<PAGE>
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 25, 1998
Commission file Number 0-6508
IEC ELECTRONICS CORP.
---------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 13-3458955
----------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Norton Street, Newark, New York 14513
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices (Zip Code)
(315) 331-7742
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0.01 Par Value - 7,583,076 shares as of Feburary 5, 1999.
Page 1 of 14
<PAGE>
PART 1 FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of :
December 25, 1998 (Unaudited) and September 30, 1998........... 3
Consolidated Statements of Income for the three months ended:
December 25, 1998 (Unaudited) and December 26, 1997(Unaudited). 4
Consolidated Statement of Cash Flows for the three months ended:
December 25, 1998 (Unaudited) and December 26, 1997(Unaudited). 5
Notes to Consolidated Financial
Statements (Unaudited)......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 9
PART II
Item 1. Legal Proceedings............................................... 13
Item 2. Changes in Securities........................................... 13
Item 3. Defaults Upon Senior Securities................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 5. Other Information............................................... 13
Item 6. Exhibits and Reports on Form ................................... 13
Signature .............................................................. 14
Page 2 of 14
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1998 AND SEPTEMBER 30, 1998
(in thousands, except share data))
<CAPTION>
DECEMBER 25, SEPTEMBER 30,
1998 1998
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $2,278
Accounts receivable 21,856 22,842
Inventories 18,777 20,072
Income taxes receivable 3,058 1,960
Deferred income taxes 3,226 3,226
Other current assets 1,197 441
------------- ------------
Total current assets 48,114 50,819
------------- ------------
Property, Plant and Equipment, net 34,036 36,321
--------------- ------------
Other Assets:
Cost in excess of net assets acquired, net 11,200 11,310
Other assets 196 215
-------------- ------------
11,396 11,525
-------------- -------------
$93,546 $98,665
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ - $ 20
Accounts payable 13,442 13,424
Accrued payroll and related expenses 2,344 3,878
Accrued insurance 1,353 1,353
Other accrued expenses 266 380
--------------- ------------
Total current Liabilities 17,405 19,055
--------------- ------------
Deferred Income Taxes 2,904 2,904
--------------- ------------
Long-Term Debt 6,000 7,138
--------------- ------------
Shareholders' Equity:
Preferred stock, par value $.01 per share
Authorized - 500,000 shares
Outstanding - 0 shares - -
Common stock, par value $.01 per share
Authorized - 15,000,000 shares
Outstanding - 7,583,076 shares 76 76
Additional paid-in capital 38,563 38,563
Retained earnings 28,902 31,207
Accumulated other comprehensive income -
Cumulative translation adjustment 107 133
Treasury Stock, at cost - 20,573 shares (411) (411)
--------------- -----------
Total shareholders' equity 67,237 69,568
--------------- -----------
$93,546 $98,665
================ =============
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these balance sheets
</FN>
</TABLE>
Page 3 of 14
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 25, 1998
AND DECEMBER 26, 1997
(in thousands, except share data)
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
DECEMBER DECEMBER
25, 1998 26, 1997
----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $36,281 $94,115
Cost of sales 36,883 85,427
----------- -----------
Gross profit (602) 8,688
Selling and Administrative expenses 2,597 4,300
----------- ------------
Operating (loss)income (3,199) 4,388
Interest expense (154) (648)
Other income, net (13) 44
----------- ------------
(Loss) income before income taxes (3,366) 3,784
(Benefit from)provision for income taxes (1,061) 1,457
------------- -------------
Net (loss) income ($2,305) $2,327
============== ==============
Net (loss) income per commom and common
and common equivalent share
Basic ($0.30) $0.31
Diluted ($0.30) $0.30
Weighted average number of common and
common equivalent shares outstanding
Basic 7,562,503 7,533,677
Dilutive 7,562,503 7,783,954
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
</FN>
</TABLE>
Page 4 of 14
<PAGE>
<TABLE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 25, 1998 AND
DECEMBER 26, 1997
(in thousands)
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
DECEMBER DECEMBER
25, 1998 26, 1997
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($2,305) $2,327
Adjustments to reconcile net(loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,583 2,450
Amortization of cost in excess of
net assets acquired 101 118
Changes in operating assets and liabilities:
(Increase) decrease:
Accounts receivable 983 (6,523)
Inventories 1,288 3,815
Income taxes receivable (1,099) -
Other current assets (757) (22)
