UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

or

For the transition period from ____ to ____

 

Commission File Number 001-34376

 

IEC ELECTRONICS CORP.

(Exact name of registrant as specified in its charter)

 

 

105 Norton Street, Newark, New York   14513

(Address of Principal Executive Offices) (Zip Code)

  

315-331-7742

(Registrant'sRegistrant’s telephone number, including area code)

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrantregistrant: (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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

TABLE OF CONTENTS

 

 

 

IEC ELECTRONICS CORP.

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

IEC ELECTRONICS CORP.

CONDENSED CONSOLIDATED INCOME STATEMENTS OF OPERATIONS

 

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

IEC ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT of CHANGES in STOCKHOLDERS'STOCKHOLDERS’ EQUITY

 

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

IEC ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS of CASH FLOWS

(unaudited; in thousands) 

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

IEC ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Our Business

 

 

Generally Accepted Accounting Principles

 

IEC'sIEC’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'sBoard’s (“FASB”) Accounting Standards Codification (“ASC”).

 

Fiscal Calendar

 

The Company’s fiscal year ends on September 30th and the first three quarters generally end generally on the Friday closest to the last day of the calendar quarter. For the fiscal year ending September 30, 2018 (“fiscal 2018”), the fiscal quarters end on December 29, 2017, March 30, 2018 and June 29, 2018. For the fiscal year ended September 30, 2017 (“fiscal 2017”), the fiscal quarters ended on December 30, 2016, March 31, 2017 and June 30, 2017.

 

Consolidation

 

The consolidated financial statements include the accounts of IEC and its wholly-owned subsidiaries: IEC Electronics Wire and Cable, Inc. (“Wire and Cable”); which merged into IEC on December 28, 2016; IEC Electronics Corp-Albuquerque (“Albuquerque”); IEC Analysis & Testing Laboratory, LLC (“ATL”), formerly Dynamic Research and Testing Laboratories, LLC;; and IEC California Holdings, Inc. The Rochester unit, formerly Celmet, operates as a division of IEC. All significant intercompany transactions and accounts are eliminated in consolidation. 

Unaudited Financial Statements

 

The accompanying unaudited condensed consolidated financial statements for the three months ended December 30, 201629, 2017 and January 1,December 30, 2016 have been prepared in accordance withwithout 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 interimcomplete financial information.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'sCompany’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016 (“fiscal 2016”).

  

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. Changes in the book overdrafts are presented within net cash flows provided by operating activities within the condensed consolidated statements of cash flows.

 

Allowance for Doubtful Accounts

 

The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management'smanagement’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 market 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 market.

 

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.

  

Reviewing Long-Lived Assets for Potential Impairment

 

ASC 360-10 (Property, Plant and Equipment) and ASC 350-30 (Intangibles) require the Company to test long-lived assets (PP&E and definitive 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 identified or recorded by IEC for PP&E or intangibleslong-lived assets during the three months ended December 29, 2017 and December 30, 2016.

 

Leases

 

At the inception of a lease covering equipment or real estate, the lease agreement is evaluated under criteria discussed in ASC 840-10-25 (Leases).  Leases meeting one of four key criteria are accounted for as capital leases and all others are treated as operating leases.  Under a capital lease, the discounted value of future lease payments becomes the basis for recognizing an asset and a borrowing, and lease payments are allocated between debt reduction and interest.  For operating leases, payments are recorded as rent expense.  Criteria for a capital lease include (i) transfer of ownership during the lease term; (ii) existence of a bargain purchase option under terms that make it likely to be exercised; (iii) a lease term equal to 75 percent or more of the economic life of the leased property; and (iv) minimum lease payments that equal or exceed 90 percent of the fair value of the property.

Legal Contingencies

 

When legal proceedings are brought or claims are made against usthe Company and the outcome is uncertain, ASC 450-10 (Contingencies) requires that wethe Company 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. 

Customer Deposits

 

Grants from Outside Parties

 

Grants from outside parties are recorded as other long-term liabilities and are amortized over the same period during which the associated PP&Eproperty, plant and equipment are depreciated. The Company received grants for certain facility improvements and equipment from state and local agencies in which the Company operates.  These grants reimbursed the Company for a portion of the actual cost or provided in kind services in support of capital projects. 

