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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 1, 2021
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
 
Commission File Number 001-34376
 
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)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueIECNasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.01 par value – 10,571,808 shares as of January 25, 2021



TABLE OF CONTENTS
 
 
2



Part I  FINANCIAL INFORMATION
 
Item 1. Condensed Consolidated Financial Statements
 
IEC ELECTRONICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2021 and SEPTEMBER 30, 2020
(unaudited; in thousands, except share and per share data)
 January 1,
2021
September 30,
2020
ASSETS
Current assets:
Cash$102 $312 
Accounts receivable, net of allowance28,285 30,361 
Unbilled contract revenue11,841 8,773 
Inventories55,695 51,374 
Other current assets2,186 1,757 
Total current assets98,109 92,577 
Property, plant and equipment, net49,868 23,587 
Deferred income taxes4,675 4,840 
Operating lease right-of-use assets, net of accumulated amortization230 260 
Other long-term assets612 1,700 
Total assets$153,494 $122,964 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of operating lease obligation62 61 
Current portion of finance lease obligation1,449 436 
Accounts payable26,652 29,733 
Accrued payroll and related expenses1,563 3,659 
Other accrued expenses553 457 
Customer deposits22,192 19,783 
Total current liabilities52,471 54,129 
Long-term debt32,166 21,476 
Long-term operating lease obligation168 184 
Long-term finance lease obligation26,669 6,616 
Other long-term liabilities1,373 1,404 
Total liabilities112,847 83,809 
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value:
500,000 shares authorized; none issued or outstanding  
Common stock, $0.01 par value:
Authorized: 50,000,000 shares
Issued: 11,633,521 and 11,556,214 shares, respectively
Outstanding: 10,578,033 and 10,500,726 shares, respectively106 105 
Additional paid-in capital49,115 49,161 
Accumulated deficit(6,985)(8,522)
Treasury stock, at cost: 1,055,488 shares(1,589)(1,589)
Total stockholders’ equity40,647 39,155 
Total liabilities and stockholders’ equity$153,494 $122,964 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3



IEC ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 1, 2021 and DECEMBER 27, 2019
(unaudited; in thousands, except share and per share data)
Three Months Ended
January 1,
2021
December 27,
2019
Net sales$47,481 $44,734 
Cost of sales41,741 39,495 
Gross profit5,740 5,239 
Selling and administrative expenses3,519 3,299 
Operating profit2,221 1,940 
Interest expense457 415 
Income before income taxes1,764 1,525 
Provision for income taxes227 336 
Net income$1,537 $1,189 
Net income per common share:
Basic$0.15 $0.11 
Diluted$0.14 $0.11 
Weighted average number of shares outstanding:
Basic10,524,842 10,365,766 
Diluted10,920,866 10,695,977 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4



IEC ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENT of CHANGES in STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED JANUARY 1, 2021
(unaudited; in thousands, except share and per share data)

Number of Shares OutstandingCommon
Stock,
par $0.01
Additional
Paid-In
Capital
Accumulated DeficitTreasury
Stock,
at cost
Total
Stockholders’
Equity
Balances, September 30, 202010,500,726 $105 $49,161 $(8,522)$(1,589)$39,155 
— 
Net income— — — 1,537 — 1,537 
Stock-based compensation— — 242 — 242 
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes57,455 1 (401)— — (400)
Exercise of stock options14,000 — 68 — — 68 
Employee stock plan purchases5,852 — 45 — — 45 
Balances, January 1, 202110,578,033 $106 $49,115 $(6,985)$(1,589)$40,647 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



IEC ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENT of CHANGES in STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED DECEMBER 27, 2019
(unaudited; in thousands, except share and per share data)

Number of Shares OutstandingCommon
Stock,
par $0.01
Additional
Paid-In
Capital
Accumulated DeficitTreasury
Stock,
at cost
Total
Stockholders’
Equity
Balances, September 30, 201910,338,548 $103 $48,001 $(15,275)$(1,589)$31,240 
Net income— — — 1,189 — 1,189 
Stock-based compensation— — 152 — — 152 
Vested restricted stock and restricted stock units, net of shares withheld for payment of taxes6,367 — (24)— — (24)
Exercise of stock options24,000 — 130 — — 130 
Employee stock plan purchases6,449 — 40 — — 40 
Balances, December 27, 201910,375,364 $103 $48,299 $(14,086)$(1,589)$32,727 

The accompanying notes are an integral part of these condensed consolidated financial statements.


