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Goodwill and other Identifiable Intangible Assets
 9 Months Ended
Jun. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Amortizable identifiable intangible assets were (in thousands):
 
June 30, 2013
 
September 30, 2012
 
Gross
carrying
amount
 
Accum.
amort.
 
Net
 
Gross
carrying
amount
 
Accum.
amort.
 
Net
Purchased and core technology
$
46,248

 
$
(44,193
)
 
$
2,055

 
$
46,597

 
$
(43,639
)
 
$
2,958

License agreements
2,840

 
(2,737
)
 
103

 
2,840

 
(2,682
)
 
158

Patents and trademarks
11,924

 
(9,302
)
 
2,622

 
10,943

 
(8,469
)
 
2,474

Customer maintenance contracts
700

 
(700
)
 
—

 
700

 
(700
)
 
—

Customer relationships
18,699

 
(13,531
)
 
5,168

 
17,504

 
(12,465
)
 
5,039

Non-compete agreements
2,131

 
(1,178
)
 
953

 
1,045

 
(1,045
)
 
—

Order backlog
360

 
(240
)
 
120

 
—

 
—

 
—

Total
$
82,902

 
$
(71,881
)
 
$
11,021

 
$
79,629

 
$
(69,000
)
 
$
10,629


Amortization expense was $1.1 million for each of the three month periods ended June 30, 2013 and 2012. Amortization was $3.3 million and $3.5 million for the nine month periods ended June 30, 2013 and 2012, respectively. Amortization expense is recorded on our consolidated statements of operations within cost of sales and in general and administrative expense. Estimated amortization expense related to identifiable intangible assets for the remainder of fiscal 2013 and the five succeeding fiscal years is (in thousands):
2013 (three months)
$
1,093

2014
3,809

2015
2,805

2016
1,466

2017
706

2018
482


The changes in the carrying amount of goodwill are (in thousands):
 
Nine months ended
June 30,
 
2013
 
2012
Beginning balance, October 1
$
86,209

 
$
86,012

Acquisition of Etherios, Inc.
17,120

 
—

Foreign currency translation adjustment
(718
)
 
(468
)
Ending balance, June 30
$
102,611

 
$
85,544


The goodwill related to the acquisition of Etherios is not tax deductible. Etherios is included in our single reporting segment for purposes of goodwill impairment testing.
Goodwill is tested for impairment on an annual basis as of June 30, or more frequently if events or circumstances occur which could indicate impairment. The calculation of goodwill impairment requires us to make assumptions about the fair value of our one reporting unit, which historically has been approximated by using our market capitalization plus a control premium. Control premium assumptions require judgment and actual results may differ from assumed or estimated amounts.
At June 30, 2013, we had approximately $102.6 million of goodwill on our balance sheet. Our test for potential goodwill impairment is a two-step approach. We estimate the fair value for our one reporting unit by comparing its fair value (market capitalization plus control premium) to our carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, the second step of the goodwill impairment analysis requires us to measure the amount of the impairment loss. An impairment loss is calculated by comparing the implied fair value of the goodwill to its carrying amount. To calculate the implied fair value of goodwill, the fair value of the reporting unit's assets and liabilities, excluding goodwill, is estimated. The
7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS (CONTINUED)
excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities, excluding goodwill, is the implied fair value of the reporting unit's goodwill.
In June 2012 we performed a control premium study to determine the appropriate control premium to include in the calculation of fair value, using a third party valuation firm to assist us in performing the control premium analysis. In order to estimate the range of control premiums appropriate for us, three methodologies were used, including: (1) analysis of individual transactions within our industry; (2) analysis of industry-wide data, and (3) analysis of global transaction data. The control premium analysis resulted in a range of control premium of 30 percent to 45 percent. We reviewed the data provided and estimated that a 40 percent control premium best represents the amount an investor would likely pay, over and above market capitalization, in order to obtain a controlling interest given the economic conditions at that time. Based on our industry knowledge and recent discussions with our third party valuation firm, we concluded that the control premium study that was performed in conjunction with our annual goodwill impairment assessment at June 30, 2012 remains valid and that the 40 percent control premium used in our prior year's assessment continues to best represent the amount an investor likely would pay, over and above market capitalization, in order to obtain a controlling interest given the current economic conditions. At June 30, 2013, our market capitalization was $241.4 million compared to our carrying value of $272.3 million. Our market capitalization plus our estimated control premium of 40% resulted in a fair value in excess of our carrying value by a margin of 24%. As a result, no impairment was indicated and we were not required to complete the second step of the goodwill impairment analysis. No goodwill impairment charges were recorded.
If our stock price or control premium declines, the first step of our goodwill impairment analysis may fail. We have defined the criteria that could result in additional interim goodwill impairment testing. We would perform the second step of the impairment testing if our stock price fell below defined thresholds for a significant period of time, or if our control premium significantly decreased. Events or circumstances may occur that could negatively impact our stock price, including changes in our anticipated revenues and profits and our ability to execute on our strategies. In addition, our control premium could decline due to changes in economic conditions in the technology industry, in the financial markets or more generally. An impairment could have a material effect on our consolidated balance sheet and results of operations.