
, net of taxes recognized on October 1, 2018. The implementation of ASC 606 is more fully described in
Note 2—Revenue Recognition
.
Recently Issued Accounting Standards Not Yet Adopted
FASB ASU 2016-02, “Leases” was issued in February 2016. The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. For public entities, the new guidance is effective for annual periods beginning after December 15, 2018, or the Company’s fiscal year ending September 30,
2020, and interim periods within those annual periods. Early adoption is permitted for all entities. The Company is evaluating the impact this ASU will have on its consolidated financial statements.
NOTE 2—REVENUE RECOGNITION
ASC 606: Revenue from Contracts with Customers
General Description of the New Guidance
Effective October 1, 2018, the Company applied the modified retrospective approach for its adoption of ASC 606. The primary impact of the new standard resulted in a change in the timing of the Company’s revenue recognition for some customer contracts for our custom manufacturing services to recognizing revenue over time as products are manufactured, as opposed to the prior revenue recognition of point in time. The transitional adjustment resulted in the recognition of unbilled revenue with a corresponding reduction in finished goods and work-in-process inventory (“WIP inventory”). The Company recognized the cumulative effect of initially applying the new revenue standard, totaling
$0.4 million
, as an adjustment to its opening accumulated deficit balance at October 1, 2018 included in stockholders’ equity. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Satisfaction of Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Many of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company primarily provides contract manufacturing services to its customers. The customer provides a design, the Company procures materials and manufactures to that design and ships the product to the customer. Revenue is derived primarily from the manufacturing of these electronics components that are built to customer specifications.
The Company's performance obligations are satisfied at a point in time or over time as work progresses. Revenue from goods and services transferred to customers at a point in time accounted for
52.4%
and
50.0%
of the Company's revenue for the
three and six months ended
March 29, 2019
, respectively. Revenue on these contracts is recognized when obligations under the terms of the customer contract are satisfied; generally this occurs with the transfer of control upon shipment. If there is no enforceable right to payment for work completed to date, or the Company does not recapture costs incurred plus an applicable margin, then the Company records revenue upon shipment to the customer.
Revenue from goods and services transferred to customers over time accounted for
47.6%
and
50.0%
of our revenue for the
three and six months ended
March 29, 2019
, respectively. For revenue recognized over time, the Company uses an input measure to determine progress towards completion. Under this method, sales and gross profit are recognized as work is performed generally based on the relationship between the actual costs incurred and the total estimated costs at completion. If the Company has an enforceable right to payment for work completed to date, with a recapture of costs incurred plus an applicable margin, and the goods do not have an alternative future use once the manufacturing process has commenced, then the Company records an unbilled revenue associated with non-cancellable customer orders.
The Company derives revenue from engineering and design services. Service revenue is generally recognized once the service has been rendered. For material management arrangements, revenue is generally recognized as services are rendered. Under such arrangements, some or all of the following services may be provided: design, bid, procurement, testing, storage or other activities relating to materials the customer expects to incorporate into products that it manufactures. Value-added support services revenue, including material management and repair work revenue, amounted to less than
3%
of total revenue in each of the
three and six months ended
March 29, 2019
and
March 30, 2018
.
Returns and Discounts
The Company does not offer its customers a right of return. Rather, the Company warrants that each unit received by the customer will meet the agreed upon technical and quality specifications and requirements. Only when the delivered units do not meet these requirements can the customer return the non-compliant units as a corrective action under the warranty. The remedy offered to the customer is repair of the returned units or replacement if repair is not viable. Accordingly, the Company records a warranty reserve and any warranty activities are not considered to be a separate performance obligation. Historically, warranty reserves have not been material.
Provisions for discounts, allowances, estimated returns and other adjustments are recorded in the period the related sales are recognized.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling activities after the customer obtains control are treated as a promised service performance obligation and recorded in net sales in the accompanying condensed consolidated statements of operations. Shipping and handling costs incurred by the Company for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying condensed consolidated statements of operations.
Contract Assets
Contract assets consist of unbilled contract amounts resulting from sales under contracts when the revenue recognized exceeds the amount billed to the customer.
Practical Expedients and Exemptions
The Company generally expenses incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are recorded in selling and administrative expense in the condensed consolidated statements of operations.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Disaggregated Revenue
The table below shows net sales from contracts with customers by market sector. See additional information regarding market sectors in
Note 10—Market Sectors and Major Customers
.