6


IEC ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS
THREE MONTHS ENDED JANUARY 1, 2021 and DECEMBER 27, 2019
(unaudited; in thousands) 
 Three Months Ended
January 1,
2021
December 27,
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$1,537 $1,189 
Non-cash adjustments:
Stock-based compensation242 152 
Depreciation and amortization1,127 776 
Increase in reserve for doubtful accounts52 28 
Increase in inventory reserve and warranty reserve312 1,063 
Deferred tax expense165 320 
Amortization of deferred gain(29)(29)
Changes in operating assets and liabilities:
Accounts receivable2,024 (924)
Unbilled contract revenue(3,068)(474)
Inventories(4,595)(1,742)
Other current assets(429)(611)
Other long-term assets444 (1)
Accounts payable(3,994)1,531 
Change in book overdraft position913 284 
Accrued expenses(2,038)(1,088)
Customer deposits2,409 1,869 
Net change in lease right-of-use assets and liabilities15  
Net cash flows (used in)/provided by operating activities(4,913)2,343 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment(7,599)(324)
Net cash flows used in investing activities(7,599)(324)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from revolving credit facility34,122 15,809 
Repayments of revolving credit facility(24,220)(17,965)
Borrowings under other loan agreements2,910  
Repayments under other loan agreements(2,147)(343)
Payments under finance lease(227)(81)
Proceeds received from lease financing obligation2,151 415 
Proceeds from exercise of stock options68 130 
Proceeds from employee stock plan purchases45 40 
Cash paid for taxes upon vesting of restricted stock(400)(24)
Net cash flows provided by/(used in) financing activities12,302 (2,019)
Net cash change for the period(210) 
Cash, beginning of period312  
Cash, end of period$102 $ 
Supplemental cash flow information
Interest paid$393 $405 
Income taxes paid1 16 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


IEC ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1—OUR BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our Business
 
IEC Electronics Corp. (“IEC,” the “Company,” “we,” “our,” or “us”) 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 9001:2015, AS9100D, 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 website 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 30 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, 2021 (“fiscal 2021”), the fiscal quarters ended or will end on January 1, 2021, April 2, 2021 and July 2, 2021. For the fiscal year ended September 30, 2020 (“fiscal 2020”), the fiscal quarters ended on December 27, 2019, March 27, 2020 and June 26, 2020.
 
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, for fiscal 2019, IEC California Holdings, Inc., which was dissolved as of September 18, 2019. All intercompany transactions and accounts are eliminated in consolidation. 

Unaudited Financial Statements
 
The accompanying unaudited condensed consolidated financial statements for the three months ended January 1, 2021 and December 27, 2019 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, 2020.

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 $0.9 million as of January 1, 2021. There were no book overdrafts at September 30, 2020. Changes in the book overdrafts are presented within net cash flows (used in)/provided by operating activities within the condensed consolidated statements of cash flows.
 
8


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.
PP&E LivesEstimated
Useful Lives
 (years)
Land improvements10
Buildings and improvements5 to 40
Machinery and equipment3 to 10
Furniture and fixtures3 to 7
Software3 to 10
 
Reviewing Long-Lived Assets for Potential Impairment
 
ASC 360 (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 the three months ended January 1, 2021 and December 27, 2019.
 
Legal Contingencies
 
When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, ASC 450 (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.
 
9


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, accrued liabilities and borrowings.
 
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 the three months ended January 1, 2021 and December 27, 2019.

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, 2016 through fiscal year ended September 30, 2019.
 
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 Sixth Amended and Restated Credit Facility Agreement with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in Note 6—Credit Facilities. 

10


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: excess and obsolete inventory reserve, 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 months ended January 1, 2021 and December 27, 2019 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 between its facilities for sales, marketing, engineering, supply chain, information services, human resources, payroll and corporate accounting functions. Consolidated financial information 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.

Leases

At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating lease or a finance lease. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.

The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:

Periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and
Periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. Lease components provide the Company with the right to use an identified asset, which consist of real estate properties and equipment. Non-lease components consist primarily of maintenance services.

As an implicit discount rate is not readily available in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of twelve months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other current liabilities and other long-term liabilities, respectively.

A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred by the Company to implement the lease and lease incentives. ROU assets are classified as other long-term assets, on the Company’s condensed consolidated balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment, and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record the impairment loss in its condensed consolidated statements of operations. The Company did not recognize an impairment loss during the three months ended January 1, 2021 and December 27, 2019.

Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price Index). The Company did not incur variable lease payments during the three months ended January 1, 2021 and December 27, 2019.

11


Recently Issued Accounting Updates

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to determine their impact on the Company's condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption will have a material impact on the Company’s condensed consolidated financial statements.

NOTE 2—REVENUE RECOGNITION

ASC 606: Revenue from Contracts with Customers

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 contract's 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 52.2% and 52.3% of the Company's revenue for the three months ended January 1, 2021 and December 27, 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 47.8% and 47.7% of the Company's revenue for the three months ended January 1, 2021 and December 27, 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 2% of total revenue in each of the three months ended January 1, 2021 and December 27, 2019.
 
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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 expenses 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.
Three Months Ended
January 1, 2021December 27, 2019
Point in TimeOver TimeNet SalesPoint in TimeOver TimeNet Sales
(in thousands)
Aerospace & Defense$14,422 $14,779 $29,201 $14,014 $13,273 $27,287 
Medical5,424 7,027 12,451 4,198 6,986 11,184 
Industrial4,926 903 5,829 5,192 1,071 6,263 
$24,772 $22,709 $47,481 $23,404 $21,330 $44,734 


13


Customer Deposits

Customer deposits are recorded when cash payments are received or due in advance of revenue recognition from contracts with customers. The timing of revenue recognition may differ from the timing of billings to customers. The changes in customer deposits from the Company's custom manufacturing services are as follows:
Three Months Ended
January 1,
2021
December 27,
2019
(in thousands)
Beginning balance$19,783 $13,229 
Recognition of deferred revenue(5,874)(5,041)
Deferral of revenue8,283 6,910 
Ending balance$22,192 $15,098 

Sales Outside the United States

For each of the three months ended January 1, 2021 and December 27, 2019, less than 2% 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 three months ended January 1, 2021 and December 27, 2019:
 Three Months Ended
Allowance for doubtful accountsJanuary 1,
2021
December 27,
2019
(in thousands) 
Allowance, beginning of period$185 $71 
Increase in provision for doubtful accounts55 28 
Write-offs(3) 
Allowance, end of period$237 $99 

NOTE 4—INVENTORIES  

A summary of inventory by category at period end follows:
InventoriesJanuary 1,
2021
September 30,
2020
(in thousands) 
Raw materials$40,438 $32,904 
Work-in-process11,303 15,009 
Finished goods3,954 3,461 
Total inventories$55,695 $51,374 

14


NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET

A summary of property, plant and equipment and accumulated depreciation at period end follows:
Property, Plant and EquipmentJanuary 1,
2021
September 30,
2020
(in thousands)
Land and improvements$788 $788 
Buildings and improvements7,789 7,430 
Buildings under finance lease27,709 7,750 
Machinery and equipment34,486 34,095 
Furniture and fixtures8,579 8,113 
Software5,215 5,215 
Construction in progress12,289 6,079 
Total property, plant and equipment, at cost96,855 69,470 
Accumulated depreciation(46,987)(45,883)
Property, plant and equipment, net$49,868 $23,587 
 
In November 2020, the Company commenced a lease for certain property located in Newark, New York, which includes a new state-of-the art manufacturing facility and administrative offices having approximately 153,000 square feet (the “Property”). The lease for the Property has an initial term of 15 years with one renewal option of 10 years resulting in a right of use asset of $19.1 million.

In October 2020, the Company acquired an industrial and office building and certain equipment located at 50 Jetview Drive, Rochester, New York (“Jetview building”). The value of the Jetview building is recorded at $5.4 million in the construction in progress section of the above schedule for the three months ended January 1, 2021.

Depreciation expense during the three months ended January 1, 2021 and December 27, 2019 follows:
 Three Months Ended
Depreciation ExpenseJanuary 1,
2021
December 27,
2019
(in thousands)
Depreciation expense$1,103 $757 

NOTE 6—CREDIT FACILITIES  

A summary of borrowings at period end follows: 
January 1, 2021September 30, 2020
Credit Facility DebtFixed/Variable RateMaturity DateBalanceInterest RateBalanceInterest Rate
(in thousands)
M&T Bank credit facilities:
Revolving Credit Facilityv6/4/2023$29,862 2.75 %$19,960 2.75 %
Master Leasev6/4/20232,545 3.00 1,782 3.00 
Total debt, gross32,407 21,742 
Unamortized debt issuance costs(241)(266)
Total debt, net32,166 21,476 
Less: current portion  
Long-term debt$32,166 $21,476 