Other assets 32 -
Increase (decrease):
Accounts payable 26 (11,539)
Accrued payroll and related expenses (1,534) (1,878)
Accrued income taxes - (275)
Other accrued expenses (114) 37
---------- -----------
Net cash used in operating activities (796) (11,490)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (544) (3,847)
Proceeds from sale of building 220 -
---------- -----------
Net cash used in investing activities (324) (3,847)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - 34
Net borrowings (repayments) under line
of credit agreements (1,000) 12,500
Principal payments on long-term debt (158) (972)
---------- -----------
Net cash provided by (used in)
financing activities (1,158) 11,562
---------- -----------
Net decrease in cash and cash equivalents (2,278) (3,775)
Cash and cash equivalents at beginning of period 2,278 3,921
=========== ===========
Cash and cash equivalents at end of period - $146
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $191 $648
==== ======
Income taxes $37 $1,745
==== ======
<FN>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
</FN>
</TABLE>
Page 5 of 14
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1998
Dollar amounts are presented in thousands of Dollars
(1) Business and Summary of Significant Accounting Policies
Business
- --------
IEC Electronics Corp. (IEC) is an independent contract manufacturer of complex
printed circuit board assemblies and electronic products and systems. IEC offers
its customers a wide range of manufacturing services, on either a turnkey or
consignment basis, including material procurement and control, manufacturing and
test engineering support, statistical quality assurance and complete resource
management.
Consolidation
- -------------
The consolidated financial statements include the accounts of IEC and its
wholly-owned subsidiaries, IEC Edinburg Texas Operations (Edinburg), IEC Arab
Alabama Operations (Arab), and IEC - Ireland Ltd. (Longford) as of August 31,
1998, (collectively, the Company). All significant intercompany transactions and
accounts have been eliminated.
Revenue Recognition
- -------------------
The Company recognizes revenues upon shipment of product for both turnkey and
consignment contracts.
Cash and Cash Equivalents
- -------------------------
Cash and Cash equivalents include money market and bank account balances. The
Company's cash and cash equivalents are held and managed by institutions which
follow the Company's investment policy. The fair value of the Company's
financial instruments approximates carrying amounts due to the relatively short
maturities and variable interest rates of the instruments, which approximate
current market interest rates.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market. The
major classifications of inventories are as follows at period end:
December September
25, 30,
1998 1998
-----------------------
(Unaudited)
Raw materials $14,440 $14,170
Work-in-process 4,337 5,902
=======================
$18,777 $20,072
=======================
Foreign Currency Translation
- ----------------------------
The assets and liabilities of the Company's foreign subsidiary are translated
based on the current exchange rate at the end of the period for the balance
sheet and a weighted- average rate for the period of the consolidated statement
of operations. Translation adjustments are recorded as a separate component of
equity. Transaction gains or losses are included in operations.
Page 6 of 14
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1998
Dollar amounts are presented in thousands of Dollars
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements as of December 25, 1998, and for
the three months ended December 25, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial 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, 1998 Annual Report on Form 10-K.
Net (Loss) income per Common and Common Equivalent Share
- --------------------------------------------------------
(Loss)Income Shares Per Share
Three Months Ended (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
December 25, 1998
Basic EPS
Loss available to common Shareholders ($2,305) 7,562,503 ($0.30)
====================================
December 26, 1997
Basic EPS
Income available to common Shareholders $2,327 7,533,677 $0.31
=============
Effect of dilutive options - 250,277
-----------------------
Diluted EPS
Income available to common shareholders
and assumed Conversions $2,327 7,783,954 $0.30
====================================
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted-average common shares outstanding during the three
month period. No reconciliation is provided for the period ending December 25,
1998 as the effect would be antidilutive. 36,000 common shares at an average
price of $20 per share were outstanding for the three month period ending
December 26, 1997, but were not included in the computation of diluted EPS since
the options' exercise price was greater than the average market price of common
shares.