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 29, 2019
|
|
March 29, 2019
|
|
|
|
Point in Time
|
|
Over Time
|
|
Net Sales
|
|
Point in Time
|
|
Over Time
|
|
Net Sales
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace & Defense
|
|
$
|
11,075
|
|
|
$
|
12,047
|
|
|
$
|
23,122
|
|
|
$
|
19,002
|
|
|
$
|
22,457
|
|
|
$
|
41,459
|
|
|
Medical
|
|
3,872
|
|
|
3,214
|
|
|
7,086
|
|
|
8,040
|
|
|
8,689
|
|
|
16,729
|
|
|
Industrial
|
|
4,583
|
|
|
2,503
|
|
|
7,086
|
|
|
9,318
|
|
|
5,229
|
|
|
14,547
|
|
|
|
|
$
|
19,530
|
|
|
$
|
17,764
|
|
|
$
|
37,294
|
|
|
$
|
36,360
|
|
|
$
|
36,375
|
|
|
$
|
72,735
|
|
Impact of adoption of ASC 606
The following table presents the impacted financial statement line items in the condensed consolidated balance sheet as of October 1, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change
|
|
Adjusted
|
|
(in thousands)
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Unbilled contract revenue
|
|
$
|
—
|
|
|
$
|
4,333
|
|
|
$
|
4,333
|
|
|
Inventories
|
|
34,126
|
|
|
(3,768
|
)
|
|
30,358
|
|
|
Deferred income taxes
|
|
8,855
|
|
|
(124
|
)
|
|
8,731
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(20,463
|
)
|
|
441
|
|
|
(20,022
|
)
|
The following table presents the impacted financial statement line items in the condensed consolidated balance sheet as of
March 29, 2019
:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change
|
|
As Reported
|
|
(in thousands)
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Unbilled contract revenue
|
|
$
|
—
|
|
|
$
|
6,043
|
|
|
$
|
6,043
|
|
|
Inventories
|
|
43,925
|
|
|
(5,082
|
)
|
|
38,843
|
|
|
Deferred income taxes
|
|
8,431
|
|
|
(211
|
)
|
|
8,220
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(19,030
|
)
|
|
750
|
|
|
(18,280
|
)
|
The following table presents the impacted financial statement line items under ASC 605 "Revenue Recognition" and ASC 606 in the condensed consolidated statements of operations for the
three and six
months ended
March 29, 2019
:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 29, 2019
|
|
March 30, 2018
|
|
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect
of
Change
|
|
As Reported
|
|
Balances
Without
Adoption of
ASC 606
|
|
Effect
of
Change
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
37,354
|
|
|
$
|
(60
|
)
|
|
$
|
37,294
|
|
|
$
|
71,025
|
|
|
$
|
1,710
|
|
|
$
|
72,735
|
|
|
Cost of sales
|
|
32,693
|
|
|
15
|
|
|
32,708
|
|
|
61,776
|
|
|
1,314
|
|
|
63,090
|
|
|
Gross profit
|
|
4,661
|
|
|
(75
|
)
|
|
4,586
|
|
|
9,249
|
|
|
396
|
|
|
9,645
|
|
|
Income tax expense/(benefit)
|
|
220
|
|
|
(17
|
)
|
|
203
|
|
|
428
|
|
|
87
|
|
|
515
|
|
|
Net income
|
|
728
|
|
|
(58
|
)
|
|
670
|
|
|
1,433
|
|
|
309
|
|
|
1,742
|
|
For each of the
three and six months ended
March 29, 2019
and
March 30, 2018
, less than 1% of net sales were shipped to locations outside the United States.
