** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

**Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**For the Quarter Ended June 30,2010**

** **

**001-08931**

**Commission File Number**

 

**CUBICCORPORATION**

Exact Name of Registrant asSpecified in its Charter

 

| **Delaware**           | ** ** | **95-1678055**                  |
|------------------------|------------|---------------------------------|
| State of Incorporation |       | IRS Employer Identification No. |

 

**9333 Balboa Avenue**

**San Diego, California 92123**

**Telephone (858) 277-6780**

 

Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) has beensubject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and postsuch files). Yes o  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reporting company(as defined in Rule 12b-2 of the Exchange Act).

 

| Large accelerated filer o |   | Accelerated filer x       |
|---------------------------|--------|---------------------------|
|                      |   |                      |
| Non-accelerated filer o   |   | Small Reporting Company o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12-b-2 of the Exchange Act).  Yes o  No x

 

As of July 21, 2010, registrant had only one class of common stockof which there were 26,736,406 shares outstanding (after deducting 8,945,201shares held as treasury stock).

 

 

 

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**PART I - FINANCIALINFORMATION**

ITEM 1 - FINANCIALSTATEMENTS

 

**CUBICCORPORATION**

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands,except per share data)

 
| ** **                                    | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **June 30,**     | ** ** | **June 30,**      | ** ** |
| ** **                                    | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net sales:                                    |       |                  |       |                   |       |   |   |   |   |
| Products                                      |       | $                     | 456,850    |                   | $          | 382,065 |   | $ | 189,812 |   | $ | 135,338 |   |
| Services                                      |       | 389,633               |       | 353,836                |       | 141,428 |   | 112,839 |   |
|                                          |       | 846,483               |       | 735,901                |       | 331,240 |   | 248,177 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Costs and expenses:                           |       |                  |       |                   |       |   |   |   |   |
| Products                                      |       | 323,127               |       | 280,481                |       | 135,533 |   | 98,766 |   |
| Services                                      |       | 340,544               |       | 299,017                |       | 124,068 |   | 95,524 |   |
| Selling, general and administrative           |       | 88,236                |       | 82,981                 |       | 30,615 |   | 28,358 |   |
| Research and development                      |       | 10,343                |       | 5,857                  |       | 4,995 |   | 2,343 |   |
| Amortization of purchased intangibles         |       | 5,091                 |       | 2,977                  |       | 3,393 |   | 1,537 |   |
|                                          |       | 767,341               |       | 671,313                |       | 298,604 |   | 226,528 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Operating income                              |       | 79,142                |       | 64,588                 |       | 32,636 |   | 21,649 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Other income (expense):                       |       |                  |       |                   |       |   |   |   |   |
| Interest and dividends                        |       | 1,354                 |       | 1,256                  |       | 457 |   | 398 |   |
| Interest expense                              |       | (1,282                | )          | (1,622                 | )          | (414 | ) | (595 | ) |
| Other income (expense)                        |       | (8                    | )          | 1,536                  |       | (727 | ) | 1,006 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Income before income taxes                    |       | 79,206                |       | 65,758                 |       | 31,952 |   | 22,458 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Income taxes                                  |       | 25,450                |       | 22,450                 |       | 9,250 |   | 7,550 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Net income                                    |       | $                     | 53,756     |                   | $          | 43,308 |   | $ | 22,702 |   | $ | 14,908 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Basic and diluted net income per common share |       | $                     | 2.01       |                   | $          | 1.62 |   | $ | 0.85 |   | $ | 0.56 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Dividends per common share                    |       | $                     | 0.09       |                   | $          | 0.09 |   | $ | — |   | $ | — |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| Average number of common shares outstanding   |       | 26,735                |       | 26,730                 |       | 26,736 |   | 26,732 |   |

* *

*See accompanying notes.*

 

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CUBIC CORPORATION

CONDENSED CONSOLIDATEDBALANCE SHEETS

(in thousands)

