Goodwill and Purchased Intangible Assets

12 Months Ended

Sep. 30, 2017

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, 2017 are as follows (in thousands):


			Cubic Global		Cubic Global
	Transportation		Defense		Defense
	Systems		Systems		Services		Total

Net balances at October 1, 2015	$	55,974	$	87,575	$	94,350	$	237,899
Acquisitions (see Note 2)		—		175,150		—		175,150
Foreign currency exchange rate changes		(6,344)		241		—		(6,103)
Net balances at September 30, 2016		49,630		262,966		94,350		406,946
Acquisitions		—		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	$	94,350	$	415,912

The components of the net goodwill balances at September 30, 2017 are as follows (in thousands):


			Cubic Global		Cubic Global
	Transportation		Defense		Defense
	Systems		Systems		Services		Total

Goodwill	$	50,870	$	270,692	$	145,215	$	466,777
Accumulated impairment charges		—		—		(50,865)		(50,865)
Net balances	$	50,870	$	270,692	$	94,350	$	415,912

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 2017 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 2017. The estimated fair value for our Transportation Systems reporting unit exceeded its carrying value by over 100%, while the estimated fair values of our CGD Systems and CGD Services reporting units each exceeded their carrying values 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 seven years, but at levels that are less than the average annual growth we achieved over the period from fiscal 2000 through fiscal 2010. Assumptions used in our discounted cash flow approach for our CGD Systems reporting unit also included growth rates for sales and margins at greater levels than we have achieved in recent years due to our expectation that businesses recently acquired by this reporting unit will achieve growth at higher rates than the unit’s legacy operations. 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 2018 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, 2017						September 30, 2016
							Gross
	Gross Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

Contract and program intangibles	$	214,215	$	(151,422)	$	62,793	$	209,511	$	(123,645)	$	85,866
Other purchased intangibles		61,580		(25,878)		35,702		57,463		(19,926)		37,537
Total	$	275,795	$	(177,300)	$	98,495	$	266,974	$	(143,571)	$	123,403

Total amortization expense for 2017, 2016 and 2015 was $33.0 million, $34.1 million and $27.6 million, respectively.

The table below shows our expected amortization of purchased intangibles as of September 30, 2017, for each of the next five years and thereafter (in thousands):


			Cubic Global		Cubic Global
	Transportation		Defense		Defense
	Systems		Systems		Services		Total
2018	$	4,944	$	21,009	$	2,075	$	28,028
2019		2,886		17,291		1,434		21,611
2020		947		13,529		790		15,266
2021		698		10,075		707		11,480
2022		598		6,912		707		8,217
Thereafter		297		10,673		2,923		13,893
	$	10,370	$	79,489	$	8,636	$	98,495

- 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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