NOTE 3—ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary follows of activity in the allowance for doubtful accounts during the
six months ended
March 29, 2019
and
March 30, 2018
:
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|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Allowance for doubtful accounts
|
|
March 29,
2019
|
|
March 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
Allowance, beginning of period
|
|
$
|
85
|
|
|
$
|
75
|
|
|
Change in provision for doubtful accounts
|
|
(39
|
)
|
|
(40
|
)
|
|
Write-offs
|
|
(7
|
)
|
|
—
|
|
|
Allowance, end of period
|
|
$
|
39
|
|
|
$
|
35
|
|
NOTE 4—INVENTORIES
A summary of inventory by category at period end follows:
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|
|
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|
|
Inventories
|
|
March 29,
2019
|
|
September 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
|
Raw materials
|
|
$
|
26,152
|
|
|
$
|
21,323
|
|
|
Work-in-process
|
|
10,813
|
|
|
11,263
|
|
|
Finished goods
|
|
1,878
|
|
|
1,540
|
|
|
Total inventories
|
|
$
|
38,843
|
|
|
$
|
34,126
|
|
NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET
A summary of property, plant and equipment and accumulated depreciation at period end follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
March 29,
2019
|
|
September 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
Land and improvements
|
|
$
|
788
|
|
|
$
|
788
|
|
|
Buildings and improvements
|
|
7,350
|
|
|
7,314
|
|
|
Building under capital lease
|
|
7,750
|
|
|
7,750
|
|
|
Machinery and equipment
|
|
31,465
|
|
|
30,969
|
|
|
Furniture and fixtures
|
|
7,903
|
|
|
7,877
|
|
|
Construction in progress
|
|
5,607
|
|
|
5,360
|
|
|
Total property, plant and equipment, at cost
|
|
60,863
|
|
|
60,058
|
|
|
Accumulated depreciation
|
|
(41,249
|
)
|
|
(39,948
|
)
|
|
Property, plant and equipment, net
|
|
$
|
19,614
|
|
|
$
|
20,110
|
|
Depreciation expense during the
three and six months ended
March 29, 2019
and
March 30, 2018
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 29,
2019
|
|
March 30,
2018
|
|
March 29,
2019
|
|
March 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
$
|
646
|
|
|
$
|
573
|
|
|
$
|
1,301
|
|
|
$
|
1,162
|
|
NOTE 6—CREDIT FACILITIES
A summary of borrowings at period end follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2019
|
|
September 30, 2018
|
|
Debt
|
|
Fixed/Variable Rate
|
|
Maturity Date
|
|
Balance
|
|
Interest Rate
|
|
Balance
|
|
Interest Rate
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M&T Bank credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
v
|
|
5/5/2022
|
|
$
|
22,915
|
|
|
4.75
|
%
|
|
$
|
12,996
|
|
|
5.26
|
%
|
|
Term Loan B
|
|
v
|
|
5/5/2022
|
|
3,208
|
|
|
4.99
|
|
|
3,636
|
|
|
5.36
|
|
|
Equipment Line Advances
|
|
v
|
|
Various
|
|
392
|
|
|
5.00
|
|
|
314
|
|
|
5.56
|
|
|
Equipment Line Term Note
|
|
v
|
|
Various
|
|
969
|
|
|
5.00
|
|
|
794
|
|
|
5.56
|
|
|
Total debt, gross
|
|
|
|
|
|
27,484
|
|
|
|
|
17,740
|
|
|
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
(278
|
)
|
|
|
|
(289
|
)
|
|
|
|
Total debt, net
|
|
|
|
|
|
27,206
|
|
|
|
|
17,451
|
|
|
|
|
Less: current portion
|
|
|
|
|
|
(1,632
|
)
|
|
|
|
(1,449
|
)
|
|
|
|
Long-term debt
|
|
|
|
|
|
$
|
25,574
|
|
|
|
|
$
|
16,002
|
|
|
|
M&T Bank Credit Facilities
During the quarter ended March 29, 2019, the Company and M&T Bank entered into the Seventh and Eighth Amendments to the Fifth Amended and Restated Credit Facility Agreement, which amended the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (collectively, the “Credit Facility, as amended”). Among other things, the Seventh Amendment increased the Company’s revolving credit commitment to
$27.0
and added a monthly information requirement for backlog conversion ratio metrics. The Eighth Amendment modified the definition of “Borrowing Base” to increase the amount of certain availability limits contained within the definition.
The Credit Facility, as amended, is secured by a general security agreement covering the assets of the Company and its subsidiaries, a pledge of the Company’s equity interest in its subsidiaries, a negative pledge on the Company’s real property, and a guarantee by the Company’s subsidiaries, all of which restrict use of these assets to support other financial instruments.
