Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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.

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

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.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

At March 30, 2018,27, 2020, the last business day of the registrant’s second quarter for the fiscal year ended September 30, 2018,2020, the aggregate market value of the shares of common stock held by non-affiliates of the registrant was $35,707,488$66,722,319 (based on the closing price of the registrant’s common stock on the NYSE AmericanNasdaq Global Market on such date). Shares of common stock held by each executive officer and director and by each person and entity who beneficially owns more than 10% of the outstanding common stock have been excluded in that such person or entity may be deemed to be an affiliate for purposes of this calculation. Such exclusion should not be deemed a determination or admission by the registrant that such individuals or entities are, in fact, affiliates of the registrant.

As of November 21, 2018,10, 2020, there were 10,255,30910,503,083 shares of common stock outstanding.

Portions of IEC Electronics Corp.’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with its 20192021 Annual Meeting of Stockholders are incorporated by reference into Part III Items 10, 11, 12, 13 and 14 of this Form 10-K.

 

 

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 Annual Report on Form 10-K for the fiscal year ended September 30, 20182020 (“Form 10-K”) contains forward-looking statements.“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 continued 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; variability of our operating results; our ability to control our material, labor and other costs; our dependence on a limited number of major customers; the potential consolidation of our customer base; availability of component supplies; dependence on certain industries; variabilitycustomers and timing of customer requirements; technological, engineering and other start-up issues related to new programs and products;suppliers; uncertainties as to availability and timing of governmental funding for our customers; the impact of government regulations, including FDAU.S. Food and Drug Administration (the “FDA”) regulations; risksunforeseen 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 accuracypotential consolidation of our customer base; availability of component supplies; dependence on certain industries; the estimates and assumptions we usedability to revaluerealize the full value of our net deferred tax assets in accordance with the Tax Cuts and Jobs Act of 2017;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; unforeseen product failures and the potential product liability claims that may be associated with such failures; 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 elsewhere in this Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements included in this Form-10-KForm 10-K are made only as of the date indicated or as of the date of this Form 10-K. 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-KForm 10-K 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.

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”) and. Our former subsidiary, IEC California Holdings, Inc. The Rochester unit, formerly known, was dissolved as Celmet, operates as a division of IEC.September 18, 2019.

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:

We are a 100% U.S. manufacturer which attracts customers who are unlikely to utilize offshore suppliers due to the proprietary nature of their products, governmental restrictions or volume considerations. Our locations include:

We excel at complex, highly engineered products that require sophisticated manufacturing support where quality and reliability are of paramount importance. With our customers at the center of everything we do, we have created a high-intensity, rapid response culture capable of reacting and adapting to their ever-changing needs. Our customer-centric approach offers a high degree of flexibility while simultaneously complying with rigorous quality and on-time delivery standards.

We proactively invest in areas we view as important for our continued long-term growth. All of our locations are ISO 9001:20082015 certified and ITAR registered. We are Nadcap accredited and AS9100D and AS9100C certified at our Newark and Albuquerque locations respectively, to support the stringent quality requirements of the aerospace industry. Our Newark location is ISO 13485 certified to serve the medical sector and is an approved supplier by the National Security Agency (“NSA”) under the COMSEC standard regarding communications security. Our analysis &and testing laboratory in Albuquerque is ISO 17025 accredited, an IPC-approved Validation Services testQualified Test Laboratory, and we believe is the only on-site EMS laboratory that has been approved by the DLA for their QTSL program which deems the site suitable to conduct various QTSL and military testing

standards including counterfeit component analysis.analysis and environmental testing to qualify a part fit for use. Albuquerque also performs work per NASA-STD-8739 and J-STD-001ES space standards.

The technical expertise of our experienced workforce enables us to build some of the most advanced electronic, wire and cable, interconnect solutions, and precision metal systems sought by original equipment manufacturers (“OEMs”).

IEC Electronics Corp., a Delaware corporation, is the successor by merger in 1990 to IEC Electronics Corp., a New York corporation, which was originally organized in 1966. Our executive offices are located at 105 Norton Street, Newark, New York 14513. Our telephone number is 315-331-7742, and our Internet address is www.iec-electronics.com.

The EMS industry specializes in providing the program management, technical support and manufacturing expertise required to take a product from the early design and prototype stages through volume production and distribution. Primarily as a response to rapid technological change and increased competition in the electronics industry, OEMs have recognized that by utilizing EMS providers, such as IEC, they can improve their competitive position, realize an improved return on investment and concentrate on their core competencies such as research, product design and development and marketing. In addition, EMS providers allow OEMs to bring new products to market more rapidly and to adjust more quickly to fluctuations in product demand; avoid additional investment in plant, equipment and personnel; reduce inventory and other overhead costs; and determine known unit costs over the life of a contract. Many OEMs now consider EMS providers valued partners in executing their business and manufacturing strategy.

OEMs increasingly require EMS providers to provide complete turn-key manufacturing and material handling services rather than working on a consignment basis in which the OEM supplies all materials and the EMS provider supplies labor. Turn-key contracts involve design, manufacturing and engineering support, the procurement of all materials, sophisticated in-circuit and functional testing, and distribution.

IEC is focused on providing services for life-saving and mission critical products in the medical, industrial, aerospace and defense sectors that require a sophisticated level of manufacturing support. We offer our customers a full range of manufacturing services, combined with advanced scientific technical support to ensure their products perform for the critical applications for which they are intended. The ability to solve our customers’ technical challenges, meet their stringent quality requirements, and integrate seamlessly within their supply chain, is the value add that IEC brings.

We often engage with our customers in the early stages of product or program design, work with customers to evaluate the manufacturability and testability of their products, with the objective of enhancing quality and reducing the overall cost of ownership for our customers. Due to the highly regulated environment for many of our customers, they are seeking a long termlong-term partnership throughout the life-cycle of their product.

We are a certified small business with advanced technical capabilities. This allows us to focus on our customer’s needs and deliver solutions in a responsive manner to accelerate their time to market.

The EMS industry is highly fragmented and characterized by intense competition. We believe that the principal competitive factors in the EMS market include: technology capabilities, quality and range of services, past performance, design, cost, responsiveness and flexibility. We specialize in the custom manufacture of life-saving and mission critical products that require complex circuit boards and system-level assemblies; a wide array of cable and wire harness assemblies capable of withstanding extreme environments; and precision metal components.

