NOTE 16—BUSINESS SEGMENT INFORMATION

We have three primary business segments: Cubic Transportation Systems (CTS), Cubic Global Defense Services (CGD Services) and Cubic Global Defense Systems (CGD Systems). CTS designs, produces, installs and services electronic revenue collection systems for mass transit projects, including railways and buses. CGD Services provides training, operations, intelligence, maintenance, technical and other services to the U.S. government and allied nations. CGD Systems performs work under U.S. and foreign government contracts relating to electronic defense systems and equipment. CGD Systems products include customized military range instrumentation, laser based training systems, and virtual simulation systems. CGD systems also includes our secure communications business, called CMS, which offers products such as datalinks, power amplifiers, avionics systems, modular networking and baseband communications equipment, deployable satellite communication terminal solutions, real-time video processing, exploitation and dissemination, and cross domain hardware solutions to address multi-level security requirements.

We evaluate performance and allocate resources based on total segment operating profit or loss. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are immaterial and are eliminated in consolidation.

Our reportable segments are business units that offer different products and services. Operating results for each segment are reported separately to senior corporate management to make decisions as to the allocation of corporate resources and to assess performance.

Business segment financial data is as follows (in millions):


	Year Ended
	September 30,
	2016		2015		2014
Sales:
Cubic Transportation Systems	$	586.4	$	566.8	$	599.7
Cubic Global Defense Systems		484.2		462.1		400.6
Cubic Global Defense Services		391.1		402.1		398.1
Total sales	$	1,461.7	$	1,431.0	$	1,398.4

Operating income (loss):
Cubic Transportation Systems	$	57.5	$	75.9	$	65.9
Cubic Global Defense Systems		(17.1)		18.4		26.8
Cubic Global Defense Services		11.2		6.6		7.8
Unallocated corporate expenses		(44.4)		(25.5)		(8.0)
Total operating income	$	7.2	$	75.4	$	92.5

Assets:
Cubic Transportation Systems	$	338.2	$	410.0	$	422.2
Cubic Global Defense Systems		616.2		341.2		252.4
Cubic Global Defense Services		191.2		200.7		195.8
Corporate		359.1		348.4		324.2
Total assets	$	1,504.7	$	1,300.3	$	1,194.6

Depreciation and amortization:
Cubic Transportation Systems	$	8.2	$	10.8	$	11.5
Cubic Global Defense Systems		28.7		17.1		7.4
Cubic Global Defense Services		5.2		8.5		10.7
Corporate		3.4		1.3		0.8
Total depreciation and amortization	$	45.5	$	37.7	$	30.4

Capital expenditures:
Cubic Transportation Systems	$	2.2	$	2.0	$	1.8
Cubic Global Defense Systems		8.9		0.6		13.2
Cubic Global Defense Services		—		—		—
Corporate		21.0		19.6		1.6
Total expenditures for long-lived assets	$	32.1	$	22.2	$	16.6


Years ended September 30,	2016		2015		2014

Geographic Information:
Sales (a):
United States	$	827.0	$	765.0	$	749.9
United Kingdom		243.0		282.4		294.4
Canada		44.6		17.6		9.0
Australia		154.0		164.6		161.9
Middle East		71.0		67.7		42.0
Far East		57.4		55.3		76.6
Other		64.7		78.4		64.6
Total sales	$	1,461.7	$	1,431.0	$	1,398.4

(a)

Sales are attributed to countries or regions based on the location of customers.


Long-lived assets, net:
United States	$	86.3	$	65.8	$	49.8
United Kingdom		5.3		8.6		9.3
Other foreign countries		9.4		4.3		6.3
Total long-lived assets, net	$	101.0	$	78.7	$	65.4

CGD Services and CGD Systems segment sales include $657.9 million, $670.0 million and $651.1 million in 2016, 2015 and 2014, respectively, of sales to U.S. government agencies. CTS segment sales include $156.3 million, $183.2 million and $213.2 million in 2016, 2015 and 2014, respectively, of sales under various contracts with our customer, Transport for London (TfL). No other customer accounts for 10% or more of our revenues for any periods presented.