Individual debt facilities provided under the Credit Facility, as amended, are described below:
|
|
|
|
a)
|
Revolving Credit Facility (“Revolver”)
: At
March 29, 2019
, up to
$27.0 million
is available through
May 5, 2022
. The maximum amount the Company may borrow is determined based on a borrowing base calculation described below.
|
|
|
|
|
b)
|
Term Loan B:
$14.0 million
was borrowed on January 18, 2013. Principal was being repaid in
120 equal monthly installments
of
$117 thousand
. As part of an amendment to the Credit Facility, as amended, the principal was modified from
$8.0 million
to
$6.0 million
and principal is being repaid in equal monthly installments of
$71 thousand
plus a balloon payment of
$0.6 million
. The maturity date of the loan is
May 5, 2022
.
|
|
|
|
|
c)
|
Equipment Line Advances
: Up to
$1.5 million
is available through
May 5, 2022
. Interest only is paid until maturity. Principal is due in three or six months after borrowing or can be converted to an Equipment Line Term Loan. On September 18, 2018,
$0.3 million
was borrowed and upon maturity at March 18, 2019, was converted into an Equipment Line Term Loan. On
November 6, 2018
, an additional
$0.4 million
was borrowed and will mature on May 6, 2019.
|
|
|
|
|
d)
|
Equipment Line Term Note
: On July 26, 2018,
$0.8 million
was converted from an Equipment Line Advance, principal is being repaid in 36 equal monthly installments of
$21 thousand
and matures July 26, 2021. On September 27, 2018
$0.1 million
was converted from an Equipment Line Advance, principal is being repaid in 36 equal monthly installments of
$2 thousand
and matures September 29, 2021. On March 18, 2019,
$0.3 million
was converted from an Equipment Line Advance, principal is being repaid in 36 equal monthly installments of
$9 thousand
and matures March 18, 2022.
|
Borrowing Base
At
March 29, 2019
, under the Credit Facility, as amended, the maximum amount the Company can borrow under the Revolver was the lesser of (i)
85%
of eligible receivables plus a percentage of eligible inventories (up to a cap of
$14.0 million
) or (ii)
$27.0 million
. At
September 30, 2018
, under the Credit Facility, as amended, the maximum amount the Company can borrow under the Revolver was the lesser of (i)
85%
of eligible receivables plus a percentage of eligible inventories (up to a cap of
$8.0 million
) or (ii)
$22.0 million
.
At
March 29, 2019
, the upper limit on Revolver borrowings was
$27.0 million
, with
$4.1 million
available. At
September 30, 2018
, the upper limit on Revolver borrowings was
$22.0 million
with
$9.0 million
available. Average Revolver balances amounted to
$18.4 million
and
$10.6 million
during the
six months ended
March 29, 2019
and
March 30, 2018
, respectively.
Interest Rates
Under the Credit Facility, as amended, variable rate debt accrues interest at LIBOR plus the applicable marginal interest rate that fluctuates based on the Company’s Fixed Charge Coverage Ratio, as defined below. At
March 29, 2019
, the applicable marginal interest rate was
2.25%
for the Revolver and
2.50%
for Term Loan B and Equipment Line Advances
.
At
September 30, 2018
, the applicable marginal interest rate was
3.00%
for the Revolver and
3.25%
for Term Loan B and Equipment Line Advances
.
Changes to applicable margins and unused fees resulting from the Fixed Charge Coverage Ratio generally become effective mid-way through the subsequent quarter.
The Company incurs quarterly unused commitment fees ranging from
0.25%
to
0.375%
of the excess of
$27.0 million
over average borrowings under the Revolver. Fees incurred amounted to
$4.5 thousand
and
$12.7 thousand
during the
three and six months ended
March 29, 2019
, respectively. Fees incurred amounted to
$4.6 thousand
and
$11.2 thousand
during the
three and six months ended
March 30, 2018
, respectively. The fee percentage varies based on the Company’s Fixed Charge Coverage Ratio, as defined below.
Financial Covenants
The Credit Facility, as amended, contains various affirmative and negative covenants including financial covenants. As of
March 29, 2019
, the Company had to maintain a minimum fixed charge coverage ratio (“Fixed Charge Coverage Ratio”). The Fixed Charge Coverage Ratio compares (i) EBITDAS minus unfinanced capital expenditures minus income tax expense, to (ii) the sum of interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, income taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio was measured for a trailing twelve months ended
March 29, 2019
as a minimum of
1.10
times. The Fixed Charge Coverage Ratio was the only covenant in effect at
March 29, 2019
. The Credit Facility, as amended, also provides for customary events of default, subject in certain cases to customary cure periods, in which the outstanding balance and any unpaid interest would become due and payable.
The Company was in compliance with the financial debt covenant at
March 29, 2019
.