Page 7 of 14
<PAGE>
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1998
Dollar amounts are presented in thousands of Dollars
(2) Comprehensive Income
--------------------
The Company adopted Statement of Finacial Accounting Standards No. 130,
"Reporting Comprehensive Income"(SFAS No. 130)on October 1, 1998. SFAS No. 130
requires comprehensive income and its components to be presented in the
financial Statements. Comprehensive income, which includes net (loss) income
and foreign currency translation adjustments, was as follows for the three
months ended December 25, 1998 and December 26, 1997.
3 MONTHS 3 MONTHS
ENDED ENDED
DECEMBER DECEMBER
25, 1998 26, 1997
---------- -----------
(Unaudited) (Unaudited)
Net (loss)income $ (2,305) $ 2,307
Other comprehensive income:
Foreign currency translation adjustments (23) -
---------- -----------
Comprehensive (loss) income $ (2,326) $ 2,307
(3) Financing Arrangements
----------------------
In May 1998, the Company closed on a $65 million credit facility, which replaced
the previous $33 million credit facility. At December 25, 1998, $6 million was
outstanding under the new three year credit facility.
(4) Legal Matters
-------------
There are no material legal proceedings pending to which the Company or any of
its subsidiaries is a party to or to which any of the Company's or subsidiaries'
property is subject. To the Company's 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.
Page 8 of 14
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Results of Operations - Three months ended December 25, 1998 as
- --------------------------------------------------------------------------------
compared to three months Ended December 26, 1997.
- -------------------------------------------------
Net sales for the three month period ended December 25, 1998, were $36 million
as compared to $94 million for the comparable period of the prior fiscal year, a
decrease of 61.4%. The decrease in sales was primarily due to cancellations and
reschedules. Sales to new customers were approximately 7% of the sales for the
quarter. Turnkey sales were 94% of net sales in the quarter as compared to 98%
for the comparable period of the prior year.
Gross (loss) profit was ($0.6) million or (1.66%) of sales in 1998 versus $8.7
million or 9.23% of sales in the comparable period of 1997. The decrease was due
to higher labor and overhead costs as a percent of sales and lower effeciency
leading to an under absorption of fixed overhead costs.
Selling and administrative expenses decreased to $2.6 million in the three
months ended December 25, 1998, from $4.3 million in the comparable period of
the prior fiscal year. This decrease is primarily due to decreases in sales
commissions and salary and other expenses. As a percentage of net sales, selling
and administrative expenses increased to 7.2% from 4.6% in the same quarter of
the prior year.
Net (loss) income for the quarter was ($2.3) million versus $2.3 million in the
comparable quarter of the Prior year. Diluted loss per share was $.30 as
compared to diluted net income per share of $.30 per share in the comparable
period of the prior fiscal year.
Liquidity and Capital Resources
- -------------------------------
Net sales for the month of December 1998 were $14 million, representing 39% of
the total net sales for the three month period ending December 25, 1998. The
Company Operates on a calendar quarter consisting of four weeks in the first and
second months And five weeks in the third month.
In May 1998, the Company closed on a $65 million senior credit facility. At
December 25, 1998, $6 million was outstanding under this new facility.
The Company beleives that its funds generated from operations And its existing
credit facilities will be sufficient for the Company to meet its capital
Expenditures and working capital needs for its operations as presently
conducted. As part of its overall business strategy, the Company may from time
to time evaluate Acquisition opportunities. The funding of these future
transactions, if any, may require The Company to obtain additional sources of
financing.
The impact of inflation on the Company's operations has been minimal due to the
fact That it is able to adjust its bids to reflect any inflationary increases in
cost.
Page 9 of 14
<PAGE>
Year 2000 Conversion
- --------------------
The Year 2000 issue is the result of many existing computer programs written to
handle two digits, rather than four, to define the applicable year. Accordingly,
date-sensitive software or hardware may not be able to distinguish between the
year 1900 and year 2000, and programs that perform arithmetic operations,
comparisons or sorting of date fields may begin yielding incorrect results. This
could potentially cause a system failure or miscalculations that could disrupt
operations, including, among other things, an inability to process transactions,
send invoices, or engage in normal business activities. These Year 2000 issues
affect virtually all companies and organizations.