 
| ** **                                           | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **2010**          | ** ** | **2009**               | ** ** |
| ** **                                           | ** ** | **(Unaudited)**   | ** ** | **(See note below)**   | ** ** |
| **ASSETS**                                           |       |              |       |                   |       |
| Current assets:                                      |       |              |       |                   |       |
| Cash and cash equivalents                            |       | $                 | 247,212    |                   | $          | 244,074 |   |
| Short-term investments                               |       | 79,372            |       | 8,127                  |       |
| Accounts receivable - net                            |       | 217,001           |       | 231,461                |       |
| Inventories - net                                    |       | 42,484            |       | 49,107                 |       |
| Deferred income taxes and other current assets       |       | 40,259            |       | 52,089                 |       |
| Total current assets                                 |       | 626,328           |       | 584,858                |       |
|                                                 |       |              |       |                   |       |
| Long-term contract receivables                       |       | 29,800            |       | 13,400                 |       |
| Property, plant and equipment - net                  |       | 47,228            |       | 48,895                 |       |
| Goodwill                                             |       | 58,872            |       | 59,433                 |       |
| Purchased intangibles                                |       | 34,035            |       | 28,618                 |       |
| Other assets                                         |       | 20,105            |       | 21,111                 |       |
|                                                 |       | $                 | 816,368    |                   | $          | 756,315 |   |
| ** **                                           |       |              |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**       |       |              |       |                   |       |
| Current liabilities:                                 |       |              |       |                   |       |
| Trade accounts payable                               |       | $                 | 35,768     |                   | $          | 28,626 |   |
| Customer advances                                    |       | 131,505           |       | 123,458                |       |
| Other current liabilities                            |       | 93,927            |       | 109,536                |       |
| Income taxes payable                                 |       | 19,515            |       | 3,491                  |       |
| Current portion of long-term debt                    |       | 4,518             |       | 4,554                  |       |
| Total current liabilities                            |       | 285,233           |       | 269,665                |       |
|                                                 |       |              |       |                   |       |
| Long-term debt                                       |       | 15,884            |       | 20,570                 |       |
| Other long-term liabilities                          |       | 43,499            |       | 45,235                 |       |
|                                                 |       |              |       |                   |       |
| Shareholders’ equity:                           |       |              |       |                   |       |
| Common stock                                         |       | 12,574            |       | 12,530                 |       |
| Retained earnings                                    |       | 507,092           |       | 455,743                |       |
| Accumulated other comprehensive loss                 |       | (11,294           | )          | (11,357                | )          |
| Treasury stock at cost                               |       | (36,074           | )          | (36,071                | )          |
| Shareholders’ equity related to Cubic           |       | 472,298           |       | 420,845                |       |
| Noncontrolling interest in variable interest  entity |       | (546              | )          | —                 |       |
| Total Shareholders’ equity                      |       | 471,752           |       | 420,845                |       |
|                                                 |       | $                 | 816,368    |                   | $          | 756,315 |   |

 

*Note: The balance sheet at September 30, 2009 has been derivedfrom the audited financial statements at that date.*

*See accompanying notes.*

 

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** **

**CUBIC CORPORATION**

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **June 30,**     | ** ** | **June 30,**      | ** ** |
| ** **                                                                         | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| Operating Activities:                                                              |       |                  |       |                   |       |   |   |   |   |
| Net income                                                                         |       | $                     | 53,756     |                   | $          | 43,308 |   | $ | 22,702 |   | $ | 14,908 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                  |       |                   |       |   |   |   |   |
| Depreciation and  amortization                                                     |       | 11,240                |       | 10,719                 |       | 3,946 |   | 3,871 |   |
| Changes in operating  assets and liabilities                                       |       | (7,667                | )          | 80,579                 |       | (15,530 | ) | 30,764 |   |
| NET CASH PROVIDED BY OPERATING  ACTIVITIES                                         |       | 57,329                |       | 134,606                |       | 11,118 |   | 49,543 |   |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| Investing Activities:                                                              |       |                  |       |                   |       |   |   |   |   |
| Acquisitions, net of cash  acquired                                                |       | (7,176                | )          | (7,886                 | )          | (6,326 | ) | — |   |
| Consolidation of variable  interest entity                                         |       | 38,266                |       | —                 |       | — |   | — |   |
| Net additions to property,  plant and equipment                                    |       | (4,639                | )          | (3,894                 | )          | (1,936 | ) | (1,284 | ) |
| Proceeds from sales or  maturities of short-term investments                       |       | 36,935                |       | —                 |       | 33,711 |   | — |   |
| Purchases of short-term  investments                                               |       | (108,180              | )          | —                 |       | (44,171 | ) | — |   |
| NET CASH USED IN INVESTING  ACTIVITIES                                             |       | (44,794               | )          | (11,780                | )          | (18,722 | ) | (1,284 | ) |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| Financing Activities:                                                              |       |                  |       |                   |       |   |   |   |   |
| Principal payments on  long-term borrowings                                        |       | (4,406                | )          | (5,830                 | )          | (131 | ) | (136 | ) |
| Purchases of treasury  stock                                                       |       | (3                    | )          | —                 |       | — |   | — |   |
| Dividends paid                                                                     |       | (2,407                | )          | (2,405                 | )          | (2,407 | ) | (2,405 | ) |
| Other                                                                              |       | 44                    |       | 45                     |       | — |   | — |   |
| NET CASH USED IN FINANCING  ACTIVITIES                                             |       | (6,772                | )          | (8,190                 | )          | (2,538 | ) | (2,541 | ) |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| Effect of exchange rates  on cash                                                  |       | (2,625                | )          | 298                    |       | (1,768 | ) | 14,771 |   |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| NET INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS                              |       | 3,138                 |       | 114,934                |       | (11,910 | ) | 60,489 |   |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| Cash and cash equivalents  at the beginning of the period                          |       | 244,074               |       | 112,696                |       | 259,122 |   | 167,141 |   |
|                                                                               |       |                  |       |                   |       |   |   |   |   |
| CASH AND CASH EQUIVALENTS  AT THE END OF THE PERIOD                                |       | $                     | 247,212    |                   | $          | 227,630 |   | $ | 247,212 |   | $ | 227,630 |   |

