GOODWILL AND PURCHASED INTANGIBLE ASSETS

12 Months Ended

Sep. 30, 2015

GOODWILL AND PURCHASED INTANGIBLE ASSETS

GOODWILL AND PURCHASED INTANGIBLE ASSETS

NOTE 7—GOODWILL AND PURCHASED INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the two years ended September 30, 2015 are as follows (in thousands):

	Transportation Systems			Cubic Global Defense Systems			Cubic Global Defense Services		Total

Balances at October 1, 2013	$	18,301		$	23,443		$	94,350	$	136,094
Acquisitions (see Note 2)	40,792			7,365			—		48,157
Foreign currency exchange rate changes	74			(184		)	—		(110		)

Balances at September 30, 2014	59,167			30,624			94,350		184,141
Acquisitions (see Note 2)	—			57,875			—		57,875
Foreign currency exchange rate changes	(3,193		)	(924		)	—		(4,117		)

Balances at September 30, 2015	$	55,974		$	87,575		$	94,350	$	237,899

We complete our annual goodwill impairment test each year as of July 1. The first step of the goodwill impairment test compares the fair value of our reporting units to their carrying values. We estimate the fair value of our reporting units primarily based on the discounted projected cash flows of the underlying operations and based upon market multiples from publicly traded comparable companies. For our 2015 impairment test, the estimated fair value of all three of our reporting units exceeded their respective carrying values. As such, there was no impairment of goodwill in 2015. The estimated fair values for our CGD Systems and Transportation Systems reporting units each exceeded their carrying values by over 20%, while the estimated value of our CGD Services reporting unit exceeded its carrying value by over 10%.

Significant management judgment is required in the forecast of future operating results that are used in our impairment analysis. The estimates we used are consistent with the plans and estimates that we use to manage our business. For our CGD Services reporting unit, significant assumptions utilized in our discounted cash flow approach included growth rates for sales and margins at greater levels than we have achieved in the past five years, but at levels that are less than the average annual growth we achieved over the period from fiscal 2000 through fiscal 2010. Although we believe our underlying assumptions supporting this assessment are reasonable, if our forecasted sales and margin growth rates, timing of growth, or the discount rate vary from our forecasts, we may be required to perform an interim analysis in 2016 that could expose us to material impairment charges in the future. In performing the 2015 annual test for our CGD Services reporting unit, small changes in the discount rate, growth rate or gross margin assumptions could have a significant impact on the determination of the estimated fair value of CGD Services. For example a decrease in each future year’s projected cash flows by 12% would have resulted in us being required to complete step two of the analysis for the CGD Services reporting unit. We will be required to monitor changes in these factors as well as other factors which may be considered indicators of interim impairment of our goodwill prior to our next annual impairment test.

In 2013, slowed defense spending and margin compression due to competitive pressures on bid rates impacted operating results and tempered the projected cash flows of our CGD Services reporting unit, negatively impacting our estimate of its fair value at July 1, 2013. Step one of the impairment test indicated that the carrying value of our CGD Services reporting unit, including goodwill, exceeded its estimated fair value at July 1, 2013. Accordingly, in 2013 we performed the second step of the goodwill impairment test to measure the amount of the impairment loss, if any. The second step of the test requires the allocation of the reporting unit’s fair value to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit was being acquired in a business combination. Based on the results of the step two analysis, we recorded a $50.9 million goodwill impairment in 2013.

Purchased Intangible Assets: The table below summarizes our purchased intangible assets (in thousands):

	September 30, 2015							September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount

Contract and program intangibles	$	156,847	$	(96,916	)	59,931		$	121,340	$	(73,234	)	$	48,106
Other purchased intangibles	28,169		(15,164		)	13,005		27,362		(11,850		)	15,512

Total	$	185,016	$	(112,080	)	$	72,936	$	148,702	$	(85,084	)	$	63,618

Total amortization expense for 2015, 2014 and 2013 was $27.6 million, $22.6 million and $16.7 million, respectively.

The table below shows our expected amortization of purchased intangibles as of September 30, 2015, for each of the next five years and thereafter (in thousands):

	Transportation Systems		Cubic Global Defense Systems		Cubic Global Defense Services		Total
2016	$	7,358	$	9,480	$	4,714	$	21,552
2017	6,306		7,590		2,452		16,348
2018	5,251		5,973		1,775		12,999
2019	2,986		4,346		1,184		8,516
2020	958		2,878		790		4,626
Thereafter	3,043		1,514		4,338		8,895

	$	25,902	$	31,781	$	15,253	$	72,936

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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