There were no new deferred grants recorded during either of the three months ended December 30, 2016 or the fiscal year ended September29, 2017 and December 30, 2016. The outstanding grant balance was $0.2 million and $0.3 million at each of December 30, 201629, 2017 and September 30, 2016, respectively.

 

Fair Value Measurements

 

Under ASC 825 (Financial Instruments), the Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value.  The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and borrowings.  IEC believes that recorded value approximates fair value for all cash, accounts receivable, accounts payable and accrued liabilities. See Note 7—6—Fair Value of Financial Instruments for a discussion of the fair value of IEC'sIEC’s 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:

 

 

The Company deems a transfer between levels of the fair value hierarchy to have occurred at the beginning of the reporting period.  There were no such transfers during each of the first three months of fiscalended December 29, 2017 or fiscaland December 30, 2016.

 

Revenue Recognition

 

The Company’s revenue is principally derived from the sale of electronic products built to customer specifications, but also from other value-added support services and repair work.  Revenue from product sales is recognized when (i) goods are shipped or title and risk of ownership have passed, (ii) the price to the buyer is fixed or determinable, and (iii) realization is reasonably assured. 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 5% of total revenue in each of the first three months of fiscalended December 29, 2017 and fiscalDecember 30, 2016.

 

Provisions for discounts, allowances, rebates, estimated returns and other adjustments are recorded in the period the related sales are recognized.

 

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. Compensation expense related to the discount is recognized as employees contribute to the plan. During fiscal 2015 and the first quarter of fiscal 2016, the ESPP was suspended in connection with the 2014 restatements of the Company's financial statements. The ESPP was reinstated as of the beginning of the second quarter of fiscal 2016.

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 a companythe 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

 

Any interest incurred is reported as interest expense. Any penalties incurred isare 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 2010year ended September 30, 2014 through fiscal 2015.year ended September 30, 2016. The federal income tax audit for the fiscal year ended September 30, 2013 concluded during the first three months of fiscal 2017 and resulted in no change to reported tax.

 

Dividends

 

IEC does not pay dividends on its common stock as it is the Company’s current policy to retain earnings for use in the business.  Furthermore, the Company’s Fifth Amended and Restated Credit Facility Agreement, as amended, with M&T Bank includes certain restrictions on paying cash dividends, as more fully described in Note 6—5—Credit Facilities. 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities. Significant items subject to such estimates include: allowance for doubtful accounts, excess and obsolete inventory, warranty reserves and the valuation of deferred income tax assets. 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.loss. 

Recently Issued Accounting Standards Not Yet Adopted

 

FASB ASU 2014-12, “Compensation - Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” was issued in June 2014. This guidance was issued to resolve diversity in accounting for performance targets. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition and should not be reflected in the award’s grant date fair value. Compensation cost should be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance became effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. This update did not have a significant impact on the Company's financial statements upon adoption.

 

NOTE 4—PROPERTY, PLANT &AND EQUIPMENT, NET  

A summary of property, plant and equipment and accumulated depreciation at period end follows:

NOTE 6—5—CREDIT FACILITIES  

A summary of borrowings at period end follows:   

 

M&T Bank Credit Facilities

On November 28, 2016,Effective as of May 5, 2017, the Company and M&T Bank entered into the SecondThird Amendment to Fifth Amended and Restated Credit Facility Agreement (the “Second“Third Amendment”), that amended the Fifth Amended and Restated Credit Facility Agreement dated as of December 14, 2015, as amended by the First Amendment to the Fifth Amended and Restated Credit Facility Agreement, dated as of June 20, 2016, and the Second Amendment to Fifth Amended and Restated Credit Facility Agreement dated as of November 28, 2016 (“Fifth Amended Credit Agreement”). The SecondThird Amendment reducedextended the Revolver termination date to May 5, 2022. In connection with the Third Amendment, the Term Loan B to M&T Bank’s revolving credit commitmentBank was amended and restated. The Third Amendment revised certain covenants to provide that the Company may use Revolver proceeds to refinance existing indebtedness. As a result, the Term Loan B, which matures on May 5, 2022, now has a principal amount of $6.0 million, of which $5.5 million and $5.7 million was outstanding as of December 29, 2017 and September 30, 2017, respectively. The Third Amendment also revised the maximum amount the Company can borrow under the Revolver to the lesser of $16.0 million and modified the trigger for maintenanceor 85% of the cash management system.eligible receivables plus up to $7.0 million of eligible inventories. The SecondThird Amendment also modified the level adjustment dates for thedefinitions of Applicable Margin and the Applicable Unused Fee as such terms are defined underto provide that each is calculated using the Fifth Amended Credit Agreement. In addition, the Second Amendment amended the covenants regarding the Company's Debt to EBITDAS Ratio, Minimum Quarterly EBITDAS amounts and theapplicable Fixed Charge Coverage Ratio, as such terms are defined underredefined by the Fifth AmendedThird Amendment. The Third Amendment established a Borrowing Base computed using monthly Borrowing Base Reports that, if inaccurate, allow M&T Bank, in its discretion, to suspend the making of or limit Revolving Credit Agreement. The Fifth Amended Credit Agreement prohibitsLoans. Further, the Company from paying dividends or repurchasing or redeemingThird Amendment provides for the Company’s repurchase of its common stock under certain circumstances without first obtaining the consent of M&T Bank.Bank’s prior written consent.