 

*See accompanying notes.*

 

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**CUBIC CORPORATION**

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

June 30, 2010

 

**Note 1 — Basis for Presentation**

 

We have prepared the accompanying unaudited consolidated condensedfinancial statements in accordance with generally accepted accountingprinciples for interim financial information and with the instructions to Form10-Q and Article 10 of Regulation S-X. Accordingly, they do not include allinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.

 

In our opinion, all adjustments necessary for a fair presentation ofthese financial statements have been included. Operating results for the three-and nine-month periods ended June 30, 2010 are not necessarily indicative ofthe results that may be expected for the year ending September 30, 2010. Forfurther information, refer to the consolidated financial statements andfootnotes thereto included in our annual report on Form 10-K for the year endedSeptember 30, 2009.

 

The preparation of the financial statements in conformity with U. S.generally accepted accounting principles requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

**Note 2 — Balance Sheet Details**

 

The components of accounts receivable are as follows (in thousands):

 
| ** **                               | ** ** | **June 30,**    | ** **   | **September 30,** | ** ** |
|------------------------------------------|------------|-----------------|--------------|-------------------|------------|
| ** **                               | ** ** | **2010**        | ** **   | **2009**          | ** ** |
| ** **                               | ** ** | **(unaudited)** | ** **   | ** **        | ** ** |
| Trade and other receivables              |       | $               |  14,293 |              | $          | 12,833 |   |
| Long-term contracts:                     |       |            |         |              |       |
| Billed                                   |       | 117,552         |         | 103,639           |       |
| Unbilled                                 |       | 117,914         |         | 132,947           |       |
| Allowance for doubtful accounts          |       | (2,958          | )            | (4,558            | )          |
| Total accounts receivable                |       | 246,801         |         | 244,861           |       |
| Less estimated amounts not currently due |       | (29,800         | )            | (13,400           | )          |
| Current accounts receivable              |       | $               | 217,001      |              | $          | 231,461 |   |

 

Theamount classified as not currently due is an estimate of the amount oflong-term contract accounts receivable that will not be collected within oneyear from June 30, 2010 under transportation systems contracts in the U.S.,Australia and the U.K., and a defense contract in Canada. The non-currentbalance at September 30, 2009 represented non-current amounts due fromcustomers in the same countries.

 

5

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**Note 2 — Balance Sheet Details - Continued**

 

Inventories consist of the following (in thousands):

 
| ** **                                                       | ** ** | **June 30,**    | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------|------------|-------------------|------------|
| ** **                                                       | ** ** | **2010**        | ** ** | **2009**          | ** ** |
| ** **                                                       | ** ** | **(unaudited)** | ** ** | ** **        | ** ** |
| Finished products                                                |       | $               | 51         |              | $          | 55 |   |
| Work in process and inventoried costs under  long-term contracts |       | 90,295          |       | 96,962            |       |
| Customer advances                                                |       | (51,141         | )          | (49,734           | )          |
| Raw material and purchased parts                                 |       | 3,279           |       | 1,824             |       |
| Net inventories                                                  |       | $               | 42,484     |              | $          | 49,107 |   |

 

AtJune 30, 2010, work in process and inventoried costs under long-term contractsincludes approximately $1.3 million in costs incurred in advance of contractaward or outside the scope of work on several contracts in the defense systemsand transportation segments, compared to $0.9 million as of September 30, 2009.We believe it is probable that these costs, plus appropriate profit margin,will be recovered under contract change orders or upon the award of newcontracts within the next year.

