NOTE 2. ACQUISITIONS

SCB: On December 17, 2010, IEC acquired substantially all of the assets of Southern California Braiding Company, Inc. of Bell Gardens, CA, a privately held manufacturer of high reliability wire, cable and harness products for military and defense markets. The contracted purchase price was $25.0 million, subject to adjustment for any increase or decrease in working capital between the contract date and the closing date. The closing-date working capital adjustment amounted to $1.6 million, resulting in a $26.6 million price at closing. $609 thousand was paid with 100,000 shares of newly issued IEC common stock and the $26.0 million remainder was paid with the cash proceeds from M&T borrowings.

As required under the asset purchase agreement, a further analysis and reconciliation of closing-date working capital was completed in May 2011, and an additional adjustment of $248 thousand was refunded to IEC. The cash refund was recorded as a reduction in goodwill. The agreement also provides for a potential further refund of purchase price if SCB’s gross sales and backlog for calendar year 2011 do not reach specified targets.

$3.1 million of the purchase price was deposited in escrow accounts to be released to the sellers or returned to purchaser under certain specified circumstances through March 31, 2012. On February 3, 2011, $623 thousand of the escrow was released to the sellers upon satisfaction of applicable provisions in the asset purchase agreement. The remaining $2.5 million remains in escrow subject to sellers' further performance under the agreement.

Selling shareholders entered into a five-year agreement not to compete with SCB, and the firm’s president continues in that capacity for SCB under IEC ownership. Concurrent with the acquisition, the Company assumed operating leases for SCB's premises at an annual rent of approximately $350 thousand.

Under the acquisition method of accounting, the Company is required to measure and record the fair value of assets acquired and liabilities assumed. If the purchase price is greater than the value of identifiable net assets acquired, as in the case of SCB, the difference is recorded as goodwill. If net asset value exceeds the amount paid, the excess is recorded in other income as a gain.

Our current estimates of fair value for the assets acquired and liabilities assumed in the SCB acquisition are summarized below, as compared to estimates at the end of the prior quarter. Adjustments in the current quarter resulted from the working capital analysis mentioned above and further refinement of asset appraisals and valuations. Allocations of purchase price may be subject to further revision in amounts that could be material as appraisals and valuations continue to be reviewed by the Company and its advisors and auditors.

	As of December 17, 2010
	for 7/1/11		from 4/1/11
SCB Opening Balance Sheet	Form 10-Q		Form 10-Q
(thousands, except shares)
Accounts receivable, net	$	1,576	$	1,620
Inventories		2,896		2,790
Leasehold improvements		1,169		1,169
Machinery & equipment		1,344		3,177
Furniture & fixtures		236		236
Intangible assets		6,000		5,156
Goodwill		13,708		12,950
Deferred income taxes		122		106
Other assets		29		-
Total assets acquired		27,080		27,204

Accounts payable	$	560	$	503
Accruals and other liabilities		129		62
Total liabilities assumed		689		565
Net assets acquired/purchase price	$	26,391	$	26,639

Funded with bank debt	$	25,782	$	26,030
Funded with 100,000 shares of IEC common stock		609		609
Total funding for SCB acquisition	$	26,391	$	26,639

Celmet: On July 30, 2010, the Company acquired certain assets and liabilities of Celmet Co., Inc., a privately held, precision sheet-metal fabrication, component assembly and metal stamping company located in Rochester, NY. The acquired business is being operated as the Celmet division of IEC. The purchase price of $1.9 million was funded with senior bank debt, and the Company entered into a 48-month operating lease for Celmet’s operating facility at rental of approximately $190 thousand per year.

Fair values of the assets acquired and liabilities assumed in connection with the Celmet acquisition are summarized below. An analysis in the most recent quarter of Celmet's tax attributes resulted in a $43 thousand reduction in deferred taxes and an offsetting increase in goodwill. The price paid exceeded fair value of the net assets acquired by $101 thousand, which has been recorded as goodwill.

Celmet Division Opening Balance Sheet	July 30, 2010
	(thousands)
Accounts receivable, net	$	577
Inventories		364
Other current assets		23
Equipment		1,058
Goodwill		101
Deferred income taxes		19
Total assets acquired		2,142

Accounts payable	$	214
Accruals and other liabilities		30
Total liabilities assumed		244
Net assets acquired/purchase price	$	1,898
(Purchase price was funded with bank debt.)

Albuquerque: On December 16, 2009, the Company acquired all of the stock of General Technology Corporation from Crane International Holdings, Inc. The purchase price of $14.8 million was funded entirely with senior bank debt. In April 2011, the Company changed the name of this subsidiary to IEC Electronics Corp.-Albuquerque.

The acquisition resulted in a gain of $588 thousand, $418 thousand of which was recognized during the fourth quarter of fiscal 2010. The remaining $170 thousand was recorded in December 2010 upon IEC’s receipt of a purchase price refund from the seller.