Contractual Principal Payments
A summary of contractual principal payments under IEC’s borrowings at
March 29, 2019
for the next four years taking into consideration the Credit Facility, as amended, is as follows:
|
|
|
|
|
|
|
|
|
|
Debt Repayment Schedule
|
|
Contractual
Principal
Payments
|
|
(in thousands)
|
|
|
|
|
Twelve months ending March
|
|
|
|
|
2020
|
|
|
$
|
1,632
|
|
|
2021
|
|
|
1,240
|
|
|
2022
|
|
|
1,059
|
|
|
2023
|
(1)
|
|
23,553
|
|
|
|
|
|
$
|
27,484
|
|
(1)
Includes Revolver balance of
$22.9 million
at
March 29, 2019
.
NOTE 7—WARRANTY RESERVES
IEC generally warrants its products and workmanship for up to twelve months from date of sale. As an offset to warranty claims, the Company is sometimes able to obtain reimbursement from suppliers for warranty-related costs or losses. Based on historical warranty claims experience and in consideration of sales trends, a reserve is maintained for estimated future warranty costs to be incurred on products and services sold through the balance sheet date. The warranty reserve is included in other accrued expenses on the condensed consolidated balance sheets.
A summary of additions to and charges against IEC’s warranty reserves during the period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Warranty Reserve
|
|
March 29,
2019
|
|
March 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
|
|
Reserve, beginning of period
|
|
$
|
173
|
|
|
$
|
153
|
|
|
Provision
|
|
27
|
|
|
147
|
|
|
Warranty costs
|
|
(56
|
)
|
|
(151
|
)
|
|
Reserve, end of period
|
|
$
|
144
|
|
|
$
|
149
|
|
NOTE 8—STOCK-BASED COMPENSATION
The 2019 Stock Incentive Plan (the “2019 Plan”) was approved by the Company’s stockholders at the March 2019 Annual Meeting. The 2019 Plan replaces the 2010 Omnibus Incentive Compensation Plan (“2010 Plan”) that was approved by the Company’s stockholders at the January 2011 Annual Meeting. The 2019 Plan, like the 2010 Plan, is administered by the Compensation Committee of the Board of Directors and provides for the following types of awards: incentive stock options, nonqualified options, stock appreciation rights, restricted shares, restricted stock units, performance compensation awards, cash incentive awards, director stock and other equity-based and equity-related awards. Awards are generally granted to certain members of management and employees, as well as directors. The Company also has an ESPP, adopted in 2011, that provides for the purchase of Company common stock at a discounted stock purchase price. Under the 2019 Plan,
840,360
shares of common stock, plus any shares that are subject to awards granted under the 2010 Plan that expire, are forfeited or canceled without the issuance of shares (other than shares used to pay the exercise price of a stock option under the 2010 Plan and shares used to cover the tax withholding of the award under the 2010 Plan) may be issued over a term of
ten years
. Under the ESPP, 150,000 shares of common stock may be issued over a term of ten years.
Stock-based compensation expense recorded under the 2010 Plan, totaled
$0.2 million
and
$0.3 million
for the
three and six months ended
March 29, 2019
, respectively. Stock-based compensation expense recorded under the 2010 Plan, totaled
$0.1 million
and
$0.2 million
for the
three and six months ended
March 30, 2018
, respectively.
At
March 29, 2019
, there were
421,360
remaining shares of common stock available to be issued under the 2010 Plan and
95,091
remaining shares of common stock available to be issued under the ESPP.
Expenses relating to stock options that comply with certain U.S. income tax rules are neither deductible by the Company nor taxable to the employee. Further information regarding awards granted under the 2010 Plan and ESPP is provided below.
Stock Options
When options are granted, IEC estimates fair value using the Black-Scholes option pricing model and recognizes the computed value as compensation cost over the vesting period, which is typically
four
years. The contractual term of options granted under the 2010 Plan is generally
seven
years. The volatility rate is based on the historical volatility of IEC's common stock.
Assumptions used in the Black-Scholes model and the estimated value of options granted during the
six months ended
March 29, 2019
and
March 30, 2018
follows in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Valuation of Options
|
|
March 29,
2019
|
|
March 30,
2018
|
|
Assumptions for Black-Scholes:
|
|
|
|
|
|
Risk-free interest rate
|
|
2.85
|
%
|
|
2.31
|
%
|
|
Expected term in years
|
|
5.5
|
|
|
5.5
|
|
|
Volatility
|
|
37
|
%
|
|
38
|
%
|
|
Expected annual dividends
|
|
none
|
|
|
none
|
|
|
|
|
|
|
|
|
Value of options granted:
|
|
|
|
|
|
Number of options granted
|
|
10,000
|
|
|
20,000
|
|
|
Weighted average fair value per share
|
|
$
|
2.40
|
|
|
$
|
1.53
|
|
|
Fair value of options granted (000s)
|
|
$
|
24
|
|
|
$
|
31
|
|
A summary of stock option activity, together with other related data, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
March 29, 2019
|
|
March 30, 2018
|
|
Stock Options
|
|
Number
of Options
|
|
Wgtd. Avg.