We are certified to serve the military and commercial aerospace sector as well as the medical sector and we hold various accreditations. We believe we excel where quality and reliability are of paramount importance and when low-to-medium volume, high-mix production is the norm. We utilize state-of-the-art, automated circuit board assembly equipment together with a full complement of high-reliability manufacturing stress testing methods. Our customer-centric approach offers a high degree of flexibility while simultaneously complying with rigorous quality and on-time delivery standards.

We compete against numerous foreign and domestic companies in addition to the internal capabilities of some of our customers. Some of our competitors include Sparton Corporation, Benchmark Electronics, Inc., Plexus Corp. and Ducommun Incorporated. We may face new competitors in the future as the outsourcing industry evolves and existing or start-upnew-to-market companies develop capabilities similar to ours.

We manufacture a wide range of assemblies that are incorporated into many different products, such as aerospace and defense systems, medical devices, industrial equipment and transportation products. Our products are distributed to and through OEMs. We support multiple divisions and product lines for many of our customers and frequently manufacture successive generations of products. In some cases, we are the sole EMS contract manufacturer for the customer site or division.

We generally procure materials to meet specific contract requirements and are often protected by contract terms that call for reimbursement to us in the event a contract is terminated by the customer. Whether purchased by us or supplied by a customer, materials are tracked and controlled by our internal systems throughout the manufacturing process.

Our revenues are principally derived from turn-key services that involve the acquisition of raw and component materials, often from a limited number of suppliers, to be manufactured in accordance with each customer’s specifications. While we believe we are well positioned with supplier relationships and procurement expertise, potential shortages of components in the world market could have a material adverse effect on our revenue levels or operating efficiencies.

Although we depend on a limited number of key suppliers, as a result of strategic relationships we have established with them, the Company frequently benefits from one or more of the following enhancements: reduced lead-times; competitive pricing; favorable payment terms; and preference during periods of limited supply. We have preferred supplier partnership agreements in place to support our business generally and to ensure access to custom commodities, such as printed circuit boards.

For the fiscal year ended September 30, 20182020 (“fiscal 2018”2020”), IEC obtained 26%22% of the materials used in production from two vendors, Avnet, Inc. and Arrow Electronics Inc. If either of these vendors were to cease supplying us with materials for any reason, we would be forced to find alternative sources of supply. A change in suppliers could cause a delay in availability of products and a possible loss of sales, which could adversely affect operating results.

We utilize a direct sales force as well as a nationwide network of manufacturer’s representatives. Through this hybrid sales approach, we execute a focused sales strategy targeting those customers whose product profiles are aligned with our core areas of expertise. For example, we focus on customers that are developing complex, advanced technology products for a wide array of market sectors ranging from satellite communications to medical, military and ruggedized industrial products.

Typically, the demand profiles associated with these customers are in the low-to-moderate volume range with high variability in required quantities and product mix. These customers’ products often employ emerging technologies that require concentrated engineering and manufacturing support from product development through prototyping and on to volume manufacturing, which can result in significant lead times before full production and are difficult to forecast. As a result of the specialized services required, such customers rarely rely on an outsourcing model that focuses primarily on minimizing costs.

To reduce risk, the Company seeks a balanced distribution of business across industry sectors. Assectors, as indicated in the table that follows, thisfollows. This can fluctuate based on end customer demands.

ThreeTwo individual customers represented 10% or more of receivables at September 30, 2018.2020. One customer is in the aerospace and defense sector one customerand the other is in the medical sector, and one customer in the industrial sector together they accounted for 55%30% of the outstanding balances at September 30, 2018. Three2020. Two individual customers represented 10% or more of receivables at September 30, 2017. Two2019. Both customers were in the aerospace and defense sector, and one in the medical sectortogether accounted for 42%38% of the outstanding balances at September 30, 2017.2019.

Our backlog at the end of fiscal 20182020 was $133.7$194.5 million, which is 85.4% higher8.2% lower than $72.1$212.0 million at the end of fiscal 2017.2019. Backlog consists of two categories: purchase orders and firm forecasted commitments. In addition to fulfilling orders and commitments contained in quarter-end backlog reports, we also receive and ship orders within each quarter that do not appear in the period end backlog reports. Variations in the magnitude and duration of contracts as well as customer delivery requirements may result in fluctuations in backlog from period to period. Approximately $122.3$180.2 million of our backlog at September 30, 20182020, an increase of 19.1%, is expected to be shipped within the fiscal year ending September 30, 20192021 (“fiscal 2019”2021”), with the remainder expected to ship in future years. This compares to $66.3$151.3 million that was expected to be shipped within 12 months from year-end as of September 30, 2017,2019, with the remainder at such time that was expected to be shipped greater than 12 months from the prior year-end.

Our operations are subject to certain United States government regulations that control the export and import of defense-related articles and services, as well as federal, state and local regulatory requirements relating to environmental protection, waste management, and employee health and safety matters. We believe that our business is operated in substantial compliance with all applicable laws and governmental regulations. While current costs of compliance, including compliance with environmental laws, are not material, our expenses could increase if new laws, regulations or requirements were to be introduced. Some of our medical and other customers are highly regulated. Any failure to comply by customers, related to products we produce for them, can delay or disrupt their orders from us.

Employees are our single greatest resource. IEC’sOur total employees numbered 689,860, all of which are full time employees, at September 30, 2018. The Company increased by 124 employees during fiscal 2018, mainly driven by higher volumes in fiscal 2018.2020. Some of our full-time employees are temporary employees. We make a concerted effort to engage our employees in initiatives that improve our business and provide opportunities for growth, and we believe that our employee relations are good. We have access to a large and technically qualified workforcesworkforce in close proximity to our operating locations in Rochester, NY and Albuquerque, NM.

In February 2018, we announced that we will open a new state-of-the-art manufacturing facility in Newark, NY funded in part by the State of New York. The new 150,000 square foot facility will beis located atin the Silver Hill Technology Park and allowsallowed us to design, from the ground up, a state-of-the-art, advanced technology facility to support our operations. As part of this expansion, we intend to move our administrative offices to this location.

