GOODWILL AND PURCHASED INTANGIBLE ASSETS

12 Months Ended

Sep. 30, 2013

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, 2013 are as follows (in thousands):

	Transportation Systems			Defense Systems			Mission Support Services			Total
Balances at October 1, 2011	$	7,269		$	20,653		$	118,433		$	146,355
Foreign currency exchange rate changes	248			330			—			578
Balances at September 30, 2012	7,517			20,983			118,433			146,933
Acquisitions (see Note 3)	10,837			1,223			26,782			38,842
Impairment of goodwill	—			—			(50,865		)	(50,865		)
Foreign currency exchange rate changes	(53		)	(6		)	—			(59		)
Balances at September 30, 2013	$	18,301		$	22,200		$	94,350		$	134,851

We completed our annual goodwill impairment test as of July 1, 2013. 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. Slowed defense spending and margin compression due to competitive pressures on bid rates have impacted operating results and tempered the projected cash flows of our MSS reporting unit, negatively impacting our estimate of its fair value. Step one of the impairment test concluded that the carrying value of our MSS reporting unit, including goodwill, exceeded its estimated fair value. For our remaining two reporting units, the estimated fair values were in excess of their carrying values.

For our MSS reporting unit, 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. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss. 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, 2013							September 30, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Contract and program intangibles	$	97,424	$	(54,712	)	$	42,712	$	71,145	$	(40,785	)	$	30,360
Other purchased intangibles	22,915		(8,085		)	14,830		14,560		(5,546		)	9,014
Total	$	120,339	$	(62,797	)	$	57,542	$	85,705	$	(46,331	)	$	39,374

Our purchased intangible assets are subject to amortization and we use a combination of straight-line and accelerated methods, based on the expected cash flows from the assets, over a weighted average period of 6 years. Total amortization expense for 2013, 2012 and 2011 was $16.7 million, $14.8 million and $14.7 million, respectively.

The table below shows our expected amortization of purchased intangibles as of September 30, 2013, for each of the next five years and thereafter (in thousands):

	Transportation Systems		Defense Systems		Mission Support Services		Total
2014	$	3,247	$	1,869	$	10,420	$	15,536
2015	2,961		1,239		7,690		11,890
2016	2,775		783		4,714		8,272
2017	2,675		253		2,452		5,380
2018	2,570		44		1,775		4,389
Thereafter	5,765		—		6,310		12,075
	$	19,993	$	4,188	$	33,361	$	57,542

- 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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