M&T Bank Credit Facilities

Effective as of June 4, 2020, the Company and M&T Bank entered into the Sixth Amended and Restated Credit Facility Agreement (the “Credit Facility”) which replaced the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by various amendments (collectively, the “Prior Credit Facility, as amended”).
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Pursuant to the Credit Facility, the Company increased its revolving credit facility to an aggregate principal amount of $45.0 million and added provisions that allow the Company, subject to certain requirements, to request further increases, in minimum amounts of $5.0 million, up to $55.0 million. The Credit Facility also amended the financial covenant, Fixed Charge Coverage Ratio, and set a Minimum Fixed Charge Coverage Ratio. In addition, the Credit Facility modified the definition of Applicable Margin used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and modified the definition of Permitted Acquisitions. The Credit Facility also established a LIBOR floor of 1% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. The Credit Facility prohibits the Company from making cash dividends without first obtaining the consent of M&T Bank.

Also on June 4, 2020, the Company and M&T Bank entered into a master equipment lease (the “Master Lease”) for a lease line of up to $10.0 million in lease value of equipment to the Company. The Master Lease contains terms and provisions customary for transactions of this type, including obligations relating to the use, operation and maintenance of the equipment. The Master Lease also contains customary events of default, including nonpayment of amounts due under the lease and assignments for the benefit of creditors, bankruptcy or insolvency. In the event that an event of default occurs, M&T Bank may exercise one or more remedies specified in the Master Lease. At the conclusion of the lease term, the Company will have the right to purchase the equipment under the Master Lease. The Master Lease will renew automatically for additional 12-month terms until the Company provides M&T Bank with notice of non-renewal.

The Credit Facility 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 of January 1, 2021 and September 30, 2020, are described below:

a)Revolving Credit Facility (“Revolver”): At January 1, 2021 and September 30, 2020, up to $45.0 million was available under the Credit Facility through June 4, 2023. The maximum amount the Company may borrow is determined based on a borrowing base calculation described below.
b)Master Lease: At January 1, 2021 and September 30, 2020, we had drawn down $2.5 million and $1.8 million, respectively, pursuant to the Master Lease that was entered into as of June 4, 2020.

Borrowing Base

At January 1, 2021 and September 30, 2020, under the Credit Facility, the maximum amount the Company can borrow under the Revolver was the lesser of (i) 85% of eligible receivables plus (ii) up to 90% of eligible investment grade accounts plus (iii) a percentage of eligible inventories (up to a cap of $30.0 million).

At January 1, 2021, the upper limit on Revolver borrowings was $40.5 million and $10.6 million was available. At September 30, 2020, the upper limit on Revolver borrowings was $39.4 million and $19.4 million was available. Average Revolver balances amounted to $29.8 million and $24.5 million (under the Prior Credit Facility, as amended) during the three months ended January 1, 2021 and December 27, 2019, respectively.

Interest Rates

Under the Credit Facility, 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 January 1, 2021, the applicable marginal interest rate was 1.75% for the Revolver. At September 30, 2020, the applicable marginal interest rate was 1.75% for the Revolver. 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 $45.0 million over average borrowings under the Revolver. For the fiscal quarter ended January 1, 2021, the unused commitment fee was fixed at 0.25%. Fees incurred amounted to $11.7 thousand and $5.8 thousand during the three months ended January 1, 2021 and December 27, 2019, respectively. The fee percentage varies based on the Company’s Fixed Charge Coverage Ratio, as defined below.

Financial Covenants

The Credit Facility contains various affirmative and negative covenants including financial covenants. As of January 1, 2021, 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
16


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 January 1, 2021 as a minimum of 1.10 times. The Fixed Charge Coverage Ratio was the only covenant in effect at January 1, 2021. The Credit Facility 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 January 1, 2021.

Contractual Principal Payments

A summary of contractual principal payments under IEC’s borrowings at January 1, 2021 for the next two years taking into consideration the Credit Facility is as follows:
Debt Repayment ScheduleContractual
Principal
Payments
(in thousands) 
Twelve months ending fiscal first quarter 
2022 
2023 ¹32,407 
 $32,407 
1 Includes Revolver balance of $29.9 million at January 1, 2021.