 

**Note 3 — Comprehensive Income**

 

Comprehensive income is as follows (in thousands):

 
| ** **                                       | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                       | ** ** | **June 30,**          | ** ** | **June 30,**           | ** ** |
| ** **                                       | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                             |       |                  |       |                   |       |   |   |   |   |
| Net income                                       |       | $                     | 53,756     |                   | $          | 43,308 |   | $ | 22,702 |   | $ | 14,908 |   |
| Foreign currency translation adjustments         |       | (927                  | )          | (4,132                 | )          | (1,736 | ) | 11,487 |   |
| Net unrealized gain (loss) from cash flow hedges |       | 990                   |       | (5                     | )          | 1,067 |   | 67 |   |
| Comprehensive income                             |       | $                     | 53,819     |                   | $          | 39,171 |   | $ | 22,033 |   | $ | 26,462 |   |

 

**Note 4 — Fair Value of Financial Instruments**

 

Wecarry financial instruments, including cash equivalents, accounts receivable,accounts payable and accrued liabilities at cost, which we believe approximatesfair value because of the short-term maturity of these instruments.  The fair value of long-term debt is basedupon quoted market prices for the same or similar debt instruments andapproximates the carrying value of the debt. Receivables consist primarily of amounts due from U.S. and foreigngovernments for defense products and local government agencies fortransportation systems.  Due to thenature of our customers, we generally do not require collateral.  We have limited exposure to credit risk as wehave historically collected substantially all of our receivables fromgovernment agencies.  We generallyrequire no allowance for doubtful accounts for these customers unless specificcontractual circumstances warrant it.

 

6

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Thevaluation techniques required for fair value accounting are based upon observableand unobservable inputs. Observable inputs reflect market data obtained fromindependent sources, while unobservable inputs reflect internal marketassumptions. The two types of inputs create the following fair value hierarchy:

 

·                  Level 1 - Quoted prices for identicalinstruments in active markets.

·                  Level 2 - Quoted prices for similarinstruments in active markets; quoted prices for identical or similarinstruments in markets that are not active; and model-derived valuations whoseinputs are observable or whose significant value drivers are observable.

·                  Level 3 - Significant inputs to the valuationmodel are unobservable.

 

Thefollowing table presents assets and liabilities measured and recorded at fairvalue on our Balance Sheet on a recurring basis (in thousands). The fair valueof cash equivalents and short term investments approximates their cost. Thematurity dates of certificates of deposit are within approximately one year.The maturity of the debt securities range between 1 to 25 years, however, themajority have callable options within one year. Cash equivalents and short terminvestments are categorized as Level 1 and derivatives are categorized as Level2.

 

 

 
| ** **                               | ** ** | **June 30, 2010** | ** ** | **September 30,** | ** ** |
|------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                               | ** ** | **Level 1**       | ** ** | **Level 2**       | ** ** | **Total** | ** ** | **2009** | ** ** |
| ** **                               | ** ** | ** **        | ** ** | ** **        | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |
| Assets                                   |       |              |       |              |       |   |   |   |   |
| Cash equivalents - money market funds    |       | $                 | 134,103    |              | $          | — |   | $ | 134,103 |   | $ | 178,893 |   |
| Short-term investments - debt securities |       | 79,372            |       | —            |       | 79,372 |   | 8,127 |   |
| Derivative assets                        |       | —            |       | 13,755            |       | 13,755 |   | 18,106 |   |
| Total assets                             |       | 213,475           |       | 13,755            |       | 227,230 |   | 205,126 |   |
| Liabilities                              |       |              |       |              |       |   |   |   |   |
| Derivative liabilities                   |       | —            |       | 13,749            |       | 13,749 |   | 17,933 |   |
| Net assets                               |       | $                 | 213,475    |              | $          | 6 |   | $ | 213,481 |   | $ | 187,193 |   |

 

**Note 5 — Financing Arrangements**

 

Wehave a committed three-year revolving credit agreement with a group offinancial institutions in the amount of $150 million, expiring in December2012. As of June 30, 2010, there were no borrowings under this agreement;however, there were letters of credit outstanding under the agreement totaling$67.4 million.

 

**Note 6 — Segment Information**

 

AtSeptember 30, 2009, we reevaluated our segment reporting in light of changes toour management structure, internal performance reporting and incentivecompensation plans that became effective during 2009. As a result we are nowreporting results for two defense segments, Defense Systems and Mission SupportServices. The Transportation Systems segment continues to be considered onereporting segment. We have reclassified prior period amounts to reflect thisorganizational change.