The Company has developed plans to address the potential risks it faces as a
result of Year 2000 issues. These risks include, among other things, the
possible failure or malfunction of the Company's internal information systems,
possible problems with the products and services the Company has provided its
customers, and possible problems arising from the failure of the Company's
supplier systems.
The Company has developed a plan to address its Year 2000 issues by initially
identifying and assessing Year 2000 compliance for all of its applications and
information technology equipment (including all mainframe, network and desktop
software and hardware, customer and packaged applications, and IT embedded
systems), as well as its non-information technology embedded systems, (including
non-IT equipment and machinery such as security, fire prevention and climate
control systems) into the categories of "business critical", "important", and
"non-important" systems.
Business critical systems are those whose Year 2000 compliance is necessary to
ensure the proper functioning of the business. These systems have the highest
priority in being tested and upgraded, where applicable. It is expected that all
"business critical" systems will be Year 2000 compliant by June 1999.
"Important" systems will also be tested and upgraded with the expectation that,
where necessary, they will be Year 2000 compliant by no later than September 30,
1999. Certain other systems classified as "not important", since they do not use
the date function, will also be tested and upgraded where it is of benefit to
the Company, but with the lowest priority of the Company's three system
classifications. The Company's remediation plan for its Year 2000 issue is an
ongoing process, and the estimated completion dates above are subject to change.
Overall, at this time the Company believes that its systems will be Year 2000
compliant in a timely manner for several reasons. The main or "central"
operating system used by the Company is already compliant with the exception of
one sub-system. To the extent that current systems that will not be replaced
have been determined to be non-compliant, the Company is working with the
suppliers of such systems to obtain upgrades and/or enhancements to ensure Year
2000 compliance. Also, comprehensive testing of nearly all critical systems was
performed in November, 1998, at the shut-down Alabama facility in a simulated
Year 2000 environment. Only minor issues were found from the testing which have
since been corrected and retested successfully.
At this stage in the process, the Company has not identified any significant
risks. However, the Company believes that the area of the greatest potential
risk relates to significant suppliers' failing to remediate their Year 2000
issues in a timely manner. The Company is conducting formal communications with
its significant suppliers to determine the extent to which it may be affected by
those parties' plans to remediate their own Year 2000 issues in a timely manner.
If a number of significant suppliers are not Year 2000 compliant, this could
have a material adverse effect on the Company's results of operations, financial
position or cash flow. At this point, the Company has not been advised by any
significant supplier that it is not Year 2000 compliant.
Page 10 of 14
<PAGE>
The Company will develop contingency plans and expects to have them completed
during 1999. To mitigate the effects of the Company's or significant suppliers'
potential failure to remediate the Year 2000 issue in a timely manner, the
Company will take appropriate actions. Such actions may include having
arrangements for alternate suppliers, using manual intervention to ensure the
continuation of operations where necessary and scheduling activity in December
1999 that would normally occur at the beginning of January 2000. If it becomes
necessary for the Company to take these corrective actions, it is uncertain,
until the contingency plans are finalized, whether this would result in
significant delays in business operations or have a material adverse effect on
the Company's results of operations, financial position or cash flow.
Based upon the Company's current estimates, incremental out-of-pocket costs of
its Year 2000 program are expected not to be material. Costs incurred in fiscal
1998 have been minimal and expensed as incurred. Additional costs are expected
to be incurred in fiscal 1999 and will be associated primarily with the
remediation of existing computer software and hardware. Such costs are estimated
to be approximately $500,000. Such costs do not include internal management
time, which the Company does not separately track, nor the deferral of other
projects, the effects of which are not expected to be material to the Company's
results of operations or financial condition.
Euro Conversion Issues
- ----------------------
Effective January 1, 1999, 11 of the 15 member countries of the European Union
(the participating countries) established fixed conversion rates between their
existing sovereign currencies and the euro. For three years after the
introduction of the euro, the participating countries can perform financial
transactions in either the euro or their original local currencies. This will
result in a fixed exchange rate among the participating countries, whereas the
euro (and the participating countries' currency in tandem) will continue to
float freely against the U.S. dollar and other currencies of the
non-participanting countries.