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: 
 Three Months Ended
Warranty ReserveJanuary 1,
2021
December 27,
2019
(in thousands)  
Reserve, beginning of period$100 $165 
Provision38 13 
Warranty costs(12)(23)
Reserve, end of period$126 $155 

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 replaced 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.

17


Stock-based compensation expense recorded under the 2010 Plan and the 2019 Plan, totaled $0.2 million for each of the three months ended January 1, 2021 and December 27, 2019.

At January 1, 2021, there were 517,154 shares of common stock remaining available to be issued under the 2019 Plan and 68,866 shares of common stock remaining 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 and 2019 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 three months ended January 1, 2021 follows. There were no options granted during the three months ended December 27, 2019.
 Three Months Ended
Valuation of OptionsJanuary 1, 2021
Assumptions for Black-Scholes:
Risk-free interest rate0.41 %
Expected term in years5.5
Volatility40 %
Expected annual dividendsnone
 
Value of options granted:
Number of options granted40,000 
Weighted average fair value per share$3.82 
Fair value of options granted (000s)$153 
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A summary of stock option activity, together with other related data, follows:
 Three Months Ended
 January 1, 2021December 27, 2019
Stock OptionsNumber
of Options
Wgtd. Avg.
Exercise
Price
Number
of Options
Wgtd. Avg.
Exercise
Price
Outstanding, beginning of period670,145 $4.67 743,145 $4.54 
Granted40,000 9.65   
Exercised(14,000)4.84 (24,000)5.42 
Forfeited(7,000)3.74 (10,000)3.58 
Expired  (5,000)6.91 
Outstanding, end of period689,145 $4.97 704,145 $4.51 
For options expected to vest  
Number expected to vest679,790 $4.94 695,555 $4.49 
Weighted average remaining contractual term, in years5.33.5
Intrinsic value (000s)$5,855  $3,283 
For exercisable options  
Number exercisable497,645 $4.30 541,645 $4.16 
Weighted average remaining contractual term, in years4.32.4 
Intrinsic value (000s)$4,601  $2,738 
For non-exercisable options  
Expense not yet recognized (000s)$449 $304 
Weighted average years to be recognized3.03.0 
For options exercised
Intrinsic value (000s)$82  $64 
 
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. 
 
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A summary of restricted stock activity, together with related data, follows: 
 Three Months Ended
 January 1, 2021December 27, 2019
Restricted (Non-vested) StockNumber of Non-vested SharesWgtd. Avg. Grant Date Fair ValueNumber of Non-vested SharesWgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period49,825 $5.32 82,707 $5.25 
Granted8,582 8.68   
Vested  (10,000)3.60 
Forfeited    
Outstanding, end of period58,407 $5.82 72,707 $5.48 
For non-vested shares  
Expense not yet recognized (000s)$260  $295 
Weighted average remaining years for vesting1.91.9
For shares vested  
Aggregate fair value on vesting dates (000s) $  $66 
 
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:
 Three Months Ended
 January 1, 2021December 27, 2019
Restricted Stock UnitsNumber of Non-vested UnitsWgtd. Avg. Grant Date Fair ValueNumber of Non-vested UnitsWgtd. Avg. Grant Date Fair Value
Outstanding, beginning of period186,727 $6.56 153,186 $5.36 
Granted67,597 7.65   
Vested(88,392)4.28   
Forfeited—    
Outstanding, end of period165,932 $8.21 153,186 $5.36 
For non-vested shares
Expense not yet recognized (000s)$940 $603 
Weighted average remaining years for vesting2.12.0
For shares vested
Aggregate fair value on vesting dates (000s)$1,074 $ 

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NOTE 9—INCOME TAXES  

The provision for income taxes during each of the three months ended January 1, 2021 and December 27, 2019 follows:
 Three Months Ended
January 1,
2021
December 27,
2019
(in thousands) 
Provision for income taxes$227 $336 
 
In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company has assessed the provisions of the CARES Act and determined that there were no material tax impacts to the condensed consolidated financial statements for the period ended January 1, 2021.

The Company's effective tax rate for the three months ended January 1, 2021 is 12.9% and 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 months ended January 1, 2021, the permanent items included meals and entertainment and stock based compensation. There was a discrete item related to stock based compensation recognized in the three months ended January 1, 2021.