On November 18, 2016, we completedThe COVID-19 pandemic continues to disrupt supply chains and affect production and sales across a sale-leaseback transaction pursuant to which our subsidiary, Albuquerque, sold certain property, including its manufacturing facility located in Albuquerque, New Mexico, to Store Capital Acquisitions, LLC (“Store Capital”) for an aggregate purchase pricerange of approximately $5.8 million including a $120.0 thousand holdback. Proceeds from this transaction were used to pay the mortgage on such property and pay down Term Loan A, as discussed in Note 5—Credit Facilities. As partindustries. The extent of the transaction, Albuquerque entered intoimpact of the COVID-19 pandemic on our supply chain, workforce, customer demand, operations and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors all of which are uncertain and cannot be predicted.

In accordance with the Department of Defense guidance issued in March 2020, designating the Defense Industrial Base as a lease (the "Lease") for the property for an initial termcritical infrastructure workforce, our production facilities have continued to operate in support of 15 years that may be renewed twice for five-year terms. The initial base annual rental is approximately $474.0 thousandessential products and is subjectservices required to certain annual increases. In addition, we entered into a separate payment and performance guaranty with Store Capital Acquisitions, LLC with respectmeet national security commitments to the lease.U.S. government and the U.S. military.

The COVID-19 pandemic presents a level of uncertainty around the availability of raw material components in future periods. During March 2020, we completedwere aware of some component manufacturers that were required to shut down temporarily, as a sale-leaseback transaction pursuantresult of COVID-19 related illnesses impacting their employee populations or to which we sold our manufacturing facility located in Rochester, New York (the “Rochester Property”),comply with government mandates. Due to Store Capital for an aggregate purchase price of approximately $2.0 million. The net book valuethe lifesaving and mission critical nature of the assets sold was $1.2 million. products we support, many of our suppliers and the related programs are given certain priority ratings, which helped to ensure the required supply of material continued.

The proceedssafety and well-being of our employees has been, and continues to be, our top priority, especially during the COVID-19 pandemic. Although we are deemed an essential business based on the lifesaving and mission critical products we support, and we remain fully operational, we chose early on to ask our non-essential employees to work from home in order to reduce the employee density in our facilities. As circumstances have allowed and in accordance with applicable guidelines, we have assigned non-essential employees into two groups, working alternating weeks in the office to maintain social distancing. In support of those working on site, we have taken numerous actions to help provide for a safe work environment and allow for appropriate social distancing, where possible. Some examples of the actions we have taken include, but are not limited to, the following:

We have also developed contingency plans in the event that one of our employees tests positive for COVID-19. We expect to pay offcontinue to enhance our practices to remain aligned with state and federal guidelines.

Due to the Celmet Building Term Loannature of the lifesaving and pay downmission critical products that we support, the majority of our customers are also deemed to be essential businesses and remain operational. At a macro level, we have seen increases in demand from some of our existing customers, especially those in the medical sector. However, certain customers have requested that a portion of Term Loan B, as discussedtheir demand be moved out to future periods beyond fiscal 2021. To date, these requests represent a small percentage of our current backlog and we do not expect to see a material impact from these requests. We continue to work in Note 5—Credit Facilities. In conjunctionpartnership with this purchase,our customers to continually assess any potential impacts from the Lease was amendedpandemic and opportunities to include the Rochester Property. The amended Lease includes both the lease-back of the Rochester and the Albuquerque sites. The two properties are now considered one leased property for all Lease purposes. The lease term for both properties expires on May 31, 2033 and provides for renewals of two successive periods of five years each.mitigate risk.

A relatively small number of customers are responsible for a significant portion of our net sales. During fiscal 20182020 and fiscal 2017,2019, our five largest customers accounted for 55%68% and 49%51% of net sales, respectively. The percentage of our sales to our major customers may fluctuate from period to period, and our principal customers may also vary from year to year. Significant reduction in sales to any of our major customers, or the loss of a major customer, could have a material adverse effect on our results of operations and financial condition.

We rely on the continued growth and financial stability of our customers, including our major customers. Adverse changes in the end markets they serve can reduce demand from our customers in those markets and/or make customers in these end markets more price sensitive. Further, mergers or restructuring among our customers, or their end customers, could increase concentration or reduce total demand as the combined entities reevaluate their business and consolidate their suppliers. Future developments, particularly in those end markets that account for more significant portions of our revenues, could harm our business and our results of operations.

Because of this concentration in our customer base, we have significant amounts of trade accounts receivable from some of our customers. If one or more of our customers experiences financial difficulty and is unable to provide timely payment for the services provided, our operating results and financial condition could be adversely affected.

In addition, consolidation among our customers could intensify this concentration and adversely affect our business. In the event of consolidation among our customers, depending on which organization controls the supply chain function following the consolidation, we may not be retained as a preferred or approved supplier. In addition, product duplication could result in the termination of a product line that we currently support. While there is potential for increasing our position with the combined customer, our revenues could decrease if we are not retained as a continuing supplier. Even if we are retained as a supplier, we may also face the risk of increased pricing pressure from the combined customer because of its increased market share.

Factors affecting the electronics industry in general could seriously harm our customers and, as a result, us. These factors may include, but may not be limited to:

During fiscal 20182020 and fiscal 2017,2019, our sales to customers serving the aerospace and defense industries approximated 59% and 52%60% of our sales respectively.in both years. Because these products and services are ultimately sold to the U.S. government by our customers, these sales are affected by, among other things, the federal budget process, which is driven by numerous factors beyond our control, including geo-political,geopolitical, macroeconomic and political conditions. The contracts between our direct customers and their government customers are subject to political and budgetary constraints and processes, changes in short-range and long-range strategic plans, the timing of contract awards, the congressional budget authorization and appropriation processes, the government’s ability to terminate contracts for convenience or for default, as well as other risks such as contractor suspension or debarment in the event of certain violations of legal and regulatory requirements.

While we believe that our customers’ programs are well aligned with national defense and other priorities, shifts in domestic and international spending and tax policy, changes in security, defense and intelligence priorities, the affordability of our products and services, general economic conditions and developments, and other factors may affect a decision to fund or the level of funding for existing or proposed programs. An impasse in federal budget decision-making could lead to substantial delays or reductions in federal spending. As a result, U.S. Governmentgovernment funding for certain of our customers has been and could continue to be reduced, delayed or eliminated, which could significantly impact these customers’ demand for our products and services and if so this could have a material adverse effect on our business, results of operations and cash flows.