 

7

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

 
| ** **                              | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                              | ** ** | **June 30,**          | ** ** | **June 30,**           | ** ** |
| ** **                              | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                    |       |                  |       |                   |       |   |   |   |   |
| **Sales:**                              | ** ** | ** **            | ** ** | ** **             | ** ** |   |   |   |   |
| Transportation Systems                  |       | $                     | 276.7      |                   | $          | 217.8 |   | $ | 111.2 |   | $ | 74.8 |   |
| Defense Systems                         |       | 247.5                 |       | 207.1                  |       | 108.5 |   | 72.2 |   |
| Mission Support Services                |       | 320.9                 |       | 308.7                  |       | 111.3 |   | 100.1 |   |
| Other                                   |       | 1.4                   |       | 2.3                    |       | 0.3 |   | 1.1 |   |
| Total sales                             |       | $                     | 846.5      |                   | $          | 735.9 |   | $ | 331.3 |   | $ | 248.2 |   |
|                                    |       |                  |       |                   |       |   |   |   |   |
| **Operating income (loss):**            |       |                  |       |                   | ** ** |   |   |   |   |
| Transportation Systems                  |       | $                     | 40.7       |                   | $          | 34.1 |   | $ | 14.6 |   | $ | 11.6 |   |
| Defense Systems                         |       | 23.6                  |       | 15.4                   |       | 11.6 |   | 5.2 |   |
| Mission Support Services                |       | 18.7                  |       | 19.9                   |       | 7.6 |   | 6.1 |   |
| Unallocated corporate expense and other |       | (3.9                  | )          | (4.8                   | )          | (1.2 | ) | (1.2 | ) |
| Total operating income                  |       | $                     | 79.1       |                   | $          | 64.6 |   | $ | 32.6 |   | $ | 21.7 |   |

 

**Note 7 — Pension Plans**

 

Thecomponents of net periodic pension benefits costs are as follows (inthousands):

 
| ** **                     | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                     | ** ** | **June 30,**          | ** ** | **June 30,**           | ** ** |
| ** **                     | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service cost                   |       | $                     | 2,675      |                   | $          | 1,717 |   | $ | 807 |   | $ | 562 |   |
| Interest cost                  |       | 6,742                 |       | 7,552                  |       | 2,161 |   | 2,501 |   |
| Expected return on plan assets |       | (6,931                | )          | (7,273                 | )          | (2,224 | ) | (2,409 | ) |
| Amortization of actuarial loss |       | 634                   |       | 315                    |       | 204 |   | 105 |   |
| Administrative expenses        |       | 69                    |       | 132                    |       | 23 |   | 44 |   |
| Net pension cost               |       | $                     | 3,189      |                   | $          | 2,443 |   | $ | 971 |   | $ | 803 |   |

 

**Note 8 — New Accounting Pronouncements**

 

InDecember 2008, the FASB issued a standard which expands the disclosurerequirements about plan assets for defined benefit pension plans andpostretirement plans.  This standard is effective for annualfinancial statements issued for fiscal years ending after December 15, 2009,which for us is this fiscal year, and will require additional disclosures inour annual financial statements for the year ended September 30, 2010. Theadoption of this standard will not have a material impact on our results ofoperations, financial position or cash flows.

 

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InJune 2009, the FASB issued a standard which changes the approach in determiningwhether an entity is a variable interest entity, and modifies the methodsallowed for determining the primary beneficiary of a variable interestentity.  In addition, this standard requires ongoing reassessments ofwhether an enterprise is the primary beneficiary of a variable interest entityand enhanced disclosures related to an enterprise’s involvement in a variableinterest entity. This standard is effective for the first annual reportingperiod that begins after November 15, 2009, which for us will be the fiscal yearbeginning October 1, 2010. We are currently evaluating the impact, if any, thatthe adoption of this standard will have on our results of operations, financialposition or cash flows.

 

InOctober 2009, the FASB issued revised accounting guidance relating tomultiple-deliverable revenue arrangements, which can be applied prospectivelyor retrospectively. This guidance modifies theobjective-and-reliable-evidence-of-fair-value criterion from the separationcriteria used to determine whether an arrangement involving multipledeliverables contains more than one unit of accounting, replaces references to “fairvalue” with “selling price” to distinguish from the fair value measurementrequired under the “Fair Value Measurements and Disclosures” guidance, providesa hierarchy that entities must use to estimate the selling price, eliminatesthe use of the residual method for allocation, and expands the ongoingdisclosure requirements. This revised guidance is effective for new ormaterially modified arrangements in fiscal years beginning on or after June 15,2010, and we expect to adopt it in the fiscal year beginning October 1, 2010,although early adoption is allowed. We are currently evaluating the effect, ifany, that adoption of this update will have on our consolidated financialposition, results of operations, or cash flows.

 

**Note 9 — Investment in Variable Interest Entity**

 

Priorto March 5, 2010, we owned 37.5% of the common stock of Transaction SystemsLimited (TranSys), a U.K. company formed in 1998 to bid on a contract called “PRESTIGE”(Procurement of Revenue Services, Ticketing, Information, Gates andElectronics), which outsourced most of the functions of the Transport forLondon (TfL) fare collection system for a period of twelve years beginning inAugust 1998. We did not previously consolidate TranSys because we were not theprimary beneficiary of this variable interest entity (VIE). We haveparticipated in the PRESTIGE contract solely through subcontracts from TranSys.All of the work performed by TranSys is subcontracted to us and the othershareholder and the arrangement provides for the pass-through of virtually allrevenues from TfL to the two shareholders until August 2010. Beginning inAugust 2010, the services formerly provided by TranSys will be provided byCubic under a new contract.

