NOTE 2. ACQUISITIONS

SCB: On December 17, 2010, IEC, through a subsidiary formed to complete the purchase now known as Southern California Braiding, Inc., 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 cash proceeds from M&T borrowings.

The cash portion of the purchase price was decreased to $25.8 million due to a purchase price adjustment. 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 of goodwill.

The agreement also provides for a further potential return of contingent consideration held in escrow if SCB’s gross sales and backlog for calendar-year 2011 do not reach specified targets. While it was previously expected that both targets would be exceeded, it is now estimated that the sales target will not be achieved, and IEC recorded an estimated refund of $1.1 million at September 30, 2011. The estimate is subject to revision as SCB's actual performance through the end of calendar 2011 becomes known. In accordance with ASC 805-30-35, the estimated refund is reported as "other income" and "other current assets."

$3.1 million of the purchase price was deposited in escrow accounts to be released to the sellers or returned to the purchaser under certain specified circumstances through March 31, 2012. In February 2011, $623 thousand of the escrow was released to the sellers upon satisfaction of applicable provisions in the asset purchase agreement. The remaining escrow is subject to buyer indemnity claims, if any, and sellers' further performance under the agreement as indicated above. At September 30, 2011, the escrow was comprised of $2 million of cash plus 77,176 shares of IEC common stock.

The selling company’s president has continued in that capacity with SCB, and selling shareholders entered into a five-year agreement not to compete with the Company. Concurrent with the acquisition, IEC assumed responsibility for operating leases of SCB's premises at an annual rental 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. 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.

SCB Opening Balance Sheet	December 17, 2010
(thousands, except shares)
Accounts receivable	$	1,576
Inventories		2,896
Leasehold improvements		1,169
Machinery & equipment		1,344
Furniture & fixtures		236
Intangible assets		6,000
Goodwill		13,708
Deferred income taxes		122
Other assets		29
Total assets acquired		27,080

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

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

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 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 facility at rent of approximately $190 thousand per year. The acquired business is being operated as the Celmet division of IEC.

Fair values of the assets acquired and liabilities assumed in connection with the Celmet acquisition are summarized below. The price paid exceeded the fair value of net assets acquired by $101 thousand, which has been recorded as goodwill.

Celmet Division Opening Balance Sheet	July 30, 2010
	(thousands)
Accounts receivable	$	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 (Purchase price was funded with bank debt.)	$	1,898

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 as of September 2010 with final balances reflected in IEC’s 2011 financial statements.

	As of December 16, 2009
	Final		Preliminary
Albuquerque Opening Balance Sheet	December 2010		September 2010
	(thousands)
Accounts receivable	$	3,931	$	3,931
Inventories		4,275		4,276
Other current assets		69		69
Land		813		813
Building		5,074		5,074
Equipment		2,761		2,761
Intangible asset		360		360
Deferred income taxes		485		485
Total assets acquired		17,768		17,769

Accounts payable	$	1,128	$	1,128
Accruals and other liabilities		1,191		1,191
Gain on acquisition		588		418
Long-term debt		100		100
Total liabilities assumed		3,007		2,837
Net assets acquired/purchase price (Purchase price was funded with bank debt.)	$	14,761	$	14,932

Operating and Pro Forma Results: The first table below displays revenue and earnings for SCB in 2011 and Albuquerque and Celmet in 2010 for periods from the respective dates of acquisition to the ends of both fiscal years. The disclosed amounts are included in IEC's consolidated financial statements.

The second table presents IEC's unaudited, pro forma, consolidated operating results for 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 years with revenue and earnings generated by SCB, Celmet and Albuquerque for any time-periods within the two years 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.

Operating Results of Acquired Businesses	Fiscal Years ended September 30,
from Respective Dates of Acquisition	2011			2010
(thousands)	SCB			Albuquerque
				and Celmet
For businesses acquired during the year
Net sales	$	11,363		$	18,537
Income (loss) before income taxes		(233	)		2,437
Net income (loss)		(221	)		1,502

	Fiscal Years ended September 30,
IEC Pro Forma Operating Results	2011		2010
(in thousands, except share and per share data)	(Unaudited)

As if SCB, Celmet and Albuquerque had been acquired on the first day of the fiscal year preceding the year of acquisition
Net sales	$	137,227	$	122,820
Income before income taxes		10,304		9,050
Net income		7,053		5,846

Earnings per share:
Basic	$	0.74	$	0.64
Diluted		0.71		0.60

Weighted average common and common equivalent shares:
Basic		9,482,336		9,090,180
Diluted		9,988,798		9,708,174

In developing pro forma (as if combined) financial results, the acquirees’ pre-merger data is adjusted to account for some of the changes that result from operating the entities as part of the IEC consolidated group. For example, depreciation changes due to asset revaluations; newly identified intangibles are amortized; interest is incurred on acquisition-related debt; and certain expenses decrease or increase based on the manner in which IEC operates the entity. As mentioned above, certain other expected changes, such as potential revenue changes, 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.

Adjustments Used in Arriving at	Fiscal Years ended September 30,
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		64			549
Other		-			(53	)
Total cost-of-sales adjustments	$	64		$	392

Selling and administrative expenses
Compensation	$	(379	)	$	(1,772	)
Sales/marketing expenses		(364	)		(1,300	)
Insurance premiums		(76	)		(373	)
Legal and accounting expenses		(154	)		(619	)
Contract staffing		(112	)		(420	)
Amortization of intangibles		86			412
Corporate allocation		150			720
Other		(33	)		(209	)
Total selling and administrative expense adjustments	$	(882	)	$	(3,561	)

Interest expense
Interest on acquisition debt	$	201		$	1,177
Other		(2	)		(29	)
Total interest expense adjustments	$	199		$	1,148

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		21,096