Business Acquisitions

6 Months Ended

Mar. 31, 2021

Business Acquisitions

Business Acquisitions

Note 2 — Business Acquisitions

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

PIXIA Corp.

On June 27, 2019, we paid cash of $50.0 million to purchase 20% of the outstanding shares of PIXIA Corp. (“Pixia”), a provider of high-performance advanced data indexing, warehousing, processing and dissemination software solutions for large volumes of imagery data within traditional or cloud-based architectures. On January 3, 2020, we completed the purchase of the remaining 80% of Pixia’s issued and outstanding shares of capital stock for aggregate consideration consisting of $197.8 million in net cash, resulting in our ownership of all of Pixia’s issued and outstanding shares of capital stock. The acquisition was financed primarily with proceeds from draws on our line of credit.

From June 27, 2019 through January 3, 2020, we accounted for our 20% ownership of Pixia using the equity method of accounting. Upon completion of the acquisition of the remaining 80% ownership interest, we began consolidating Pixia into our financial statements. The acquisition-date fair value of consideration transferred is $245.2 million and is comprised of cumulative cash paid of $247.8 million, less a $2.0 million dividend received from Pixia and less a $0.6 million loss recognized during the period that we accounted for our 20% ownership of Pixia using the equity method of accounting.

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

Backlog	$	42.5
Customer relationships		25.5
Developed technology		14.1
Trade name		5.7
Accounts receivable, prepaids and other assets		3.8
Deferred taxes		(17.6)
Other net assets acquired (liabilities assumed)		(1.8)
Net identifiable assets acquired		72.2
Goodwill		173.0
Net assets acquired	$	245.2

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 trade name valuation used the relief from royalty method, the customer relationships and non-compete agreements valuations used the lost profits valuation method and the technology and backlog valuations used the excess earnings method.

The intangible assets are being amortized using straight-line methods based on the expected period of undiscounted cash flows that will be generated by the assets, over a weighted average useful life of approximately four years from the date of acquisition.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Pixia with our existing CMPS business and strengthening our capability of developing and integrating products in our CMPS portfolio. The goodwill also includes the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill is allocated to our CMPS segment and is not expected to be deductible for tax purposes.

Delerrok Inc.

In fiscal 2018 and 2019 we invested a total of $8.3 million to purchase 17.5% of the outstanding shares of common stock of Delerrok Inc. (“Delerrok”), a private technology company based in Vista, California, that specializes in electronic fare collection systems for the mid-market. On January 3, 2020, we completed the purchase of the remaining 82.5% of Delerrok’s outstanding shares of common stock for aggregate consideration consisting of $36.8 million, resulting in our ownership of all of Delerrok’s shares of common stock. Prior to January 3, 2020, we accounted for our investment in Delerrok using the cost method of accounting. We began consolidating Delerrok in our financial statements effective January 3, 2020. The acquisition-date fair value of consideration is $45.1 million and is comprised of total cash paid of $43.5 million plus the fair value of contingent consideration of $1.6 million. The acquisition was financed primarily with proceeds from draws on our line of credit.

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

Technology	$	14.9
Trade name		0.9
Accounts receivable		0.9
Other net assets acquired (liabilities assumed)		(0.3)
Deferred tax liability		(1.7)
Net identifiable assets acquired		14.7
Goodwill		30.4
Net assets acquired	$	45.1

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 trade name valuation used the relief from royalty method, the customer relationships valuation used the with-and-without valuation method and the technology valuations used the excess earnings method.

The intangible assets are being amortized using straight-line methods based on the expected period of undiscounted cash flows that will be generated by the assets, over an average useful life of approximately ten years from the date of acquisition.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Delerrok with our existing CTS business, and strengthening our capability of developing and integrating products in our CTS portfolio. The goodwill also includes the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill is allocated to our CTS segment and is not expected to be deductible for tax purposes.

Operating Results

The sales and results of operations from Delerrok and Pixia included in our operating results were as follows (in millions):

	Three Months Ended
	March 31, 2021				March 31, 2020
	Delerrok		Pixia		Delerrok		Pixia
Sales	$	0.9	$	6.2	$	0.7	$	1.1
Operating loss		(1.1)		(5.6)		(1.1)		(10.0)
Net loss after taxes		(1.1)		(5.6)		(1.1)		(10.0)
	Six Months Ended
	March 31, 2021				March 31, 2020
	Delerrok		Pixia		Delerrok		Pixia
Sales	$	1.2	$	8.5	$	0.7	$	1.1
Operating loss		(2.2)		(13.6)		(1.1)		(10.0)
Net loss after taxes		(2.2)		(13.6)		(1.1)		(10.0)

The operating results above included the following amounts (in millions):

	Three Months Ended
	March 31, 2021				March 31, 2020
	Delerrok		Pixia		Delerrok		Pixia
Amortization	$	0.4	$	7.2	$	0.4	$	7.2
Acquisition-related expenses (income)		(0.2)		0.1		0.7		2.0
	Six Months Ended
	March 31, 2021				March 31, 2020
	Delerrok		Pixia		Delerrok		Pixia
Amortization	$	0.9	$	14.3	$	0.4	$	7.2
Acquisition-related expenses		0.2		0.6		0.7		2.0
Gain from changes in fair value of contingent consideration		(0.9)		—		—		—

The estimated amortization expense related to the intangible assets recorded in connection with our acquisitions are as follows (in millions):

Year Ending September 30,	Delerrok		Pixia
2021	$	1.7	$	28.7
2022		1.6		12.7
2023		1.6		7.3
2024		1.6		7.3
2025		1.6		7.3
Thereafter		6.4		3.2

Pro Forma Information

The following unaudited pro forma information presents our consolidated results of operations as if Pixia and Delerrok had been included in our consolidated results since October 1, 2019 (in millions):

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020
Net sales	$	343.4	$	321.5	$	662.2	$	654.6
Net loss		(36.0)		(39.3)		(49.0)		(68.1)

The pro forma information includes adjustments to give effect to events that are directly attributable to the acquisitions and have a continuing impact on our operations including the amortization of purchased intangibles. No adjustments were made for transaction expenses, other items 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, 2019, and it does not purport to project our future operating results.

Goodwill

Changes in goodwill for the six months ended March 31, 2021 were as follows for each of our reporting units (in thousands):

	Cubic Transportation		Cubic Mission
	Systems		Performance Solutions		Total
Net balances at October 1, 2020	$	287,668	$	497,214	$	784,882
Adjustments		(260)		—		(260)
Foreign currency exchange rate changes		2,541		864		3,405
Net balances at March 31, 2021	$	289,949	$	498,078	$	788,027

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill is not amortized but is subject to an impairment test at a reporting unit level on an annual basis and when circumstances indicate that an impairment is more-likely-than-not. Circumstances that might indicate an impairment is more-likely-than-not include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit.

We complete our annual goodwill impairment test each year as of July 1 separately for each of our reporting units.

For our fiscal 2020 impairment test we concluded there was no impairment of goodwill and in the second quarter of fiscal 2021 we concluded that no circumstances were present that required an interim impairment test.