Borrowing Base

Under the Fifth Amended Credit Agreement,Third Amendment, the maximum amount the Company can borrow under the Revolver is the lesser of (i) 85% of eligible receivables plus 35%a percentage of eligible inventories (up to a cap of $3.75$7.0 million) or (ii) $16.0 million at December 30, 201629, 2017 and $20.0 million at September 30, 2016.2017.

At December 30, 2016 and September 30, 2016,29, 2017, the upper limit on Revolver borrowings was $11.5$16.0 million, and $16.4with $6.9 million respectively.available. At September 30, 2017, the upper limit on Revolver borrowings was $16.0 million with $7.2 million available. Average Revolver balances amounted to $2.8$9.6 million during the three months ended December 30, 2016.29, 2017.

Interest Rates

The Company incurs quarterly unused commitment fees ranging from 0.250% to 0.500%0.375% of the excess of $16.0 million over average borrowings under the Revolver. Fees incurred amounted to $15.7$6.6 thousand and $8.7$15.7 thousand during the three months ended December 30, 201629, 2017 and January 1,December 30, 2016, respectively. The fee percentage varies based on the Company's Debt to EBITDASCompany’s Fixed Charge Coverage Ratio, as defined below.

Financial Covenants

The Company wasThird Amendment provides for customary events of default, subject in compliance with all debt covenants at December 30, 2016.certain cases to customary cure periods, in which the outstanding balance and any unpaid interest would become due and payable.

Contractual Principal Payments

NOTE 7—6—FAIR VALUE OF FINANCIAL INSTRUMENTS  

Financial Instruments Carried at Historical Cost

 

The Company’s long-term debt is not quoted.  Fair value was estimated using a discounted cash flow analysis based on Level 2 valuation inputs, including borrowing rates the Company believes are currently available to it for loans with similar terms and maturities.

The Company’sCompany's debt is carried at historical cost on the balance sheet. A summary of theThe fair value and carrying value of fixed rate debtthe Celmet Building Term Loan at period end follows:December 29, 2017 were $0.7 million and $0.8 million, respectively. The fair value and carrying value of the Celmet Building Term Loan as of September 30, 2017 were both $0.8 million.

The fair value of the remainder of the Company’s debt approximated carrying value at December 30, 201629, 2017 and September 30, 20162017 as it is variable rate debt.

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 consolidated balance sheet.

 

A summary of additions to and charges against IEC’s warranty reserves during the period follows: 

 

NOTE 9—8—STOCK-BASED COMPENSATION  

The 2010 Omnibus Incentive Compensation Plan (the “2010(“2010 Plan”), was approved by the Company’s stockholders at the January 2011 Annual Meeting.  The Company also has an ESPP,employee stock purchase plan (“ESPP”), adopted in 2011, that provides for the purchase of Company common stock at a discounted stock purchase price. The 2010 Plan, replaced IEC’s 2001 Stock Option and Incentive Plan (the “2001 Plan”), which expired in December 2011.  The 2010 Plan, which is administered by the

Compensation Committee of the Board of Directors, 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.  Under the 2010 Plan, up to 2,000,000 shares of common stock may be issued over a term of ten years.

