Note 3 — Acquisitions

Each of the following acquisitions has been treated as a business combination for accounting purposes. The results of operations of each acquired business has been included in our consolidated financial statements since the respective date of each acquisition.

Intific

On February 28, 2014 we acquired all of the outstanding capital stock of Intific Inc. (Intific). Intific is focused on software and game-based solutions in modeling and simulation, training and education, cyber warfare, and neuroscience. The acquisition of Intific expands the portfolio of services and customer base of our Cubic Defense Systems (CDS) segment.

For the three months ended June 30, 2014, the amount of Intific’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $1.9 million and $1.7 million, respectively.

For the nine months ended June 30, 2014, the amount of Intific’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $2.7 million and $3.8 million, respectively. Included in Intific’s operating results for the nine months ended June 30, 2014 are $0.2 million of transaction and acquisition related costs, and $3.7 million of compensation expense which was paid to Intific employees upon the close of the acquisition.

The purchase agreement states that the cost of the acquisition is approximately $12.1 million, adjusted by the difference between the net working capital acquired and the targeted working capital amounts. The acquisition date fair value of the consideration transferred is estimated to be $12.4 million. Through June 30, 2014, we have paid cash of approximately $11.2 million to the seller and as of June 30, 2014 we have accrued a liability of $1.2 million as an estimate of the remaining cash to be paid.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	2.0
Technology	0.7
Backlog	0.7
Other intangible assets	0.2
Accounts receivable	1.5
Deferred tax liabilities, net	(0.5		)
Accounts payable and accrued expenses	(0.6		)
Other net assets acquired	0.7
Net identifiable assets acquired	4.7
Goodwill	7.7
Net assets acquired	$	12.4

The estimated fair values of the net deferred tax liabilities are preliminary estimates pending the finalization of our valuation analyses. The net deferred tax liabilities were primarily recorded to reflect the tax impact of amortization related to identified intangible assets that is not expected to be deductible for tax purposes, net of acquisition consideration that is a tax deductible expense.

The intangible assets will be amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the assets, over a weighted average useful life of two years from the date of acquisition and is not expected to be deductible for tax purposes.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Intific with our existing CDS business and the acquired assembled workforce. The anticipated synergies include the ability to expand services offerings and cost reductions. The amount recorded as goodwill is allocated to our CDS segment and is not expected to be deductible for tax purposes.

Based upon the preliminary estimate of the fair value of identifiable intangible assets, the estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Intific for fiscal years 2014 through 2018 is as follows (in millions):

Year Ended September 30,
2014	$	0.6
2015	0.9
2016	0.7
2017	0.6
2018	0.5

ITMS

On November 26, 2013 we acquired all of the outstanding capital stock of Intelligent Transport Management Solutions Limited (ITMS) from Serco Limited. ITMS is a provider of traffic management systems technology, traffic and road enforcement and maintenance of traffic signals, emergency equipment and other critical road and tunnel infrastructure. The acquisition of ITMS expands the portfolio of services and customer base of our Cubic Transportation Systems (CTS) segment.

For the three months ended June 30, 2014, the amount of ITMS’ sales and net income after taxes included in our Condensed Consolidated Statement of Income were $12.8 million and $0.5 million, respectively.

For the nine months ended June 30, 2014, the amount of ITMS’ sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $30.1 million and $0.2 million, respectively. Included in ITMS’ operating results are $0.5 million of transaction costs incurred during the nine months ended June 30, 2014.

The purchase agreement states that the cost of the acquisition is approximately $69.0 million, adjusted by the difference between the net working capital acquired and the targeted working capital amounts. The acquisition date fair value of the consideration transferred was estimated to be $72.2 million. In November 2013, we paid cash of $69.0 million and in May 2014, we paid cash of $3.2 million as settlement of the working capital with the seller.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	15.7
Intellectual property	1.6
Backlog	5.7
Supplier relationships	0.6
Agreements with seller	1.3
Accounts receivable - billed	4.4
Accounts receivable - unbilled	6.9
Deferred tax liabilities, net	(0.2		)
Deferred revenue	(2.6		)
Accounts payable and accrued expenses	(4.6		)
Other net assets acquired	2.6
Net identifiable assets acquired	31.4
Goodwill	40.8
Net assets acquired	$	72.2

The net deferred tax liabilities were primarily recorded to reflect the difference in timing of recognizing deferred revenue for tax purposes

The fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. The customer relationships and backlog valuation used the excess earnings approach and the non-compete agreement and seller agreements valuations used the with and without approach. The supplier relationship and intellectual property valuations used the replacement cost approach.