The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for U.S. Governmentgovernment contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Such audits and reviews could result in adjustments to our contract costs and profitability. However, weWe cannot ensure the outcome of any future audits and adjustments may be required to reduce net sales or profits upon completion and final negotiation of audits. If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. Government.government. Any such outcome could have a material adverse effect on our financial results.

The medical sector represented approximately 22%26% and 28%22% of our sales during fiscal 20182020 and fiscal 2017,2019, respectively. Medical device industries are intensely competitive and heavily regulated. Medical businesses must operate within an evolving regulatory and risk environment, with ongoing pricing and cost pressures, and adoption of new business models driven by scientific and technological advances. Any significant change in production rates or any restructuring by customers in this sector would likely have a material effect on our results of operations. There is no assurance that our customers will continue to buy products from us at current levels, that we will retain any or all of our existing customers or that we will be able to form new relationships with customers upon the loss of one or more of our existing customers in this market. Any material reduction in sales, consolidation or slowdowns in the medical sector could have a negative impact on our business and financial results.

Current global economic and financial market conditions, including the onset of a global economic recession, may have a material adverse effect on our results of operations and financial condition. These conditions may also materially impact our customers and suppliers. Economic and financial market conditions that adversely affect our customers may cause them to terminate or delay existing purchase orders or to reduce the volume of products they purchase from us in the future. We may be owed significant balances from customers that operate in cyclical industries and under leveraged conditions that could impair their ability to pay amounts owed to us on a timely basis. Failure to collect a significant portion of those receivables could have a material adverse effect on our results of operations and financial condition.

Similarly, adverse changes in credit terms extended to us by our suppliers, such as shortening the required payment period for outstanding accounts payable or reducing the maximum amount of trade credit available to us could significantly affect our liquidity and thereby have a material adverse effect on our results of operations and financial condition.

If we are unable to successfully anticipate changing economic and financial market conditions, we may be unable to effectively plan for and respond to those changes, and this could have a material adverse effect on our operating results.

Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S. Throughout 2018, theThe U.S. has imposed tariffs on imports from several countries, including China, Canada and the European Union. In response, China, Canada and the European Union have proposed or implemented their own tariffs on certain products and product components, including components we use, impacting our supply chain and increasing our costs of doing business. Although the majority of our supplier contractscustomers allow us to recover tariffs, if we are unable to recover these costs, our profit margins may be negatively impacted. Continued diminished trade relations between the U.S. and other countries, including potential reductions in trade with China and others, as well as the continued escalation of tariffs, could have a material adverse effect on our financial performance and results of operations.

Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and to detect and prevent fraud. In the past, we have experienced material weaknesses with our internal controls and procedures. The remedial measures we have taken may not be sufficient to regain the confidence of investors or any loss of reputation, which could in turn affect our finances and operations. We have been and may be required in the future to expend substantial funds and resources in order to rectify identified deficiencies in our internal controls. Our disclosure controls and internal control over financial reporting may not prevent all errors or all instances of fraud. Because of the inherent limitations in control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our business have been detected. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The benefits of a control system also must be considered relative to the costs of the system and management’s judgments regarding the likelihood of potential events. There can be no assurance that any control system will succeed in achieving its goals under all possible future conditions, and as a result of these inherent limitations, misstatements due to error or fraud may occur and may or may not be detected. If there is a failure in any of our internal controls and procedures, we could face investigation or enforcement actions by the SEC and other governmental and regulatory bodies, litigation, loss of reputation and investor confidence, the inability to acquire capital, and other material adverse effects on our finances and business operations.

OnIn June 8, 2016, we consented to the entry of a settled administrative order by the SEC (the “Administrative Order”). Pursuant, pursuant to the Administrative Order,which, among other things, we (i) neither admitted nor denied the SEC’s findings, (ii) agreed to pay a penalty of $200,000, and (iii) agreed to cease-and-desist from committing or causing any violations or future violations of certain provisions of the Securities Exchange Act of 1934, as amended, and certain rules thereunder.

Our long termlong-term success depends in part upon our ability to support our customers as they bring new products and programs to market, or transfer programs to us. Often these products and programs have technological issues and require, or our customers desire, engineering and other changes and innovations in order to facilitate full-scale production and end-user acceptance. Although some of these programs, particularly in the defense and space industries, once mature, will likely profitably extend over many years and will be difficult to transfer to our competitors, we may have to make significant upfront investments in them that may be recovered only over the longer term. These investments may have a significant impact on our profitability in nearer term periods. Moreover, start-up costs, including the management of labor and equipment resources in connection with establishing new programs and new customer relationships;relationships, and difficulties in estimating required resources and the timing of those resources in advance of production, can adversely affect our operating results. If new programs or customer relationships

Some of our larger customers are in heavily regulated industries, such as health care. If they encounter issues with their regulators related to products we manufacture for them, there may be long delays in resolving those issues or the issues may not be resolved at all, which would adversely affect our operating results.

Customers may cancel their orders, change production quantities or delay production for any number of reasons that are beyond our ability to foresee or control. Although we are always seeking new opportunities, we may not be able to replace any deferred, reduced or canceled orders. Cancellations, reductions or delays by a significant customer or by a group of customers could adversely affect our operating results and working capital levels. Such cancellations, reductions or delays have occurred and may occur again. The volume and timing of sales to our customers may vary due to:

Due in part to these factors, most of our customers do not commit to firm, long-term production schedules. Therefore, we make significant judgments based on our estimates of customer requirements, including:

The EMS industry is highly fragmented and characterized by intense competition. Additionally, consolidation in the electronic industry could result in an increasing number of very large electronics companies offering products similar to ours in multiple sectors of the EMS industry. We may be operating at a cost disadvantage compared to larger EMS providers who have greater direct buying power from component suppliers, distributors and raw material suppliers or who have lower cost structures as a result of other efficiencies of scale or their geographic location. As a result, other EMS providers with significant purchasing and marketing power may have a competitive advantage. Our manufacturing processes are generally not subject to significant proprietary protection, and companies with greater resources or a greater market presence may enter our market or increase their competition with us. We also expect our competitors to continue to improve the performance of their current products or services, to reduce the prices of their products or services and to introduce new products or services that may offer greater performance and improved pricing. Any of these factors may cause a decline in our sales, loss of market acceptance for our products or services, profit margin compression, or loss of market share.