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
% of Sales by SectorJanuary 1,
2021
December 27,
2019
Aerospace & Defense62%61%
Medical26%25%
Industrial12%14%
100%100%

Three individual customers represented 10% or more of sales for the three months ended January 1, 2021. Two of these customers were from the aerospace & defense sector and represented 24% and 15% of sales. The third customer was from the medical sector and represented 15% of sales for the three months ended January 1, 2021.

Three individual customers represented 10% or more of sales for the three months ended December 27, 2019. Two of these customers were from the aerospace & defense sector and represented 27% and 12% of sales. The third customer was from the medical sector and represented 15% of sales for the three months ended December 27, 2019.

Two individual customers represented 10% or more of receivables and accounted for 28% of the outstanding balance at January 1, 2021. Two individual customers represented 10% or more of receivables and accounted for 30% of the outstanding balance at September 30, 2020.

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.

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NOTE 12—LEASES

Operating Leases

IEC has a lease portfolio that consists of operating leases for equipment, and has remaining terms from less than one year to up to approximately five years, with contractual terms expiring from 2022 to 2024. None of these leases contain residual value guarantees, substantial restrictions, or covenants.

Supplemental balance sheet information related to the Company’s operating leases were as follows:
January 1, 2021September 30, 2020
Weighted average remaining lease term for operating leases (in years)3.53.8
Weighted average discount rate for operating leases5.47 %5.47 %

Finance Leases

IEC's lease portfolio also consists of finance leases for equipment and real estate, and has remaining terms of four years up to approximately fifteen years, with contractual terms expiring in 2024 through 2035.

Supplemental balance sheet information related to the Company’s finance leases were as follows:
January 1, 2021September 30, 2020
Finance lease right-of-use assets, net of accumulated amortization (included in PP&E) (in thousands)28,0696,329
Weighted average remaining lease term for finance leases (in years)13.411.3
Weighted average discount rate for finance leases3.57%4.83%

In November 2020 the Company commenced a lease for the Property located in Newark, New York, which includes a new state-of-the art manufacturing facility and administrative offices. The lease for the Property has an initial term of 15 years with one renewal option of 10 years, resulting in a right of use asset of $19.1 million. The Company entered into a lease under our Master Lease for certain equipment and leasehold improvements to be located at the Property and received financing of $2.5 million during the three months ended January 1, 2021. The equipment and leasehold improvements are included in property, plant and equipment on the condensed consolidated balance sheets. The Master Lease is described in Note 6—Credit Facilities.

Lease Expense

The components of lease expense, recorded in cost of sales, selling and administrative expenses and interest expense in the condensed consolidated statements of operation, during the three months ended January 1, 2021 and December 27, 2019 were as follows:
Three Months Ended
Lease ExpenseClassificationJanuary 1,
2021
December 27,
2019
(in thousands)
Operating lease expense
Fixed payment operating lease expense ¹Cost of sales$51 $26 
Fixed payment operating lease expenseSelling and administrative expenses13 15 
Variable payment operating lease expense  
Finance lease expense
Depreciation of ROU assetsCost of sales330 129 
Depreciation of ROU assetsSelling and administrative expenses22  
InterestInterest expense215 85 
Total lease expense$631 $255 
1 Includes short-term leases which are not material.
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Supplemental Cash Flow Information

Supplemental cash flow information related to the Company's leases during the three months ended January 1, 2021 and December 27, 2019 were as follows:
Three Months Ended
Supplemental Cash FlowJanuary 1,
2021
December 27,
2019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating lease ROU assets$18 $32 
Interest paid on finance leases215 85 
Lease liabilities arising from obtaining ROU assets:
Finance leases$19,142 $19 

Contractual Lease Payments

A summary of operating lease payments for the next five years follows:
Operating Lease Payment ScheduleContractual
Lease
Payments
(in thousands) 
Twelve months ending first fiscal quarter 
2022$73 
202372 
202472 
202537 
2026 and thereafter 
Total operating lease payments254 
Less: amounts representing interest(24)
Total operating lease obligation$230 

A summary of finance lease payments for the next five years follows:
Finance Lease Payment ScheduleContractual
Lease
Payments
(in thousands) 
Twelve months ending first fiscal quarter 
2022$2,442 
20232,497 
20242,551 
20252,608 
2026 and thereafter25,785 
Total finance lease payments35,883 
Less: amounts representing interest(7,765)
Total finance lease obligation$28,118 