 

OnFebruary 26, 2010, TfL made an early contractual payment to TranSys which wasrequired to be paid no later than August 2010. This caused TranSys to makeearly payment of the loan balance to the syndicate of banks which had providedfinancing for the project. At the same time, TfL agreed not to withhold anyfunds from its payment to TranSys for possible asset remediation and waived therequirement for further engineering studies and reports on the state of the farecollection system assets. Our obligation to keep the assets in good workingcondition carries over to the successor contract, but the “Performance Tests”and possible cash withholding from TranSys under the PRESTIGE contract will notbe required. In recent years the fare collection system has consistentlyexceeded the contractual performance levels and we believe that sufficientcosts have been included in our estimated costs to complete the contract tocontinue this level of performance for the remainder of the PRESTIGE projectand the follow-on contract.

 

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OnMarch 5, 2010, the two 37.5% shareholders of TranSys each acquired half of theshares in TranSys previously held by the minority shareholders for approximately$0.1 million, bringing our share ownership up to 50%. TranSys continues to beconsidered a VIE because it has not demonstrated the ability to finance itsactivities without additional subordinated financial support from its equityinvestors and because its underlying risks do not coincide with the votinginterests. As a result of the ownership transfer and the early payment by TfL,we conducted a new evaluation of the primary beneficiary of TranSys. Thisevaluation determined that Cubic is now the primary beneficiary and is,therefore, required to consolidate TranSys as of March 5, 2010.

 

Inconcluding that Cubic is the primary beneficiary of the TranSys VIE, we createda model of the expected outcome from the remaining activities of TranSys andits related subcontracts with its shareholders. We identified several alternateoutcomes which considered possible upside and downside scenarios. We used ourjudgment to assign probabilities to the alternate outcomes and the relatedvariability of the cash flows. From this we established the enterprise valueand the variability of the possible outcomes from this value. The evaluationresulted in greater variability for Cubic than for the other shareholderincluding a greater probability of residual losses and returns. Therefore, weconcluded that Cubic is the primary beneficiary of TranSys.

 

Asa result of becoming the primary beneficiary of TranSys, the consolidation ofTranSys was treated as an acquisition in our financial statements. The fairvalue of the enterprise was virtually the same as fair value of the assets andliabilities acquired, therefore, no gain or loss was recorded from thetransaction. The fair value of assets and liabilities acquired at March 5, 2010were as follows (in millions):

 
| Cash and cash equivalents         |   | $     | 38.3   |   |
|-----------------------------------|--------|-------|--------|--------|
| Other current assets              |   | 16.9  |   |
| Purchased intangibles             |   | 0.2   |   |
| Income taxes payable              |   | (20.7 | )      |
| Other current liabilities         |   | (35.8 | )      |
| Fair value of net assets acquired |   | $     | (1.1   | )      |

 

**Note 10 — Income Taxes**

 

The amount of unrecognized tax benefits was $3.1 million at June 30,2010 and $4.8 million at September 30, 2009, exclusive of interest. The totalamount of unrecognized tax benefits that, if recognized, would favorably impactthe effective tax rate is $3.1 million at June 30, 2010.

 

As of June 30, 2010, our open tax years in significant jurisdictionsinclude 2006-2009 in the UK, and 2007-2009 in the U.S. We believe appropriateprovisions for all outstanding issues have been made for all jurisdictions andall open years.

 

Wereport income tax-related interest income or expense and penalties in incometax expense in the Condensed Consolidated Statement of Income. The amount ofnet interest and penalties we recognized as a component of income tax expenseduring the three- and nine-month periods ended June 30, 2010 was notmaterial.  Interest and penalties accruedat June 30, 2010 amounted to $0.2 million.

 

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**Note 11— Derivative Instruments and Hedging Activities**

 

Weutilize derivative and nonderivative financial instruments, such as foreigncurrency forwards and options, foreign currency debt obligations and foreigncurrency cash balances, to manage our exposure to fluctuations in foreigncurrency exchange rates. We do not use any derivative financial instruments fortrading or other speculative purposes. At June 30, 2010, we had foreignexchange contracts with a notional value of $233.7 million outstanding.