For fiscal 2018,2020, IEC obtained 26%22% of the materials used in production from two vendors Avnet, Inc. and Arrow Electronics, Inc. If either of theseour vendors were to cease supplying us with materials for any reason, we would be forced to find alternative sources of supply. A change in suppliers could cause a delay in availability of products and a possible loss of sales, which could adversely affect operating results.

Much of our net revenue is derived from turn-key manufacturing for which we provide the materials specified by our customers. Some of our customer agreements permit periodic adjustments to pricing based on increases or decreases in component prices and other factors. However, we typically bear the risk of component price increases that occur between any such re-pricing dates or, if such re-pricing is not permitted during the balance of the term of a particular customer agreement. As a result, some component price increases may have a material adverse effect on our operating results, if we cannot increase prices enough to offset increased costs or if increased prices lead to canceled orders.

Many of the products we manufacture require one or more components that are available from a limited number of suppliers. In response to supply shortages, some of these components are from time to time subject to allocation limits. In some cases, supply shortages or delayed deliveries could substantially curtail production of those assemblies requiring a limited-supply component, which could contribute to an increase in our inventory levels, and could delay shipments to customers and the associated revenue of all products using that component. Component shortages have been prevalent in our industry, and such shortages may recur. An increase in economic activity could result in shortages if manufacturers of components do not adequately anticipate increased order volume or if they have excessively reduced their production capabilities. World events,

armed conflict, governmental regulation, embargoes and changes in trade relations, natural disaster, and epidemics could also affect our supply chain, leading to an inability to obtain sufficient components on a timely basis.

In addition, due to the specialized nature of some components and our customers’ product specifications, we may be required to use sole-source suppliers for certain components. Such suppliers may encounter financial or operational difficulties that could cause delays in or the curtailment of component deliveries.

Our turn-key manufacturing services described above involve a greater investment in inventory and a corresponding increase in risk as compared to consignment services, for which the customer provides all materials. For example, in our turn-key operations, we must frequently order parts and supplies in minimum lot sizes that may be larger than the quantity of product ultimately needed for our customers. Customers’ cancellation or reduction of orders could result in additional expense to us. If we are not reimbursed for excess inventory ordered to meet customer forecasts, we may accumulate excess inventory and/or incur return charges imposed by suppliers. In addition, component price increases and inventory obsolescence associated with turn-key orders could adversely affect our operating results.

Furthermore, we provide inventory management programs for some of our customers under which we are required to hold and manage finished goods inventories. Such inventory management programs may lead to higher finished goods inventory levels, reduced inventory turns and increased financial exposure. In cases where customers have contractual obligations to purchase managed inventories from us, we remain subject to the risk of enforcing the obligation.

We have access to, create and store sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our employees. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. As certain of our employees work remotely in accordance with government mandates related to the ongoing pandemic, we face heightened cyber-security risks related to unauthorized system access, aggressive social engineering tactics, and attacks on our information technology systems used to conduct our business. For example, during the fourth quarter of fiscal 2020, we were subject to a cyber incident which, individually and in the aggregate, did not result in a material impact to our operations or financial condition. While we have taken preventative measures to mitigate this risk, we can provide no assurance that we will not be the subject of similar cyberattacks in the future. Cybersecurity breaches, system disruptions and failures may interrupt or delay our ability to provide services to our customers and expose our business and our customers to harm. Any such breach could compromise our networks and the information stored there could be improperly accessed, disclosed, lost or stolen. Any such access, disclosure or other loss of information could disrupt our operations and the services we provide to customers, damage our reputation or our customer relationships, impair our ability to record, process and report accurate information to our stockholders and the SEC, or result in legal claims or proceedings, any of which could adversely affect our business, financial condition, revenues and competitive position. We carry cyber insurance to minimize the potential impact that a security breach may have on our financial condition or results of operations; however, liabilities incurred in connection with a security breach could exceed the limit that our insurer will pay or reimburse, in which case we would bear these fees and costs directly.

Providing manufacturing services can expose us to potential claims that products, designs or manufacturing processes we use infringe third party intellectual property rights. Even though many of our manufacturing services contracts generally require our customers to indemnify us for infringement claims relating to their products, including associated product specifications and designs, a particular customer may not, or may not have the resources to, assume responsibility for such claims. In addition, we may be responsible for claims that our manufacturing processes or components used in manufacturing infringe third party intellectual property rights. Infringement claims could subject us to significant liability for damages, potential

In addition to government regulations and industry standards, our customers may require us to comply with their own social responsibility, conflict minerals, quality or other business policies or standards, which may be more restrictive than current laws and regulations as well as our pre-existing policies, before they commence, or continue, doing business with us. Such policies or standards may be customer-driven, established by the industry sectors in which we operate or imposed by third party organizations, such as the SEC’s conflict mineral rules.

Our compliance with these policies, standards and third party certification requirements could be costly, and our failure to comply could adversely affect our operations, customer relationships, reputation and profitability. In addition, our adoption of these standards could adversely affect our cost competitiveness, ability to provide customers with required service levels and ability to attract and retain employees in jurisdictions where these standards vary from prevailing local customs and practices.

Given the high fixed costs of our operations, decreases in capacity utilization rates can have a significant effect on our business. Accordingly, our ability to maintain or enhance gross margins continues to depend, in part, on maintaining satisfactory capacity utilization rates. In turn, our ability to maintain satisfactory capacity utilization depends on the demand for our products, the volume of orders we receive, and our ability to offer products that meet our customers’ requirements at competitive prices. If current or future production capacity fails to match current or future customer demands, our facilities would be underutilized, our sales may not fully cover our fixed overhead expenses, and we would be less likely to achieve anticipated gross margins. If forecasts and assumptions used to support the implied fair value of goodwill or realizability of our long-lived assets including intangible assets change, we may incur significant impairment charges, which would adversely affect our results of operations and financial condition, as we have experienced.

In addition, we generally schedule our production facilities at less than full capacity to retain our ability to respond to unexpected additional quick-turn orders. However, if these orders are not received, we may forego some production and could experience continued excess capacity. If we conclude that we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities and lay off some of our employees. Closures or lay-offs could result in our recording restructuring charges such as severance and other exit costs, and asset impairments.