The Company is evaluating the effects of the euro conversion on the Company. IEC
does not believe that significant modifications of its information technology
systems are needed in order to handle euro transactions and reporting, and the
Company is in the process of evaluating its tax positions and all outstanding
contracts in currencies of the participating countries to determine the effects
if any, of the euro conversion. While the Company currently believes that the
effects of the conversion do not have a significant adverse material effect on
the Company's business and operations, there can be no assurances that such a
conversion will not have a adverse material effect on the Company's results of
operations and financial position due to competitive and other factors that may
be affected by the conversion that can not be predicted by the Company.
Interest rate sensitivity
- -------------------------
The Company has entered into a three year interest rate swap transaction with
one of the credit facility partners under which IEC pays a fixed rate of
interest hedging against the varible rates incurred under the credit facility.
The interest rate swap expires in the year 2001 which coincides with the
maturity date of the senior debt facility. As the Company intends to hold the
interest rate swap until maturity date, the Company is not subject to market
risk. In fact, such interest rate swap has fixed a portion of the interest
expense for the debt facility reducing the impact of interest rate risk.
Page 11 of 14
<PAGE>
Recently Issued Accounting Standards
- ------------------------------------
Additionally, in June, 1998, Statement of Financial Accounting Standards No. 133
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities"
was issued. This statement will be effective for the Company in fiscal 2000. The
Company believes that the effect of adoption of SFAS No. 133 will not be
material based on the Company's current risk management strategies.
Forward-Looking Statements
- --------------------------
Except for historical information, statements in this quarterly report are
forward-looking made pursuant to the safe harbor created by the Private
Securities Litigation Reform Act of 1995 and are therefore subject to certain
risks and uncertainties, including timing of orders and shipments, availability
of material, product mix and general market conditions that could cause actual
results to differ materially from those projected in the forward- looking
statements. Investors should consider the risks and uncertainties discussed in
the September 30, 1998, Form 10-K and its other filings with the Securities and
Exchange Commission.
Page 12 of 14
<PAGE>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Amendment No.2 and Consent (Mexico) Dated November 19, 1998 to Credit
Agreement Dated as of May 15, 1998 Among IEC Electronics Corp. any
Designated Affiliate Borrower(s) the Lenders Signatory thereto and
Chase Manhattan Bank as Adminsrative Agent
b. Reports on Form 8-K
None.
Page 13 of 14
<PAGE>
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: February 5, 1999 /s/Russell E. Stingel
-----------------------------
Russell E. Stingel
Chief Executive Officer
Dated: February 5, 1999 /s/Patricia A. Bird
------------------------------
Patricia A. Bird
Corporate Controller
Page 14 of 14
<PAGE>
Exhibit 10.1 Amendment No.2 and Consent (Mexico) Dated November 19, 1998 to
Credit Agreement Dated as of May 15, 1998 Among IEC Electronics
Corp. any Designated Affilate Borrower(s) the Lenders Signatory
thereto and Chase Manhattan Bank as Adminsrative Agent
AMENDMENT NO. 2 AND CONSENT
(MEXICO)
DATED AS OF NOVEMBER 19, 1998
TO
CREDIT AGREEMENT DATED AS OF MAY 15, 1998
AMONG
IEC ELECTRONICS CORP.
ANY DESIGNATED AFFILIATE BORROWER(S)
THE LENDERS SIGNATORY THERETO
AND
THE CHASE MANHATTAN BANK
AS ADMINISTRATIVE AGENT
<PAGE>
AMENDMENT NO. 2 AND CONSENT
(Mexico)
Amendment No. 2 and Consent dated as of November 19, 1998 ("Amendment No.
2") among IEC ELECTRONICS CORP. (the "Primary Borrower"), IEC ELECTRONICS -
EDINBURG, TEXAS, INC. ("Texas Sub"), each of the Lenders which is a party to the
Credit Agreement as defined below (individually a "Lender" and collectively the
"Lenders") and THE CHASE MANHATTAN BANK, as Administrative Agent for the Lenders
(in such capacity, together with its successors in such capacity, the
"Administrative Agent").