Exercise
Price
|
|
Number
of Options
|
|
Wgtd. Avg.
Exercise
Price
|
|
Outstanding, beginning of period
|
|
737,145
|
|
|
$
|
4.33
|
|
|
743,045
|
|
|
$
|
4.27
|
|
|
Granted
|
|
10,000
|
|
|
6.20
|
|
|
20,000
|
|
|
4.00
|
|
|
Exercised
|
|
(26,500
|
)
|
|
4.71
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
(24,250
|
)
|
|
3.70
|
|
|
(10,000
|
)
|
|
4.25
|
|
|
Expired
|
|
(5,000
|
)
|
|
4.08
|
|
|
(10,500
|
)
|
|
5.24
|
|
|
Outstanding, end of period
|
|
691,395
|
|
|
$
|
4.36
|
|
|
742,545
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
For options expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
Number expected to vest
|
|
683,135
|
|
|
$
|
4.35
|
|
|
731,316
|
|
|
$
|
4.25
|
|
|
Weighted average remaining contractual term, in years
|
|
3.6
|
|
|
|
|
4.2
|
|
|
|
|
|
Intrinsic value (000s)
|
|
|
|
$
|
1,706
|
|
|
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
For exercisable options
|
|
|
|
|
|
|
|
|
|
|
|
Number exercisable
|
|
510,895
|
|
|
$
|
4.18
|
|
|
428,008
|
|
|
$
|
4.30
|
|
|
Weighted average remaining contractual term, in years
|
|
2.9
|
|
|
|
|
3.8
|
|
|
|
|
|
Intrinsic value (000s)
|
|
|
|
$
|
1,365
|
|
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
For non-exercisable options
|
|
|
|
|
|
|
|
|
|
|
|
Expense not yet recognized (000s)
|
|
|
|
$
|
230
|
|
|
|
|
$
|
319
|
|
|
Weighted average years to be recognized
|
|
3.3
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For options exercised
|
|
|
|
|
|
|
|
|
|
Intrinsic value (000s)
|
|
|
|
$
|
57
|
|
|
|
|
|
$
|
—
|
|
Restricted (Non-vested) Stock
Certain holders of IEC restricted stock have voting and dividend rights as of the date of grant, and, until vested, the shares may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically
four
or
five years
(
three years
in the case of directors), holders have all the rights and privileges of any other common stockholder of the Company. The fair value of a share of restricted stock is its market value on the date of grant, and that value is recognized as stock compensation expense over the vesting period.
A summary of restricted stock activity, together with related data, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
March 29, 2019
|
|
March 30, 2018
|
|
Restricted (Non-vested) Stock
|
|
Number of Non-vested Shares
|
|
Wgtd. Avg. Grant Date Fair Value
|
|
Number of Non-vested Shares
|
|
Wgtd. Avg. Grant Date Fair Value
|
|
Outstanding, beginning of period
|
|
103,233
|
|
|
$
|
4.08
|
|
|
109,695
|
|
|
$
|
4.01
|
|
|
Granted
|
|
15,000
|
|
|
6.97
|
|
|
39,878
|
|
|
4.28
|
|
|
Vested
|
|
(43,075
|
)
|
|
4.09
|
|
|
(34,028
|
)
|
|
4.06
|
|
|
Shares withheld for payment of
taxes upon vesting of restricted stock
|
|
(3,061
|
)
|
|
3.60
|
|
|
(1,502
|
)
|
|
3.60
|
|
|
Forfeited
|
|
(1,400
|
)
|
|
4.13
|
|
|
(7,700
|
)
|
|
4.18
|
|
|
Outstanding, end of period
|
|
70,697
|
|
|
$
|
4.72
|
|
|
106,343
|
|
|
$
|
4.09
|
|
|
|
|
|
|
|
|
|
|
|
|
For non-vested shares
|
|
|
|
|
|
|
|
|
|
|
|
Expense not yet recognized (000s)
|
|
|
|
$
|
291
|
|
|
|
|
|
$
|
330
|
|
|
Weighted average remaining years for vesting
|
|
2.1
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For shares vested
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate fair value on vesting dates (000s)
|
|
|
|
|
$
|
311
|
|
|
|
|
|
$
|
150
|
|
Stock Issued to Board Members
In addition to annual grants of restricted stock, included in the table above, board members may elect to have their meeting fees paid in the form of shares of the Company’s common stock. The Company has not paid any meeting fees in stock since May 21, 2013.