Our business has benefited from OEMs deciding to outsource their EMS needs to us. Our future revenue growth depends, in part, on new outsourcing opportunities from OEMs. Current and prospective customers continuously evaluate our performance against other providers, including off-shore procurement opportunities. They also evaluate the potential benefits of manufacturing theirthese products themselves. To the extent that outsourcing opportunities are not available either due to OEM decisions to produce these products themselves or to use other domestic or foreign providers, this could have a material adverse effect on our financial results and prospects.

Further, acquiring properties that are not yet fully developed or need substantial renovation, rehabilitation or redevelopment poses additional risks, including delays or cost overruns due to a variety of factors including, material or labor shortages, difficulties in obtaining necessary permits and authorizations, and unanticipated changes in scope of the project due to unforeseen structural or environmental issues. Any failure to anticipatecomplete a redevelopment project in a timely manner and adapt to our customers’ changing technological requirements.

Substantial capital investments are made in connection with acquisitions and development of our properties to a large extent onincrease our abilitycapacity. If we overestimate demand, we may not realize the benefit we anticipate from these investments. Overestimates in customer demand could result in excess capacity at our properties, which would result in increased fixed costs relative to recruit, train, and retain skilled employees, particularly executive management and technical employees. The competition for these individuals is significant; hence the lossrevenue we generate, which could adversely affect our results of the services of certain of these key employees or an inability to attract or retain qualified employees could negatively impact us.operations.

We are subject to a variety of United States government regulations that control the export and import of defense-related articles and services, as well as federal, state and local regulatory requirements relating to employee occupational health and safety, and environmental and waste management regulations relating to the use, storage, discharge and disposal of hazardous materials used in our manufacturing process. To date, the cost to us of such compliance has not had a material impact on our business, financial condition or results of operations. However, violations may occur in the future as a result of human error, equipment failure or other causes. Further, we cannot predict the nature, scope or effect of environmental legislation or regulatory requirements that could be imposed in the future, or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies, could require substantial expenditures by us and could have a material adverse effect on our business, financial condition and results of operations. If we fail to comply with any present or future regulations, we could be subject to future liabilities or the suspension of production which could have a material adverse effect on our results of operations. While we are not currently aware of any violations, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant compliance-related expenses.

As a manufacturer and designer of medical devices for our customers, we have compliance requirements in addition to those relating to other areas of our business. We are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) and current Good Manufacturing Practices (“cGMP”) requirements, which require manufacturers of medical devices to adhere to certain regulations and to implement design and process manufacturing controls, quality control, labeling, handling and documentation procedures. The FDA, through periodic inspections and product field monitoring, continually reviews and rigorously monitors compliance with these QSR requirements and other applicable regulatory requirements. If any FDA inspection reveals noncompliance, and we do not address the FDA’s concerns to its satisfaction, the FDA may take action against us, including issuing a form noting the FDA’s inspection observations, a notice of violation or a warning letter, imposing fines, bringing an action against us and our officers, requiring a recall of the products we manufactured for our customers, issuing an import detention on products entering the U.S. from an offshore facility or temporarily halting operations at or shutting down a manufacturing facility. If any of these were to occur, our reputation and business could suffer.

In addition, any defects or malfunctions in medical devices we manufacture or in our manufacturing processes and facilities may result in liability claims against us, expose us to liability to pay for the recall or remanufacture of a product, or otherwise adversely affect product sales or our reputation. The magnitude of such claims could be particularly severe as defects in medical devices could cause severe harm or injuries, including death, to users of these products and others.

None.

We own or lease properties in three locations that together house our administrative offices (“AO”), engineering (“E”), manufacturing (“M”), warehouse (“W”) and distribution (“D”) functions, as follows:

Our properties are generally in good condition and are suitable for their intended purposes. We have granted mortgages on

On December 10, 2018, the Company, entered into a Lease (the “Lease”), with 1000 Silver Hill LV LLC, a New York limited liability company (the “Landlord”), for certain property located in Newark, New York, that will include a new state-of-the art manufacturing facility and administrative offices having approximately 153,000 square feet (the “Property”). Pursuant to the Lease, the Company will lease the Property for an initial term of 15 years with one renewal option of 10 years. The lease will not commence until we take control of the building, which is anticipated to be during fiscal 2021.

In October 2020, the Company acquired an approximately 86,000 square foot industrial and office building and certain equipment located at 50 Jetview Drive, Rochester, New York for a purchase price of $5,250,000, exclusive of closing costs. The Company financed a portion of the purchase price for this property to secure certain of our obligations towith a mortgage loan from M&T Bank.

From time to time, we may be involved in legal actions in the ordinary course of our business, but management does not believe that any such proceedings individually or in the aggregate, will have a material effect on our consolidated financial statements.

 

Not Applicable.

Our executive officers at September 30, 20182020 were as follows:

Jeffrey T. Schlarbaum, age 52,54, has served as a director and as our President and Chief Executive Officer since February 2015. From February 2013 to June 2013 and from June 2014 to February 2015, Mr. Schlarbaum pursued personal interests. From June 2013 to June 2014, Mr. Schlarbaum served as Chief Operations Officer for LaserMax, Inc., a manufacturer of laser gun sights for law enforcement and the shooting sports community. From October 2010 to February 2013, Mr. Schlarbaum served as our President. Prior to that, Mr. Schlarbaum served as our Executive Vice President and President of Contract Manufacturing from October 2008 to October 2010, Executive Vice President from November 2006 to October 2008 and Vice President, Sales & Marketing from May 2004 to November 2006. Prior to joining us, Mr. Schlarbaum served in senior management roles with various contract manufacturing companies. Since July 2017, Mr. Schlarbaum also serves as a director and member of the audit committee of Lakeland Industries, Inc.

Thomas L. Barbato, age 49,51, has served as our Senior Vice President and Chief Financial Officer since September 2018.

Prior to joining us, Mr. Barbato has held various positions with Xerox Corporation, an American global corporation that sells print and digital document solutions, and document technology products, since 1995 most recently serving as Vice President of Finance, North America Operations, Pricing and Contracting Center of Excellence, from January 2017 to September 2018; Vice President of Finance and Chief Financial Officer, Xerox Large Enterprise Operations (LEO) U.S., from March 2014 to December 2016;

Vice President of Finance Transformation and Director, Xerox Business Services, from April 2013 to March 2014; and Finance Director, Acquisition Operations Office from April 2010 to April 2013. Prior to joining Xerox Corporation in 1995, Mr. Barbato was a senior auditor with Deloitte & Touche, LLP in Rochester, New York. Mr. Barbato is a certified public accountant.