R E C I T A L S
R.1 The Primary Borrower, the Lenders and the Administrative Agent have
entered into a Credit Agreement dated as of May 15, 1998 and Amendment No. 1
thereto dated as of November 6, 1998 (as so amended, the "Credit Agreement").
Except as otherwise specified herein, the terms defined in the Credit Agreement
are used herein as so defined.
R.2 The Primary Borrower and Texas Sub desire to enter into a Shelter
Services Agreement in the form attached as Exhibit R2 to this Amendment No. 2
(the "Shelter Agreement"), and (a) Texas Sub desires to enter into the Bailment
Agreement, in the form attached in this Amendment No. 2 as Exhibit R2(a) (the
"Bailment Agreement"), and other documentation, required to be executed pursuant
to the Shelter Agreement (such other documentation being referred to herein as
the ("Associated Documentation") and (b) the Primary Borrower desires to enter
into a Guarantee, in the form of Exhibit R.2(b) to this Amendment No. 2 (the
"Lease Guarantee"). In order to execute, deliver and perform the Shelter
Agreement, the Bailment Agreement, the Associated Documentation and the Lease
Guarantee, the Primary Borrower and Texas Sub are required, pursuant to the
Credit Agreement and the Security Agreement executed by theTexas Sub to obtain
certain consents and waivers of the Required Lenders and the Administrative
Agent.
R.3 The Shelter Agreement, the Bailment Agreement and the Associated
Documentation contemplate that the "Shelter", as such term is defined in the
Shelter Agreement, will manufacture certain finished products for Texas Sub at
premises located in the Republic of Mexico to be leased by the Shelter (the
"Premises"), utilizing for such manufacture machinery, equipment and inventory
owned and supplied by Texas Sub, which machinery, equipment and inventory will
be located in Mexico, with finished product to be shipped weekly to Texas Sub in
the State of Texas. Such transactions pursuant to the Shelter Agreement, the
Bailment Agreement and the Associated Documentation are hereinafter referred to
as "Shelter Transactions". The Shelter Agreement will constitute a Guarantee by
the Primary Borrower of the Texas Sub's obligations under the Shelter Agreement
and the Lease Guarantee will constitute a Guarantee by the Primary Borrower of
Shelter's obligations under its lease of the Premises.
<PAGE>
R.4 The parties desire to amend the Credit Agreement, and the Lenders and
the Administrative Agent desire to grant the consents and waivers, all as
requested by Primary Borrower and Texas Sub, on the terms hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Except as otherwise set forth herein, as used in this
Amendment No. 2, the terms defined in the Credit Agreement shall have the
meanings assigned to them in the Credit Agreement.
2. Amendments. The Credit Agreement is hereby amended as set forth below:
2.1 Definition. The following definition is added to Section 1.01 of
the Credit Agreement:
"Amendment No. 2" shall mean Amendment No.2 and Consent dated
as of November 19, 1998 to Credit Agreement dated as of May 15,1998.
2.2 Locations of Assets: Clause (ii) of the second sentence of Section
5.29 of the Credit Agreement is hereby amended to read in its entirety
as follows:
(ii) with respect to any Warehoused Inventory located outside of the
U.S. that is not subject to a first priority Lien meeting the
conditions of clause (i) above, the book value of all such
Warehoused Inventory of Primary Borrower, Texas Sub and Alabama Sub
located at any single location never exceeds $1,000,000 and the book
value of all such Warehoused Inventory of Primary Borrower, Texas
Sub and Alabama Sub at all locations never exceeds $2,000,000.
<PAGE>
3. Lenders' Consents and Waivers. Subject to the conditions set forth in
Section 4 below and to the conditions subsequent set forth in Section 7 of this
Amendment No. 2, the Administrative Agent and each Lender signatory hereto (a)
consent to the execution, delivery and performance by the Primary Borrower and
by Texas Sub, as the case may be, of the Shelter Agreement, the Bailment
Agreement, the Associated Documentation and the Lease Guarantee and to the
consummation by Texas Sub of Shelter Transactions and (b) waive the provisions
of the Credit Agreement, the Texas Sub Security Agreement and the other Loan
Documents to the extent necessary to permit such execution, delivery,
performance and consummation.