The intangible assets will be amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the assets, over a weighted average useful life of two years from the date of acquisition. Future amortization of approximately $19.2 million of purchased intangibles is not expected to be deductible for tax purposes.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of ITMS with our existing CTS business and the acquired assembled workforce. The anticipated synergies include the ability to expand services offerings and cost reductions. The amount recorded as goodwill is allocated to our CTS segment and is expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of ITMS for fiscal years 2014 through 2018 is as follows (in millions):

Year Ended September 30,
2014	$	6.6
2015	6.2
2016	5.2
2017	4.1
2018	3.0

AIS

On July 1, 2013 we acquired certain assets of Advanced Interactive Systems (AIS) and all of the capital stock of its foreign subsidiaries through a bankruptcy auction. AIS is a supplier of live fire specialized range facilities, virtual simulation products, engineering design and project management services for counter-terrorism, law enforcement and military forces worldwide. For the three months ended June 30, 2014 the amount of AIS’ sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $3.1 million and $0.2 million, respectively. For the nine months ended June 30, 2014, the amounts of AIS’ sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $6.2 million and $0.6 million, respectively.

We paid cash of $2.0 million from our existing cash resources, net of cash acquired, for the assets of AIS. At September 30, 2013, the estimated fair value of liabilities for potential claims from customers were preliminary estimates pending the finalization of our valuation analyses. The finalization of the estimation of these values was completed in the quarter ended December 31, 2013 as further information was received from the customers as to the facts and circumstances that existed as of the July 1, 2013 acquisition date. As a result of this additional information, we have estimated that the fair value of the potential customer claims was $1.3 million. As a result, the carrying amount of the potential customer claims liabilities were retrospectively increased by $1.3 million on July 1, 2013, due to this new information, with a corresponding increase to goodwill.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date including the retrospective adjustments described above (in millions):

Customer relationships	$	1.4
Technology	0.9
Backlog	0.6
Other net liabilities assumed	(2.8		)
Net identifiable assets acquired	0.1
Goodwill	1.9
Net assets acquired	$	2.0

The amount recorded as goodwill is allocated to our CDS segment and is not expected to be deductible for tax purposes.

PSMC

On July 1, 2013 we acquired certain assets of PS Management Consultants Pty Ltd. (PSMC). PSMC is a specialist project management and engineering enterprise, based in Canberra, Australia. For the three months ended June 30, 2014 the amount of PSMC’s sales and net income after taxes included in our Condensed Consolidated Statement of Income were $1.7 million and $0.3 million, respectively. For the nine months ended June 30, 2014, the amounts of PSMC’s sales and net income after taxes included in our Condensed Consolidated Statement of Income were $2.9 million and $0.6 million, respectively.

We paid cash of $1.3 million from our existing cash resources to acquire PSMC. The following table summarizes the estimated fair values of the assets acquired at the acquisition date (in millions):

Customer relationships	$	0.6
Backlog	0.1
Net identifiable assets acquired	0.7
Goodwill	0.6
Net assets acquired	$	1.3

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of PSMC and our CDS business and the acquired assembled workforce. The anticipated synergies include the ability to expand services offerings and cost reductions. The amount recorded as goodwill is allocated to our CDS segment and is not expected to be deductible for tax purposes.

NextBus

On January 24, 2013, we acquired all of the outstanding capital stock of NextBus, Inc. (NextBus) from Webtech Wireless, Inc. NextBus provides products and services to transit agencies which provide real-time passenger information to transit passengers, expanding the portfolio of services and customer base of our CTS segment. For the three months ended June 30, 2014 the amount of NextBus’ sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $2.1 million and $0.3 million, respectively. For the nine months ended June 30, 2014, the amounts of NextBus sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $6.8 million and $0.8 million, respectively.

For the three months ended June 30, 2013 NextBus’ sales included in our Condensed Consolidated Statement of Income were $3.1 million. NextBus had no significant gain or loss after taxes for the three months ended June 30, 2013. For the nine months ended June 30, 2013, the amounts of NextBus’ sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $4.6 million and $0.3 million, respectively.

We paid the seller cash of $20.2 million for NextBus from our existing cash resources. The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	8.8
Accounts receivable, net	2.2
Backlog	1.7
Acquired technology	1.3
Corporate trade names	1.0
Accounts payable and accrued expenses	(1.1		)
Deferred tax liabilities, net	(3.3		)
Other net liabilities assumed	(1.2		)
Net identifiable assets acquired	9.4
Goodwill	10.8
Net assets acquired	$	20.2

The net deferred tax liabilities were primarily recorded to reflect the tax impact of the identified intangible assets that will not generate tax deductible amortization expense. The fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. Each of the valuation methodologies used were various methods under the income approach. The customer relationships and backlog valuations used the excess earnings approach. The trade names and technology valuations used the relief from royalty approach.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of NextBus and our CTS business and the acquired assembled workforce. The anticipated synergies include the ability to expand services offerings and cost reductions. The amount recorded as goodwill is allocated to our CTS segment and is not expected to be deductible for tax purposes.