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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
Net Income Per ShareJanuary 1,
2021
December 27,
2019
(in thousands, except share and per share data)
Basic net income per share:
Net income $1,537 $1,189 
Less: Income attributable to non-vested shares(8)(10)
Net income available to common stockholders$1,529 $1,179 
Weighted average common shares outstanding10,524,842 10,365,766 
Basic net income per share$0.15 $0.11 
Diluted net income per share:
Net income $1,537 $1,189 
Shares used in computing basic net income per share10,524,842 10,365,766 
Dilutive effect of options and non-vested shares396,024 330,211 
Shares used in computing diluted net income per share10,920,866 10,695,977 
Diluted net income per share$0.14 $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
January 1,
2021
December 27,
2019
Anti-dilutive shares excluded1,935  

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes. All references to “Notes” are to the accompanying condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (“Form 10-Q”).
 
Cautionary Note Regarding Forward-Looking Statements

References in this report to “IEC,” the “Company,” “we,” “our,” or “us” mean IEC Electronics Corp. and its subsidiaries except where the context otherwise requires. This Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements include, but are not limited to, statements regarding future sales and operating results, future prospects, the capabilities and capacities of business operations, any financial or other guidance and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events and is subject to various uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those views expressed or implied in our forward-looking statements: the impact of the COVID-19 pandemic on our business, including our supply chain, workforce and customer demand; business conditions and growth or contraction in our customers’ industries, the electronic manufacturing services industry and the general economy; our ability to control our material, labor and other costs; our dependence on a limited number of major customers; uncertainties as to availability and timing of governmental funding for our customers; the impact of government regulations, including U.S. Food and Drug Administration regulations; unforeseen product failures and the potential product liability claims that may be associated with such failures; technological, engineering and other start-up issues related to new programs and products; variability and timing of customer requirements; the potential consolidation of our customer base; availability of component supplies; dependence on certain industries; the ability to realize the full value of our backlog; the types and mix of sales to our customers; litigation and governmental investigations; intellectual property litigation; variability of our operating results; our ability to maintain effective internal controls over financial reporting; the availability of capital and other economic, business and competitive factors affecting our customers, our industry and business generally; failure or breach of our information technology systems; and natural disasters. Any one or more of such risks and uncertainties could have a material adverse effect on us or the value of our common stock. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements included in this Form-10-Q are made only as of the date indicated or as of the date of this Form 10-Q. We do not undertake any obligation to, and may not, publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or which we hereafter become aware of, except as required by law. New risks and uncertainties arise from time to time and we cannot predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements. Therefore, you should not rely on our forward-looking statements as predictions of future events. When considering these risks, uncertainties and assumptions, you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference. You should read this document and the documents that we reference in this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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Overview

IEC Electronics Corp. (“IEC,” “we,” “our,” “us,” or the “Company”) conducts business directly, as well as through its subsidiaries, IEC Electronics Corp-Albuquerque (“Albuquerque”), and IEC Analysis & Testing Laboratory, LLC (“ATL”).

We are a premier provider of electronic manufacturing services (“EMS”) to advanced technology companies that produce life-saving and mission critical products for the medical, industrial, aerospace and defense sectors. We specialize in delivering technical solutions for the custom manufacturing, product configuration, and verification testing of highly engineered complex products that require a sophisticated level of manufacturing to ensure quality and performance.

Within the EMS sector, we have unique capabilities which allow our customers to rely on us to solve their complex challenges, minimize their supply chain risk and deliver full system solutions for their supply chain. These capabilities include, among others:

Our engineering services include the design, development, and fabrication of customized stress testing platforms to simulate a product’s end application, such as thermal cycling and vibration, in order to ensure reliable performance and avoid catastrophic failure when the product is placed in service.
Our vertical manufacturing model offers customers the ability to simplify their supply chain by utilizing a single supplier for their critical components including complex printed circuit board assembly (“PCBA”), precision metalworking, and interconnect solutions. This service model allows us to control the cost, lead time, and quality of these critical components which are then integrated into full system assemblies and minimizes our customers’ supply chain risk.
We provide direct order fulfillment services for our customers by integrating with their configuration management process to obtain their customer orders, customize the product to the specific requirements, functionally test the product and provide verification data, and direct ship to their end customer in order to reduce time, cost, and complexity within our customer’s supply chain.
We believe we are the only EMS provider with an on-site laboratory that has been approved by the Defense Logistics Agency (“DLA”) for their Qualified Testing Supplier List (“QTSL”) program which deems the site suitable to conduct various QTSL and military testing standards including counterfeit component analysis and en