(a) Market Information

Our common stock trades on the NYSE American LLC (“NYSE American”)Nasdaq Global Market under the symbol “IEC”.

(b) Holders

As of November 21, 2018,10, 2020, there were approximately 186177 holders of record of IEC’s common stock. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.

(c) Dividends

(d) Recent sales of Unregistered Securities

None.

(d)(e) Repurchases of IEC Securities

We did not repurchase any shares during the fourth quarter of the fiscal year ended September 30, 2018.2020. Furthermore, certain covenants in our credit agreement with M&T Bank limit our ability to repurchase shares of our common stock.

The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements (“Financial Statements”), the related Notes and the five-year summary of Selected Financial Data. References to “Notes” in this report are references to the Notes to the Consolidated Financial Statements unless otherwise specified. Forward-looking statements in this Management’s Discussion and Analysis are qualified by the cautionary statement preceding Item 1 of this Form 10-K and the risk factors identified in Item 1A.

 

A summary of selected income statement amounts during the fiscal years ended September 30, 20182020 and 20172019 is as follows:

Revenue increased 21.2%16.4%, or $20.5$25.7 million, during fiscal 20182020 as compared to the prior fiscal year. The increase was mainly driven by increases in sales in the aerospace and defense sector of $18.7$14.4 million and in the medical sector of $14.1 million, partially offset by decreases in the industrial sector of $2.6 million, partially offset by decline in the medical sector of $0.9$2.8 million.

Various increases and decreases for our aerospace and defense customers resulted in a net increase in sales of $18.7$14.4 million for fiscal 20182020 compared to fiscal 2017.2019. Programs frequently fluctuate in demand or end and are replaced by new programs. Aggregate decreasesincreases in sales from existing customers of $5.2 million were offset byin fiscal 2020 due to net increases in revenues from other existing customers of $24.3customer demand was $7.1 million. We hadalso experienced an increase in sales of $1.6$14.0 million from six new customers.production ramp ups. However, ending one customer relationship due to low profitability caused an additional sales decrease of $0.7 million during fiscal 2018.

The net decreaseincrease of $0.9$14.1 million in sales in the medical sector was primarily due to programs ramping up of $17.5 million. The remaining changes were the result of net increases in customer demand of $1.3$4.0 million, partially offset by reductionprograms ending with various customers of $7.4 million.

The net decrease in volumesales for one legacy programthe industrial market sector of $1.5$2.8 million was due to $1.9 million of products on hold at two customers and net decreases in customer demand of $0.3 million. The remaining decrease of $0.6 million was the result of programs ending for two customers.

Due to the Chapter 11 bankruptcy filing of a customer, we incurred a $1.0 million pre-tax non-cash charge during fiscal 2020, related to the increase in our excess and obsolete inventory reserve. The customer communicated to its vendors to “cease providing all products” under its court-supervised process. No portion of the impairment charge is anticipated to result in future cash expenditures. We intend to preserve all rights and pursue available legal remedies to recover any losses suffered as a result of the customer’s Chapter 11 bankruptcy filing. These charges impacted our financial results reported under accounting principles generally accepted in the United States of America (“GAAP”). Net income in fiscal 2020 was $6.8 million, and, adjusted for the ending$1.0 million pre-tax impact from the one-time inventory reserve, adjusted net income was $7.5 million. Information regarding this non-GAAP measure and a reconciliation of programs and customer relationships of $2.3 million.net income to adjusted net income is provided below under “Non-GAAP Financial Measures.”

Gross profit was $24.1 million in fiscal 2020 and increased $2.9by $2.5 million from 11.7%compared to $21.6 million in fiscal 2019. Gross profit represented 13.2% and 13.8% of sales in fiscal 2017 to 12.1% of sales for2020 and fiscal 2018.2019, respectively. The customer bankruptcy filing had the most significant impact on gross profit, can be attributedin addition to customer mix. Excluding the non-cash charge related to the increase in sales mix.customer's Chapter 11 bankruptcy filing, our adjusted gross margin would have been 13.7% of sales. Information regarding this non-GAAP measure and a reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin are provided below under “Non-GAAP Financial Measures.”

Selling and administrative (“S&A”) expenses increased $1.2 milliondecreased slightly and represented 9.8%7.7% of sales in fiscal 2018,2020, compared to 10.6%9.0% of sales in the prior fiscal year. The increase in S&A expenses was primarilydecrease is due to professional fees, offset by higher wage andemployee related expenses of $0.7 million and increased consulting expenses related to the ongoing implementation of a new enterprise resource planning (“ERP”) system.costs.

Interest expense increaseddecreased by $0.2 million in fiscal 20182020 compared to the prior fiscal year. The weighted average interest rate on our debt was 0.05% higher1.34% lower during fiscal 20182020 than the prior fiscal year. In fiscal 2018, we incurred approximately $0.3 million of interest related to the capital lease obligation for the Albuquerque, New Mexico and Rochester, New York facilities. Our average outstanding debt balances increased by $2.6$1.7 million in fiscal 20182020 compared to fiscal 20172019 because of higher balances on theour revolving credit facility and equipment line advances to fund capital purchases.facility. Cash paid for interest on credit facility debt was approximately $0.9 million and $0.7$1.3 million for fiscal 20182020 and fiscal 2017, respectively.2019. Detailed information regarding our borrowings is provided in Note 5—6—Credit Facilities.

As of September 30, 2018, the Company’s2020, our deferred tax assets were primarily the result of U.S. federal net operating loss carryforwards (“NOLs”) and New York state tax credit carryforwards. A valuation allowance of $1.3 million and $15.1$1.4 million was recorded against our gross deferred tax asset balance as of September 30, 2018,2020, and September 30, 2017, respectively. During the year ended September 30, 2018, management evaluated both positive and negative evidence to consider the reversal of the valuation allowance on the Company's net deferred income tax assets and determined in the fourth quarter of fiscal 2018 that there was sufficient positive evidence to conclude that it is more likely than not that the Company's deferred income tax assets are realizable. As a result, in the fourth quarter of fiscal 2018 the Company recorded a $7.8 million income tax benefit to release most of the valuation allowance against the Company's net deferred income tax assets.2019.