The intangible assets are being amortized using a combination of accelerated and straight-line based on the expected cash flows from the assets, over a weighted average useful life of 5 years from the date of acquisition. The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of NextBus for fiscal years 2014 through 2018 is as follows (in millions):

Year Ended September 30,
2014	$	1.6
2015	1.5
2016	1.4
2017	1.3
2018	1.2

NEK

On December 14, 2012, we acquired from NEK Advanced Securities Group, Inc. (Seller) the customer contracts and operating assets of NEK Special Programs Group LLC (NEK), which consists of the Seller’s Special Operation Forces training business based in Fayetteville, North Carolina and Colorado Springs, Colorado.

For the three months ended June 30, 2014, the amounts of NEK’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $14.4 million and $0.1 million, respectively. For the three months ended June 30, 2013, the amounts of NEK’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $11.5 million and $0.5 million, respectively.

For the nine months ended June 30, 2014, the amounts of NEK’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $34.0 million and $0.5 million, respectively. For the nine months ended June 30, 2013, the amounts of NEK’s sales and net loss after taxes included in our Condensed Consolidated Statement of Income were $21.1 million and $0.8 million, respectively.

Included in the NEK operating results are $0.4 million in transaction related costs incurred during the first quarter of fiscal 2013.

The acquisition agreement states that the cost of the acquisition will total $52.0 million, adjusted by the difference between the net working capital acquired and targeted working capital amounts, less amounts that will not be due if certain future events fail to occur. The acquisition-date fair value of consideration transferred is estimated to be $52.6 million. Through June 30, 2014 we have paid the Seller cash consideration of $52.0 million from our existing cash resources and we have recorded a current liability of approximately $0.6 million at June 30, 2014 as an estimate of additional cash consideration that is due to the Seller. A portion of the $52.0 million of cash consideration that was paid to the Seller was contingent upon certain events that occurred between the acquisition date and June 30, 2014, including the novation of certain of the Seller’s contracts to NEK.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	13.3
Corporate trade names	4.9
Non-compete agreements	0.2
Accounts receivable -billed	3.1
Accounts receivable -unbilled	7.7
Accounts payable	(3.0		)
Other net liabilities assumed	(0.4		)
Net identifiable assets acquired	25.8
Goodwill	26.8
Net assets acquired	$	52.6

The fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. Each of the valuation methodologies used were various methods under the income approach. The trade names valuation used the relief from royalty approach. The customer relationships valuation used the excess earnings approach and the non-compete agreements valuation used the with and without approach. The intangible assets are being amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the assets, over a weighted average useful life of four years from the date of acquisition.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of NEK and our Mission Support Services (MSS) business and the acquired assembled workforce. The anticipated synergies include the ability to expand services offerings and cost reductions. The amount recorded as goodwill is allocated to our MSS segment and is expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of NEK for fiscal years 2014 through 2018 is as follows (in millions):

Year Ended September 30,
2014	$	3.4
2015	2.9
2016	2.4
2017	1.9
2018	1.4

Changes in goodwill for the nine months ended June 30, 2014 were as follows (in millions):

			Mission
	Transportation		Support		Defense
	Systems		Services		Systems		Total

Balances at September 30, 2013	$	18.3	$	94.4	$	23.4	$	136.1
Acquisitions	40.8		—		7.7		48.5
Foreign currency exchange rate changes	2.5		—		0.5		3.0
Balances at June 30, 2014	$	61.6	$	94.4	$	31.6	$	187.6

Pro forma information

The following unaudited pro forma information presents our consolidated results of operations as if Intific, ITMS, NEK, NextBus, AIS and PSMC had been included in our consolidated results since October 1, 2012 (in millions):

	Nine Months Ended				Three Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
			(As Restated)				(As Restated)
Net sales	$	1,014.7	$	1,102.8	$	340.4	$	358.2

Net income attributable to Cubic	$	36.3	$	68.1	$	12.2	$	20.1

The pro forma information includes adjustments to give effect to pro forma events that are directly attributable to the acquisitions and have a continuing impact on operations including the amortization of purchased intangibles and the elimination of interest expense for the repayment of debt. No adjustments were made for transaction expenses, other adjustments that do not reflect ongoing operations or for operating efficiencies or synergies. The pro forma financial information is not necessarily indicative of what the consolidated financial results of our operations would have been had the acquisitions been completed on October 1, 2012, and it does not purport to project our future operating results.