4. Conditions to Consents and Waivers. The consents and waivers of the
Lenders and the Administrative Agent under Section 3 above (a) are given only as
to the specific transactions described therein, (b) do not otherwise waive or
modify any other terms of or waive any non compliance with or Default under the
Credit Agreement or any other Loan Document, (c) are specifically conditioned on
the representations and warranties set forth in Section 5 below being true and
correct as of the date on which this Amendment No. 2 becomes effective pursuant
to Section 6 below and (d) do not extend to, and shall not be deemed to permit,
the exercise by Texas Sub, Primary Borrower or any of their Affiliates of the
option provided for in Article Twenty-Two of the Shelter Agreement, which option
may not be exercised without the prior written consent of the Required Lenders.
5. Representations and Warranties. The Primary Borrower and Texas Sub
hereby represent and warrant to the Lenders that:
5.1 Corporate Power and Authority: No Conflicts. The execution,
delivery and performance by the Primary Borrower and Texas Sub of this Amendment
No. 2 have been duly authorized by all necessary corporate action and do not and
will not:(a) require any consent or approval of the Primary Borrower's
stockholders;(b)contravene the charter or by-laws of either Primary Borrower or
Texas Sub;(c) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Primary Borrower or any of its Subsidiaries or Affiliates
(other than any appropriate disclosure required to be contained in periodic
reports to be filed by the Primary Borrower pursuant to the Securities Exchange
Act of 1934 and applicable regulations thereunder); (d) result in a breach of or
constitute a default or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Primary Borrower or any of its Subsidiaries is a party or by which any of them
or their properties may be bound or affected; or (e) cause the Primary Borrower
or any Subsidiary to be in default under any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument.
5.2 Legally Enforceable Agreement. Each of this Amendment No. 2, and
the Credit Agreement, as amended by this Amendment No. 2, is a legal, valid and
binding obligation of the Primary Borrower enforceable against the Primary
Borrower in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency or other similar
laws affecting creditors' rights generally. Each of this Amendment No. 2 and
each Loan Document to which Texas Sub is a party, is a legal, valid and binding
obligation of Texas Sub enforceable against Texas Sub in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditor's rights generally.
5.3 Recitals. The statements set forth in Recitals R.2 and R.3 are
true and correct.
6. Effectiveness. This Amendment No. 2 shall be of no force or effect
unless (a) the Primary Borrower and the Administrative Agent shall have each
received counterparts of this Amendment No. 2 duly executed by the Primary
Borrower, Texas Sub, each Guarantor, the Administrative Agent, and the Required
Lenders on or before December 31, 1998 and (b) the Administrative Agent shall
have received, for the account of each Lender, an amendment fee of $5,000 for
each Lender.
<PAGE>
7. Conditions Subsequent. The consents and waivers set forth in Section 3
above shall be subject to the conditions subsequent that (a) such consents and
waivers shall be rescinded and of no further force or effect in the event that
the aggregate net book value of all assets owned by the Primary Borrower and
Texas Sub and located in Mexico pursuant to the Shelter Agreement and the
Bailment Agreement, including assets located in Mexico during the course of one
or more Shelter Transactions, at any time exceeds $6,000,000 and (b) the Secured
Party under the Texas Sub Security Agreement shall at all times be provided with
such endorsements and other documentation, in form and substance reasonably
satisfactory to the Administrative Agent, as may be required under Section 4.7
of such Security Agreement with respect to insurance coverage for the assets of
Texas Sub located in Mexico pursuant to the Shelter Agreement, the Bailment
Agreement, any Associated Documentation or any Shelter Transaction.
8. Agent's Expenses. Primary Borrower agrees to pay the Administrative
Agent for all costs, expenses and charges (including, without limitation, fees
and charges of external legal counsel for the Administrative Agent and costs
allocated by its internal legal department) incurred by the Administrative Agent
in connection with the negotiation, preparation and execution of this Amendment
No. 2 and the documents executed in connection herewith.