Stock-based compensation expense recorded under the 2010 and 2001 Plans as well as the ESPPPlan, totaled $135.0 thousand and $54.0 thousand$0.1 million for each of the three months ended December 29, 2017 and December 30, 2016 and January 1, 2016, respectively. During the three months ended January 1, 2016, incentive compensation shares were returned by the Company's former CEO resulting in a reduction to compensation expense of $60.0 thousand. 2016.

At December 30, 2016,29, 2017, there were 470,082413,321 remaining shares available to be issued under the 2010 Plan.

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 2001 Plan, 2010 Plan and ESPP is provided below.

Stock Options

 

When options are granted, IEC estimates the fair value of the option using the Black-Scholes option pricing model and recognizes the computed value as compensation cost over the vesting period, which is typically four years.  The contractual term of options granted under the 2010 Plan is generally seven years.  The volatility rate is based on the historical volatility of IEC's common stock.

 

Assumptions used in the Black-Scholes model and the estimated value of options granted during the three months ended December 29, 2017 and December 30, 2016 are included in the table below. There were no options granted during the three months ended January 1, 2016.follows:

 

 

Restricted (Non-vested) Stock

 

HoldersCertain holders of IEC restricted stock have voting and dividend rights as of the date of grant, butand 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 IEC common stockholder.stockholder of the Company.  The fair value of a share of restricted stock is its market value on the date of grant, and that value is recognized as stock compensation expense over the vesting period. 

 

A summary of restricted stock activity, together with related data, follows: 

 

Stock Issued to Board Members

 

In addition to annual grants of restricted stock, included in the table above, Boardboard 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. 

NOTE 11—9—INCOME TAXES  

Provision for income taxes during each of the three months ended December 30, 201629, 2017 and January 1,December 30, 2016 follows:

 

TheExcept as described below related to the federal Alternative Minimum Tax (“AMT”) deferred tax assets, as of December 29, 2017, the Company has recorded a full valuation allowance on all deferred tax assets. Although we have recorded a full valuation allowance has been recorded for all deferred tax assets, including net operating loss carryforwards (“NOLs”), these NOLs remain available to the Company to offset future taxable income and reduce cash tax payments. IEC had federal gross NOLs for income tax purposes of approximately $31.7$32.9 million at September 30, 2016,2017, expiring mainly in years 2022 through 2025 and 2034 through 2035. The Company also has additional state NOLs available in several jurisdictions in which it files state tax returns.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. As the Company has a September 30 2016,fiscal year-end, the lower corporate income tax rate will be phased in, resulting in an expected U.S. statutory federal rate tax of approximately 24.5% for fiscal 2018, and approximately 21% for subsequent fiscal years.  The Tax Act eliminates the domestic manufacturing deduction and moves to a territorial system. In addition, previous paid federal AMT will now be refundable regardless of whether there is future income tax liability before AMT credits. For the quarter ended December 29, 2017, the impact of the Tax Act resulted in the Company had $1.2recording a net tax benefit of approximately $1 million, resulting from the release of New York State investmentthe valuation allowance on the Company’s AMT credits. In addition, because the Company recorded a full valuation allowance on its historical NOLs, the resulting change in the deferred tax and other credit carryforwards, expiring in various years through 2030.  The credits cannot be utilized unlessasset from the New York statelower corporate tax rate is no longer 0%.was fully offset by the resulting change in the Company’s valuation allowance, and did not have any impact on the Company’s income tax provision for the quarter ended December 29, 2017.  

NOTE 12—10—MARKET SECTORS AND MAJOR CUSTOMERS  

A summary of sales, according to the market sector within which IEC'sIEC’s customers operate, follows: 

Three individual customers each represented 10% or more of sales for the three months ended December 29, 2017. Two customers were from the aerospace & defense sector and each represented 15% of sales, while one was from the medical sector and represented 11% of sales for the three months ended December 29, 2017. Two individual customers each represented 10% or more of sales for the three months ended December 30, 2016.  One customer was from the Aerospaceaerospace & Defensedefense sector, and represented 14% of sales, while the otherand one was from the Industrialindustrial sector and represented 10% of sales. Two individual customers represented 10% or more of sales for the three months ended January 1, 2016.  Both customers were from the Medical sector, with one representing 18% of sales, while the other customer represented 15% of sales, for the three months ended January 1, 2016.

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.

Leases