Restricted Stock Units
Holders of IEC restricted stock units do not have voting and dividend rights as of the date of grant, and, until vested, the unit may be forfeited and cannot be sold or otherwise transferred. At the end of the vesting period, which is typically three years, holders will receive shares of the Company's common stock and have all the rights and privileges of any other common stockholder of the Company. The fair value of a restricted stock unit is the market value of the underlying shares of the Company's stock on the date of grant and that value is recognized as stock compensation expense over the vesting period.
A summary of restricted stock unit activity, together with related data, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
March 29, 2019
|
|
March 30, 2018
|
|
Restricted Stock Units
|
|
Number of Non-vested Units
|
|
Wgtd. Avg. Grant Date Fair Value
|
|
Number of Non-vested Units
|
|
Wgtd. Avg. Grant Date Fair Value
|
|
Outstanding, beginning of period
|
|
170,492
|
|
|
$
|
3.96
|
|
|
267,999
|
|
|
$
|
4.03
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
102,864
|
|
|
4.28
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding, end of period
|
|
170,492
|
|
|
$
|
3.96
|
|
|
370,863
|
|
|
$
|
4.10
|
|
|
|
|
|
|
|
|
|
|
|
|
For non-vested shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense not yet recognized (000s)
|
|
|
|
$
|
282
|
|
|
|
|
|
$
|
582
|
|
|
Weighted average remaining years for vesting
|
|
1.9
|
|
|
|
|
2.7
|
|
|
|
NOTE 9—INCOME TAXES
The income tax expense/(benefit) during each of the
three and six months ended
March 29, 2019
and
March 30, 2018
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 29,
2019
|
|
March 30,
2018
|
|
March 29,
2019
|
|
March 30,
2018
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit)
|
|
$
|
203
|
|
|
$
|
4
|
|
|
$
|
515
|
|
|
$
|
(1,005
|
)
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. As the Company has a September 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal tax rate of approximately 24.2% for fiscal 2018, and 21% for subsequent fiscal years. The Tax Act eliminates the domestic manufacturing deduction and moves to a territorial system. In addition, previously paid federal alternative minimum tax (“AMT”) will now be refundable regardless of whether there is future income tax liability before AMT credits.
The Company concluded that the Tax Act caused the Company’s U.S. deferred tax assets and liabilities to be revalued. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported basis in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are revalued and any change is adjusted through the provision for income tax expense in the reporting period of the enactment. As of September 30, 2018, the Company completed its analysis of the impact of the Tax Act under Staff Accounting Bulletin No. 118.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including discrete items, changes in the mix and amount of pre-tax income, changes in tax laws, business reorganizations, and settlements with taxing authorities, if any.
For the
six months ended
March 30, 2018
, the impact of the Tax Act resulted in the Company recording a net tax benefit of approximately $1.0 million, resulting from the release of the valuation allowance on the Company’s AMT credits.
The Company's estimated annual effective tax rate for fiscal 2019 is comprised of the federal tax rate of
21%
plus the state tax rate of
1.58%
, which is adjusted for permanent book tax differences. During the
three and six months ended
March 29, 2019
, the permanent items included meals and entertainment and stock based compensation. There were no material discrete items recognized in the
three and six months ended
March 29, 2019
.
NOTE 10—MARKET SECTORS AND MAJOR CUSTOMERS
A summary of sales, according to the market sector within which IEC’s customers operate, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
% of Sales by Sector
|
|
March 29,
2019
|
|
March 30,
2018
|
|
March 29,
2019
|
|
March 30,
2018
|
|
Aerospace & Defense
|
|
62%
|
|
64%
|
|
57%
|
|
63%
|
|
Medical
|
|
19%
|
|
22%
|
|
23%
|
|
20%
|
|
Industrial
|
|
19%
|
|
14%
|
|
20%
|
|
17%
|
|
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
One
individual customer represented
10%
or more of sales for the three months ended
March 29, 2019
. This customer was from the aerospace & defense sector and represented
22%
of sales.
Two
individual customers each represented 10% or more of sales for the
six months
ended
March 29, 2019
.
