INTANGIBLE ASSETS

IEC’s intangible assets (other than goodwill) were acquired in connection with purchases of SCB in the first quarter of fiscal 2011 and Albuquerque in fiscal 2010.

Among SCB’s key attributes as an acquisition candidate were the relationships established with a number of military and defense contractors. The anticipated profitability of those relationships was considered by IEC in arriving at an amount to offer for the firm and also became the basis for allocating a portion of the purchase price to a related customer relationship intangible asset. Based upon several key assumptions and a detailed analysis of value, $5.9 million was allocated to this intangible asset. The asset is being amortized over its 15-year estimated useful life, using the straight-line method.

For the reasons set forth in Note 7—Goodwill below, the Company recorded an impairment of the customer relationship intangible asset in the fourth quarter of fiscal 2013. As part of the impairment determination, future cash flows of SCB’s customer relationships existing at acquisition date were projected based on estimates of future revenues, operating income and other factors, such as working capital and capital expenditures. Factors taken into consideration in arriving at these estimates include historical results since acquisition, industry data and expected challenging market conditions as described more fully in Note 7—Goodwill. The projections did not include possible future benefits from customer relationships existing at acquisition date that may positively impact other reporting units, including Albuquerque, in the future. The discount rates used in our discounted cash flow method were based on a weighted average cost of capital determined from relevant market comparisons, adjusted upward for risks specific to the reporting unit. An estimated attrition rate was calculated based on the reporting unit’s historical revenue. Based on the results of this test, we recognized an impairment charge of $2.4 million for customer relationships. An impairment analysis for intangible assets was not necessary prior to the fourth quarter of fiscal 2013 for the same reasons a goodwill impairment charge was not recorded prior to the fourth quarter of fiscal 2013 as described in Note 7—Goodwill.

There has been no further impairment of SCB customer relationships in fiscal 2014.

In connection with the SCB acquisition, IEC also allocated $100 thousand to an intangible asset representing the estimated value of a five-year, non-compete agreement entered into with SCB’s selling shareholders. This intangible asset is being amortized evenly over its contractual life, and no impairment has been taken for this asset since the SCB acquisition.

As for Albuquerque, its building and land were acquired subject to an Industrial Revenue Bond (“IRB”) that exempts the property from real estate taxes for the term of the IRB. The tax abatement was valued at $360 thousand at date of acquisition, and such value is being amortized over the 9.2 year exemption period that remained as of the acquisition date. No impairment has been taken for this asset since the Albuquerque acquisition.

A summary of intangible assets by category and accumulated amortization at period end follows:



Intangible Assets	September 30, 2014			September 30, 2013
(in thousands)
Customer relationships - SCB	$	5,900		$	5,900
Property tax abatement - Albuquerque	360			360
Non-compete agreement - SCB	100			100
Total intangibles	6,360			6,360
Accumulated amortization	(1,556		)	(1,301		)
Accumulated impairment - customer relationships	(2,412		)	(2,412		)
Intangible assets, net	$	2,392		$	2,647

Amortization expense during the years ended September 30, 2014 and September 30, 2013 follows:



	Three Months Ended				Years Ended
Amortization Expense	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
(in thousands)
Intangible amortization expense	$	64	$	113	$	254	$	452

A summary of estimated future amortization expense for the next five years follows:



Future Amortization	Estimated future amortization
(in thousands)
Twelve months ended September 30,
2015	$	254
2016	238
2017	234
2018	234
2019	213
2020 and thereafter	$	1,219