IEC Electronics has been one of the better turnaround stories in EMS of the past decade. The company went from one of the larger EMS companies in the world to almost out of business. So why is more than one analyst saying it again is on the brink?

For its fiscal year ended September 1997, IEC reported sales of $260 million. In 1999, as EMS really was taking off, the company was bleeding red ink, losing $20.5 million. By 2005, revenue has plunged to $19 million. Staffing had been cut from nearly 2,000 to about 200. The number of plants fell from five to just one.

That was the nadir. New management has led the company from the poor house to the penthouse. Sales are now trending up, growing 20% or more the past several years. Sales were up 38% to $133.3 million last year, boosted by the acquisitions of Southern California Braiding (SCB) and Celmet. Operating margins are near 10% and gross margins top 20%.

Things couldn't be rosier, right?

Not exactly. Analyst Jason Kaplan says the contract SMT assembler's incentive plan rewards revenue growth at the expense (get it?) of the balance sheet. Four recent acquisitions were funded almost entirely with debt, which is now more than $48 million. Furthermore, although the firm still owes about $30 million from its previous deals, management has indicated it wants to continue to make acquisitions -- this despite taking more than 18 months to integrate SCB. Then there's the company's cash situation -- it doesn't have any. Look at Cash line item under Assets. Yikes.

Writes Kaplan: "Shareholders are currently seeing no benefits from the rise in revenues and net income, while management continues to benefit and be incentivized by the "growth through any means" philosophy."

If that weren't enough, another analysis pegs IEC's probability of bankruptcy at 40.57%, 11.76% higher than that of the technology sector at large, and 9.77% higher than that of printed circuit board companies.

Nothing rosy about that.