During the twelve-month period following the Albuquerque acquisition, certain adjustments were made to the purchase price and to the valuation of assets and liabilities acquired as refunds were received and new information became available. The summary of Albuquerque’s acquisition-date balance sheet provided below compares preliminary balances recorded in December 2009 with final balances reflected in IEC’s 2011 financial statements.

	As of December 16, 2009
	Final		Preliminary
Albuquerque Opening Balance Sheet	December 2010		December 2009
	(thousands)
Accounts receivable, net	$	3,931	$	3,945
Inventories		4,275		4,444
Other current assets		69		69
Land		813		813
Building		5,074		5,087
Equipment		2,761		2,761
Intangible asset		360		360
Deferred income taxes		485		-
Total assets acquired		17,768		17,479

Accounts payable	$	1,128	$	1,111
Accruals and other liabilities		1,191		1,157
Gain on acquisition		588		-
Long-term debt		100		100
Total liabilities assumed		3,007		2,368
Net assets acquired/purchase price	$	14,761	$	15,111
(Purchase price was funded with bank debt.)

Operating and Pro Forma Results: The table that follows displays revenue and earnings for SCB in 2011 and Albuquerque in 2010 for periods from the respective dates of acquisition to the end of the third quarters of both fiscal years. Those amounts are included in IEC's consolidated financial statements.

The summary below also presents IEC's unaudited pro forma consolidated results for nine months of fiscal 2011 and 2010 as if the SCB, Celmet and Albuquerque acquisitions had occurred on the first day of the year prior to the year of acquisition. The pro forma results combine IEC's actual consolidated results for the nine-month periods with revenue and earnings generated by SCB, Celmet and Albuquerque for any time-periods within the nine months that they were not members of the IEC consolidated group. While the pro forma results take into consideration certain estimated changes in expenses resulting from the merged operations, they do not reflect additional revenues that may be generated by combining SCB, Celmet, Albuquerque and IEC. The pro forma results are not necessarily equivalent to those that would have been obtained by consummating the acquisitions on the earlier dates, nor are they necessarily indicative of future results.

	Nine months ended
Operating Results of Acquired Businesses	July 1,		June 25,
and IEC Pro Forma Results	2011		2010
(in thousands, except share and per share data)	(Unaudited)

SCB results in 2011 and Albuquerque results in 2010 from respective dates of acquisition
Net sales	$	8,332	$	12,098
Income before income taxes		1,126		2,073
Net income		676		1,316

IEC pro forma results as if SCB, Celmet and Albuquerque were acquired in the year prior to the year of acquisition
Net sales	$	102,286	$	90,518
Income before income taxes		7,165		6,696
Net income		4,491		4,178

Earnings per share:
Basic	$	0.47	$	0.46
Diluted		0.45		0.43

Weighted average common and common equivalent shares:
Basic		9,552,976		9,055,212
Diluted		9,960,548		9,706,748

In developing pro forma (as if combined) financial results, the acquirees’ pre-merger data is adjusted to account for some of the changes expected to result from operating the entities as part of the IEC consolidated group. For example, depreciation will change due to asset revaluations; newly identified intangibles will be amortized; interest will be incurred on acquisition-related debt; and certain expenses will decrease or increase based on the manner in which IEC intends to operate the entity. As mentioned above, certain other expected changes, such as potential revenue increases, are not factored into the pro forma information. A summary of adjustments made in preparing IEC’s pro forma information above is provided in the table that follows.

	Nine months ended
Adjustments Used in Arriving at	July 1,			June 25,
Pro Forma Results in Table Above	2011			2010
(in thousands, except share data)	(Unaudited)
	Increase (decrease)
Sales
Eliminate sales to former affiliate	$	-		$	(73	)

Cost of sales
Eliminate cost of sales to former affiliate	$	-		$	(104	)
Depreciation expense		65			459
Other		-			(46	)
Total cost-of-sales adjustments	$	65		$	309

Selling and administrative expenses
Compensation	$	(458	)	$	(1,572	)
Sales/marketing expenses		(248	)		(582	)
Insurance premiums		(62	)		(234	)
Legal and accounting expenses		(154	)		(430	)
Amortization of intangibles		87			310
Other		(165	)		(497	)
Total selling and administrative expense adjustments	$	(1,000	)	$	(3,005	)

Interest expense
Interest on acquisition debt	$	203		$	930
Other		(1	)		(24	)
Total interest expense adjustments	$	202		$	906

Other (income) expense
Costs of integrating acquirees' information systems	$	-		$	150
Other		(109	)		40
Total other (income) expense adjustments	$	(109	)	$	190

Weighted average common shares outstanding
Shares of IEC common stock issued to acquire SCB					100,000
Weighted shares relating to pre-acquisition period		28,102