Changes in estimates on contracts for which revenue is recognized using the cost-to-cost percentage-of-completion method decreased operating income by approximately $2.8 million in 2016, decreased operating income by approximately $14.5 million in 2015 and increased operating income by approximately $1.3 million in 2014. These adjustments decreased net income by approximately $1.6 million ($0.06 per share) in 2016, decreased net income by approximately $8.0 million ($0.30 per share) in 2015 and increased net income by approximately $3.5 million ($0.13 per share) in 2014.

Certain of our transportation systems service contracts contain service level or system usage incentives, for which we recognize revenues when the incentive award is fixed or determinable. These contract incentives are generally based upon monthly service levels or monthly performance and become fixed or determinable on a monthly basis. However, one of our legacy transportation systems service contracts that terminated in late fiscal 2015 contained annual system usage incentive which were based upon system usage compared to annual baseline amounts. For this contract the annual system usage incentives were not considered fixed or determinable until the end of the contract year for which the incentives are measured, which fell within the second quarter of our fiscal year. During the second quarter of fiscal years ended September 30, 2015 and 2014, we recognized sales of $9.3 million and $12.2 million, respectively related to annual system usage incentives on this transportation systems contract. In August 2015 we completed this contract and recognized an additional $3.1 million related to the final amount of system usage incentives. The recognition of these system usage incentives resulted in additional operating income of the same amounts in these respective periods. Upon completion of this contract we entered into a new service contract with this customer that is structured differently than the contract that completed in August 2015; the new contract does not have any significant system usage incentives.

In fiscal years 2016, 2015, and 2014 we conducted a number of restructuring initiatives. In 2016, we incurred a total of $1.9 million of charges related to restructuring. In fiscal 2016 our CGD-Systems and CGD-Services segments incurred restructuring costs in connection with the formalization of CMS, a business division within our CGD Systems segment that includes our C4ISR subsidiaries and product offerings. CGD-Systems and CGD Services incurred cumulative restructuring charges of $0.9 million in connection with this initiative. In addition, during fiscal 2016, our CTS business implemented a restructuring plan to reduce headcount by approximately 20 in order to rebalance our resources with work levels. CTS incurred resulting restructuring charges of $1.0 million in connection with this initiative.

In 2015, we incurred a total of $6.3 million of charges related to restructuring. In February 2015, we implemented a plan to restructure our defense services and defense systems businesses into a single organization to better align our defense business organizational structure with customer requirements, increase operational efficiencies and improve collaboration and innovation across the company. CGD Systems and CGD Services incurred restructuring charges of $4.6 million and $0.6 million, respectively, in connection with these restructuring activities. In addition, CTS incurred $0.6 million of restructuring costs and we incurred $0.5 million of unallocated corporate expenses related to various restructuring activities.

In 2014, we incurred restructuring charges of $1.1 million primarily by our CTS business in September 2014 as a result of a planned reduction of employee headcount in the U.S. by approximately 20. This restructuring was predominantly driven by the reduction in work on certain contracts that were in the process of moving from the design and build phase to the services phase.

Restructuring charges (reversals) incurred by business segment were as follows (in millions):


	Year Ended
	September 30,
	2016		2015		2014

Restructuring costs (reversals):
Cubic Transportation Systems	$	1.0	$	0.6	$	0.7
Cubic Global Defense Systems		0.3		4.6		0.5
Cubic Global Defense Services		0.6		0.6		—
Unallocated corporate expenses and other		—		0.5		(0.1)
Total restructuring costs (reversals)	$	1.9	$	6.3	$	1.1

A summary of the activity relating to the restructuring liability and employee separation expenses, which is included within accrued compensation and other current liabilities within our Consolidated Balance Sheet, is as follows (in thousands):


	Employee Separation
Balance as of October 1, 2014	$	776
Accrued costs		6,272
Cash payments		(5,155)
Liability as of September 30, 2015	$	1,893
Accrued costs		1,852
Cash payments		(3,096)
Liability as of September 30, 2016	$	649

Certain restructuring costs are based upon estimates. Actual amounts paid may ultimately differ from these estimates. If additional costs are incurred or recognized amounts exceed costs, such changes in estimates will be recognized when incurred. The total costs of each of the restructuring plans described above are not expected to be significantly greater than the charges incurred to date.