 

Allderivatives are recorded at fair value, however, the classification of gains and losses resultingfrom changes in the fair values of derivatives are dependent on the intendeduse of the derivative and its resulting designation. If a derivativeis designated as a fair value hedge, then a change in the fair value of thederivative is offset against the change in the fair value of the underlyinghedged item and only the ineffective portion of the hedge, if any, is recognized in earnings. If a derivativeis designated as a cash flow hedge, then the effective portion of a change inthe fair value of the derivative is recognized as a component of AccumulatedOther Comprehensive Income until the underlying hedged item is recognized inearnings, or the forecasted transaction is no longer probable of occurring. Ifa derivative does not qualify as a highly effective hedge, any change infair value is immediately recognized in earnings. We formally document allhedging relationships for all derivative hedges and the underlying hedgeditems, as well as the risk management objectives and strategies for undertakingthe hedge transactions.

 

Weclassify the fair value of all derivative contracts as either current assets orliabilities, depending on the realized and unrealized gain or loss position ofthe hedged contract at the balance sheet date. The cash flows from derivativestreated as hedges are classified in the Consolidated Statements of Cash Flowsin the same category as the item being hedged.

 

Forthe three and nine months ended June 30, 2010, we recorded a net gain of$0.4 million from hedges classified as not highly effective. There are nosignificant credit risks related to contingent features in our derivativeagreements and the amount of estimated unrealized net gains or losses from cashflow hedges which are expected to be reclassified to earnings in the nexttwelve months is not significant.

 

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**CUBIC CORPORATION**

ITEM 2 - MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OFOPERATIONS

 

June 30, 2010

 

Our threeprimary businesses are in the defense and transportation industries. These arehigh technology businesses that design, manufacture and integrate complexsystems and provide essential services to meet the needs of various federal andregional government agencies in the U.S. and other nations around the world.

 

AtSeptember 30, 2009, we reevaluated our segment reporting in light ofchanges to our management structure, internal performance reporting andincentive compensation plans that became effective in 2009. We are nowreporting results for two defense segments, Defense Systems and Mission SupportServices. The Transportation Systems segment continues to be considered onereporting segment. We have reclassified prior period amounts to reflect thisorganizational change.

 

Cubic Transportation Systems(CTS) develops and delivers innovative fare collection systems for publictransit authorities worldwide.  Weprovide hardware, software and multiagency, multimodal transportationintegration technologies and a full scope of operational services that allowthe agencies to efficiently collect fares, manage their operations, reduceshrinkage and make using public transit a more convenient and attractive optionfor commuters.

 

Mission Support Services(MSS) operates constructive military training systems, provides live trainingmission support, distributed interactive simulation, development of militarytraining doctrine, force modernization services for NATO entrants and fieldoperations and maintenance.

 

Cubic Defense Systems (CDS)is focused on two primary lines of business: Training Systems andCommunications.  The segment is adiversified supplier of live and virtual military training systems, andcommunication systems and products to the U.S. Department of Defense, othergovernment agencies and allied nations. We design instrumented range systemsfor fighter aircraft, armored vehicles and infantry force-on-force livetraining; weapons effects simulations; laser-based tactical and communicationsystems; and precision gunnery solutions. Our communications products are aimedat intelligence, surveillance, and search and rescue markets.

 

**Consolidated Overview**

 

Salesfor the quarter ended June 30, 2010 increased to $331.3 million from$248.2 million last year, an increase of 33%. Sales increased for the quarterin all three segments with both CTS and CDS increasing by about 50% over lastyear’s third quarter and MSS increasing by 11%.

 

Forthe first nine months of the fiscal year, sales increased to $846.5 millioncompared to $735.9 million for the first nine months of last year, an increaseof 15%.  All three segments generatedhigher sales compared to the first nine months of last year with CTS increasing27%, CDA 20% and MSS 4%. See the segment discussions following for furtheranalysis of segment sales.

 

Operatingincome increased 50% to $32.6 million for the quarter compared to $21.7 millionin the third quarter of last year. CDS operating income more than doubled fromthe third quarter of last year, while CTS increased 26% and MSS increased 25%.Corporate and other costs for the quarter were $1.2 million in both years.

 

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Operatingincome for the nine-month period increased 22% to $79.1 million from $64.6million last year. CDS operating income increased 53% compared to the firstnine months of last year and CTS increased 19%. MSS operating income decreased6% from last year for the first nine months due to a provision of $2.0 millionwe made during the first quarter for a contract dispute. Corporate and othercosts for the first nine months of the fiscal year were $3.9 million this year,compared to $4.8 million last year. Last year these costs for the first ninemonths included $2.4 million for the development and marketing of new securityrelated technologies compared to $1.2 million this year. See the segmentdiscussions following for further analysis of segment operating income.

 

Netincome for the third quarter of fiscal 2010 increased to $22.7 million, or$0.85 per share, compared to $14.9 million, or $0.56 per share last year.Higher operating income from all three segments contributed to the improvement.For the first nine months of the year, net income increased to $53.8 million,or $2.01 per share, from $43.3 million, or $1.62 per share last year.