9. Miscellaneous. Except as expressly provided in this Amendment No. 2, the
Credit Agreement and each of the other Loan Documents shall remain unchanged and
in full force and effect, except that each reference in the Credit Agreement,
and in any other Loan Document and in any agreements, certificates and notices
simultaneously herewith or hereafter executed under or pursuant to the Credit
Agreement or the other Loan Documents, to the "Credit Agreement", "this
Agreement", "hereof", "herein" and similar terms referring to the Credit
Agreement, shall be deemed to refer to the Credit Agreement as amended by this
Amendment No. 2.
This Amendment No. 2 shall be governed by and construed in accordance with
the laws of the State of New York.
The section headings in this Amendment No. 2 are inserted for convenience
only and shall not be a part of this instrument.
This Amendment No. 2 may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signature thereto and
hereto were upon the same instrument.
SIGNATURE PAGES 8 THROUGH 11 TO FOLLOW.
<PAGE>
IN WHITNESS WHEREOF, the parties have caused this Amendment No. 2 to be
executed as of the date first above written.
IEC ELECTRONICS-EDINBURG, IEC ELECTRONICS CORP.
TEXAS, INC.
By/s/Diana R. Kurty By/s/Diana R. Kurty
- -------------------- --------------------
Name:Diana R. Kurty Name:Diana R. Kurty
Title:Chief Financial Officer Title:Chief Financial Officer
As Guarantors, the undersigned hereby consent to the provisions of the
foregoing Amendment No. 2 and agree that their respective Guarantees remain in
full force and effect after giving effect to this Amendment No. 2.
IEC ARAB ALABAMA, INC.
By:/s/ Diana R. Kurty
---------------------
Name: Diana R. Kurty
Title: Chief Financial Officer
IEC ELECTRONICS - EDINBURG, TEXAS, INC.
By:/s/ Diana R. Kurty
---------------------
Name: Diana R. Kurty
Title:Chief Financial Officer
<PAGE>
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK
By:/s/ Gail G. Fiorini
-------------------
Name:Gail G. Fiorini
Title:Vice President
LENDER:
THE CHASE MANHATTAN BANK
By:/s/ Gail G. Fiorini
----------------------
Name:Gail G. Fiorini
Title: Vice President
<PAGE>
BANKS:
MARINE MIDLAND BANK
By:/s/ Richard L. Ford
----------------------
Name: Richard L. Ford
Title:Vice President
<PAGE>
BANKS:
KEYBANK NATIONAL ASSOCIATION
By:/s/David J. Janus
--------------------
Name: David J. Janus
Title:Senior Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-25-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,856
<ALLOWANCES> 0
<INVENTORY> 18,777
<CURRENT-ASSETS> 48,114
<PP&E> 34,036
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,546
<CURRENT-LIABILITIES> 36,281
<BONDS> 6,000
0
0
<COMMON> 76
<OTHER-SE> 67,237
<TOTAL-LIABILITY-AND-EQUITY> 93,546
<SALES> 36,281
<TOTAL-REVENUES> 36,294
<CGS> 36,883
<TOTAL-COSTS> 3,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> (3,366)
<INCOME-TAX> (1,061)
<INCOME-CONTINUING> (2,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,305)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The information in this finanical data schedule has been restated to reflect the
effect of Statement of Financal Accounting Standards No.128,
"Earnings per Share."
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-26-1997
<CASH> 146
<SECURITIES> 0
<RECEIVABLES> 55,569
<ALLOWANCES> 0
<INVENTORY> 41,545
<CURRENT-ASSETS> 99,281
<PP&E> 40,788
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,305
<CURRENT-LIABILITIES> 62,915
<BONDS> 7,648
0
0
<COMMON> 76
<OTHER-SE> 77,823
<TOTAL-LIABILITY-AND-EQUITY> 152,305
<SALES> 94,115
<TOTAL-REVENUES> 94,159
<CGS> 85,427
<TOTAL-COSTS> 4,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648
<INCOME-PRETAX> 3,874
<INCOME-TAX> 1,457
<INCOME-CONTINUING> 1,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,327
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