One
customer was from the aerospace & defense sector and represented
21%
of sales, while
one
was from the medical sector and represented
11%
of sales.
Two
individual customers each represented 10% or more of sales for the three months ended
March 30, 2018
.
One
customer was from the aerospace & defense sector and represented
24%
of sales, while
one
was from the medical sector and represented
10%
of sales for the three months ended
March 30, 2018
.
Three
individual customers each represented 10% or more of sales for the
six months
ended
March 30, 2018
.
Two
customers were from the aerospace & defense sector,
one
represented
23%
of sales and
one
represented
10%
of sales, while
one
customer was from the medical sector and represented
11%
of sales for the six months ended
March 30, 2018
.
One
individual customer represented
10%
or more of receivables and accounted for
20%
of the outstanding balance at
March 29, 2019
.
Three
individual customers represented
10%
or more of receivables and accounted for
55%
of the outstanding balance at
September 30, 2018
.
Credit risk associated with individual customers is periodically evaluated by analyzing the entity’s financial condition and payment history. Customers generally are not required to post collateral.
NOTE 11—COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may be involved in legal actions in the ordinary course of its business, but management does not believe that any such proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s condensed consolidated financial statements.
NOTE 12—CAPITAL LEASE
Leases
A summary of capital lease payments for the next five years follows:
|
|
|
|
|
|
|
|
|
Capital Lease Payment Schedule
|
|
Contractual
Principal
Payments
|
|
(in thousands)
|
|
|
|
|
Twelve months ending March
|
|
|
|
|
2020
|
|
$
|
666
|
|
|
2021
|
|
680
|
|
|
2022
|
|
693
|
|
|
2023
|
|
707
|
|
|
2024 and thereafter
|
|
7,078
|
|
|
Total capital lease payments
|
|
9,824
|
|
|
Less: amounts representing interest
|
|
(2,643
|
)
|
|
Present value of minimum lease payment
|
|
$
|
7,181
|
|
NOTE 13—NET INCOME PER SHARE
The Company applies the two-class method to calculate and present net income per share. Certain of the Company's restricted (non-vested) share awards contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing net income per share pursuant to the two-class method. Under the
two
-class method, net earnings are reduced by the amount of dividends declared (whether paid or unpaid) and the remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends.
Basic earnings per common share are calculated by dividing income available to common stockholders by the weighted average number of shares outstanding during each period. Diluted earnings per common share add to the denominator incremental shares resulting from the assumed exercise of all potentially dilutive stock options, as well as unvested restricted stock and restricted stock units. Options, restricted stock and restricted stock units are primarily held by directors, officers and certain employees.
The Company uses the two-class method to calculate net income per share as both classes share the same rights in dividends. Therefore, basic and diluted earnings per share (“EPS”) are the same for both classes of ordinary shares.
A summary of shares used in the EPS calculations follows (in thousands except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Earnings Per Share
|
|
March 29,
2019
|
|
March 30,
2018
|
|
March 29,
2019
|
|
March 30,
2018
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
670
|
|
|
$
|
1,579
|
|
|
$
|
1,742
|
|
|
$
|
1,085
|
|
|
Less: Income attributable to non-vested shares
|
|
4
|
|
|
16
|
|
|
9
|
|
|
11
|
|
|
Net income available to common stockholders
|
|
$
|
666
|
|
|
$
|
1,563
|
|
|
$
|
1,733
|
|
|
$
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
10,286,876
|
|
|
10,217,781
|
|
|
10,274,772
|
|
|
10,211,101
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
|
$
|
0.17
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
670
|
|
|
$
|
1,579
|
|
|
$
|
1,742
|
|
|
$
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income per share
|
|
10,286,876
|
|
|
10,217,781
|
|
|
10,274,772
|
|
|
10,211,101
|
|
|
Dilutive effect of non-vested shares
|
|
391,182
|
|
|
130,881
|
|
|
299,304
|
|
|
105,661
|
|
|
Shares used in computing diluted net income per share
|
|
10,678,058
|
|
|
10,348,662
|
|
|
10,574,076
|
|
|
10,316,762
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.06
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
|
$
|
0.11
|
|
The diluted weighted average share calculations do not include the following shares, which are not dilutive to the EPS calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 29,
2019
|
|
March 30,
2018
|
|
March 29,
2019
|
|
March 30,
2018
|
|
Anti-dilutive shares excluded
|
|
—
|
|
|
353,495
|
|
|
19,583
|
|
|
339,104
|
|