Goodwill and Purchased Intangible Assets

12 Months Ended

Sep. 30, 2018

Goodwill and Purchased Intangible Assets

Goodwill and Purchased Intangible Assets

NOTE 8—GOODWILL AND PURCHASED INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the two years ended September 30, 2018 are as follows (in thousands):



	Transportation		Cubic Global		Cubic Mission
	Systems		Defense		Solutions		Total

Net balances at October 1, 2016	$	49,630	$	262,966	$	—	$	312,596
Acquisitions (see Note 2)		—		5,885		—		5,885
Foreign currency exchange rate changes		1,240		1,841		—		3,081
Net balances at September 30, 2017		50,870		270,692		—		321,562
Reassignment on October 1, 2017		—		(125,321)		125,321		—
Acquisitions		—		665		13,085		13,750
Foreign currency exchange rate changes		(1,084)		(323)		(279)		(1,686)
Net balances at September 30, 2018	$	49,786	$	145,713	$	138,127	$	333,626

As described in Note 17, we concluded that CMS became a separate operating segment beginning on October 1, 2017. In conjunction with the changes to reporting units, we reassigned goodwill between CGD and CMS based on their relative fair values on October 1, 2017.

We complete our annual goodwill impairment test each year as of July 1 at the reporting unit level. Until October 1, 2017 the goodwill impairment tests were performed at the reporting units that existed through September 30, 2017 including our legacy CGD reporting unit. In 2018, the goodwill impairment tests were performed separately for our CTS, CGD and CMS reporting units.

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 2018 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 2018. The estimated fair value for our CTS reporting unit exceeded its carrying value by over 100%, while the estimated fair values of our CGD and CMS reporting units each exceeded their carrying values by over 40%.

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. Although we believe our underlying assumptions supporting these assessments 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 interim analyses in 2019 that could expose us to material impairment charges in the future.

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


	September 30, 2018						September 30, 2017
							Gross
	Gross Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

Contract and program intangibles	$	151,965	$	(112,399)	$	39,566	$	151,602	$	(90,988)	$	60,614
Other purchased intangibles		52,851		(18,884)		33,967		42,813		(13,569)		29,244
Total	$	204,816	$	(131,283)	$	73,533	$	194,415	$	(104,557)	$	89,858

Total amortization expense for 2018, 2017 and 2016 was $27.1 million, $30.2 million and $29.4 million, respectively.

The table below shows our expected amortization of purchased intangibles as of September 30, 2018, for each of the next five years and thereafter (in thousands):



	Transportation		Cubic Global		Cubic Mission
	Systems		Defense		Solutions		Total
2019	$	1,153	$	673	$	18,336	$	20,162
2020		944		254		14,687		15,885
2021		698		254		11,259		12,211
2022		598		254		8,129		8,981
2023		499		254		6,042		6,795
Thereafter		989		626		7,884		9,499
	$	4,881	$	2,315	$	66,337	$	73,533

- 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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