 

As of September 30, 2018,2020, there was $0.2$4.4 million of outstanding capital expenditure commitments for manufacturing equipment.equipment and manufacturing facilities. We generally fund capital expenditures with cash flow from operations, our revolving credit facility and our equipment line advances. Based on our current expectations, we believe that our projected cash flows provided by operations and potential borrowings under the revolving credit facility and equipment line advances, are sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months.

Our 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.

 

A summary of selected cash flow amounts for the fiscal years ended follows:

 

 

Cash flows provided by operations, before considering changes in working capital, were $4.4$14.4 million in fiscal 20182020 and $2.8$9.5 million in fiscal 2017.2019. Net income of $10.4$6.8 million in fiscal 2018 improved2020 was higher compared to the prior year due to thenet income tax benefit of $1.0$4.7 million as a result of the Tax Act and a release of the deferred tax valuation allowance of $7.8 million. Net income was $0.1 million during the priorin fiscal year.2019.

Working capital provided cash flows of $0.6 million and used cash flows of $4.6 million and $1.1$20.0 million in fiscal 20182020 and fiscal 2017,2019, respectively. The change in working capital in fiscal 20182020 was primarily due to an increase in accounts receivable of $7.3 million and an increase in inventory of $18.6 million. These increases were partially offset by an increase in accounts payable of $13.5 million, an increase in the book overdraft of $2.1$5.3 million and an increase in customer deposits of $6.0$6.6 million, partially offset by an increase in accounts receivable of $2.9 million and an increase in inventories of $8.4 million. AccountsIncreases in accounts receivable increases were primarily due to the timing of revenue in the fourth quarter of fiscal 2018.2020. The accounts payable increase in fiscal 20182020 was partially due to an increase in inventory as well as the timing of payments.purchases. In both periods,fiscal 2020 and fiscal 2019, the increase in inventory and customer deposits was due to securing materials for future production.

 

Cash flows used by investing activities were $2.0$6.3 million for fiscal 20182020 and provided $2.2$2.1 million for fiscal 2017.2019. Cash flows used in fiscal 20182020 consisted of $0.8 million of purchases of equipment, and capitalized software costs resulting from the ongoing implementation of aincluding equipment for our new ERP system, partially offset by the proceeds of $1.9 million from the Rochester sale-leaseback transaction.manufacturing facility. Cash flows providedused in fiscal 20172019 consisted of proceeds of $5.8 million from the Albuquerque sale-leaseback transaction, partially offset by the purchases of equipment and capitalized software costs.equipment.

 

Cash flows provided byused in financing activities were $2.2$8.4 million in fiscal 20182020 and used $4.8provided cash of $12.6 million for fiscal 2017.2019. During fiscal 2018,2020, net borrowings under all credit facilities were $2.5$8.8 million, with $4.2$6.7 million of net borrowings under the Revolver, as defined below, repayments of $2.9$3.9 million for term debt and $1.2$1.8 million of new borrowings related to Equipment Line Advances. Term debt payments were more than normal principal repayments as proceeds from the Rochester sale-leaseback transaction were used to pay down term debt.master lease. During fiscal 2017,2019, net repaymentsborrowings under all credit facilities were $4.6$12.8 million,

At September 30, 2018,2020, borrowings outstanding under the revolving credit facility (the “Revolver”) under the Sixth Amendment to the Fifth Amended and Restated Credit Facility Agreement (which amendeddated as of June 4, 2020 (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 “Credit(the “Prior Credit Facility, as amended”) amounted to $13.0$20.0 million, and the upper limit was $22.0$39.4 million. We believe that our liquidity is sufficient to satisfy anticipated operating requirements during the next twelve months.

 

The Credit Facility as amended, contains various affirmative and negative covenants including financial covenants. As of September 30, 2018, the Company2020, we 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 tax expense, to (ii) the sum of interest expense, principal payments, payments on all capital lease obligations and dividends, if any (fixed charges). “EBITDAS” is defined as earnings before interest, taxes, depreciation, amortization and non-cash stock compensation expense. The Fixed Charge Coverage Ratio was initiallyis measured for a trailing six months ended September 30, 2017 and was measured for athe trailing twelve months ended September 30, 2018.2020. The Credit Facility as amended, also provides for customary events of default, subject in certain cases to customary cure periods, in which events, the outstanding balance and any unpaid interest would become due and payable.

Pursuant to the Credit Facility, as amended, the Fixed Charge Coverage Ratio covenant of a minimum of 1.10 was the only covenant in effect at September 30, 2018.2020. The Fixed Charge Coverage Ratio was calculated as 1.162.32 at September 30, 2018.

Detailed information regarding our borrowings is provided in Note 5—6—Credit Facilities.

 

IEC isWe are not a party to any material off-balance sheet arrangements.

 

IEC’sOur consolidated financial statements and accompanying notes are prepared in accordance with GAAP,accounting principles generally accepted in the United States of America (“GAAP”) as presented in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). In preparing financial statements, management is required to (i) determine the manner in which accounting principles are applied and (ii) make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. A discussion of the Company’sour critical accounting policies follows.

Information with respect to recently issued accounting standards is provided in Note 1—Our Business and Summary of Significant Accounting Policies.

 

As a result of its financing activities, the Company is exposed to changes in interest rates that may adversely affect operating results. The Company actively monitors its exposure to interest rate risk and from time to time may use derivative financial instruments to manage the impact of this risk. The Company may use derivatives only for the purpose of managing risk associated with underlying exposures. The Company does not trade or use instruments with the objective of earning financial gains on the interest rate nor does the Company use derivatives instruments where it does not have underlying exposure. The Company did not have any derivative financial instruments at September 30, 20182020 or September 30, 2017.2019.

 

 

The Company is exposed to credit risk to the extent of non-performance by M&T Bank under the Credit Facility, as amended.Facility. M&T Bank’s credit rating (reaffirmed A by Fitch in September 2018) is monitored by the Company, and IEC expects that M&T Bank will perform in accordance with the terms of the Credit Facility, as amended.Facility.

The consolidated financial statements are included in this Item 8 on the pages indicated below:

To the stockholders and the Board of Directors of IEC Electronics Corp.

We have audited the accompanying consolidated balance sheets of IEC Electronics Corp. and subsidiaries (the "Company") as of September 30, 20182020 and 2017, and2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended September 30, 2018,2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Rochester, New York

We have served as the Company's auditor since fiscal 2017.