 

Selling, general and administrative (SG&A) expenses increased inthe third quarter this year to $30.6 million compared to $28.4 million lastyear. As a percentage of sales, SG&A expenses were 9.2% for the thirdquarter compared to 11.4% last year. SG&A expenses were higher in the thirdquarter and first nine months this year at CTS primarily due to an increase inselling expenses associated with the Sydney, Australia and other transit systemproposals, and due to growth of the business in Australia. SG&A expenses atCDS were higher primarily due to an increase in selling expenses. Companyfunded research and development expenditures were higher for the third quarterand first nine months this year due to an increase in spending for new defenserelated technologies.

 

Our projected effective tax rate for fiscal 2010 is 34.4%. Our rate wasreduced in the third quarter by an adjustment to the reserve for uncertain taxpositions of $1.9 million due to the expiration of a statute of limitationsthat allowed us to decrease our reserve. The projected rate for this yearincludes a lower tax provision on earnings from foreign jurisdictions that havelower tax rates than in the U.S., such as the U.K. and New Zealand, as weconsider these earnings to be indefinitely reinvested. The tax provision in thefirst nine months of last year had benefited from the retroactive reinstatementof the U.S. research and experimentation credit, which reduced the provision by$0.8 million last year. The effective rate for fiscal 2010 could be affectedby, among other factors, the mix of business between the U.S. and foreignjurisdictions, our ability to take advantage of available tax credits andaudits of our records by taxing authorities.

 

**Business Acquisitions**

 

Duringthe quarter ended June 30, 2010, we acquired two small privately heldcompanies for net cash consideration of $6.3 million, plus assumed liabilities,deferred payments and contingent consideration that will bring the totalpurchase price for the two companies to approximately $11.7 million, net ofcash acquired. The first acquisition, Impeva Labs, Inc., is aninternational provider of global asset management, tracking, monitoring andsecurity solutions. The second acquisition, Safe Harbor Holdings, Inc., isa Vienna, Virginia-based supplier of customized hardware and software for cybersolutions. Operations of these two entities will be included in our defense systemssegment. Tangible assets of these two companies, other than cash acquired, areestimated at $1.2 million and intangible assets are approximately $10.5million. The purchase price allocation is preliminary. Purchased intangiblesare expected to include backlog, customer relationships and in-process researchand development.

 

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**TransportationSystems Segment (CTS)**

 
| ** **                                      | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **June 30,**     | ** ** | **June 30,**      | ** ** |
| ** **                                      | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                      | ** ** | **(in millions)**     | ** ** |
|                                            |       |                  |       |                   |       |   |   |   |   |
| Transportation Systems Segment Sales            |       | $                     | 276.7      |                   | $          | 217.8 |   | $ | 111.2 |   | $ | 74.8 |   |
|                                            |       |                  |       |                   |       |   |   |   |   |
| Transportation Systems Segment Operating Income |       | $                     | 40.7       |                   | $          | 34.1 |   | $ | 14.6 |   | $ | 11.6 |   |

 

CTSsales increased 49% in the third quarter to $111.2 million compared to $74.8million last year and increased 27% for the nine-month period to $276.7 millionfrom $217.8 million last year. Sales were higher from work in the San FranciscoBay area, from the PRESTIGE contract in London and from the installation of agating system in Southern California. These increases were partially offset bylower sales from a system installation contract in Florida, which was completedin the first quarter of this year, and from train operating companies in theU.K. A portion of the sales increase from the PRESTIGE contract this yearresulted from consolidation of the company’s 50% owned subsidiary, TranSys,beginning in March of this year. This newly consolidated subsidiary added$14.4 million to sales for the quarter and $19.2 million for the first ninemonths of the fiscal year. The average exchange rate between the British Poundand the U.S. Dollar was lower this year than last year for the quarter, buthigher for the nine-month period. This resulted in a decrease in sales of $1.6million for the third quarter and an increase of $1.5 million for thenine-month period compared to last year.

 

Operatingincome from CTS increased 26% in the third quarter from $11.6 million last yearto $14.6 million this year. For the first three quarters of the year operatingincome increased to $40.7 million compared to $34.1 million in the same periodlast year, a 19% increase. Increased income resulted from higher sales andmargins in North America, offset somewhat by lower profits in the U.K. Inaddition, higher spare parts sales and a foreign currency exchange gain of $0.4million contributed to the results for the quarter. For the nine-month periodthis year, a contract modification received resolved a contingency on acontract in Europe, allowing us to reverse a reserve of $1.6 million. Last year’snine-month results had also included a contract settlement that added $1.2million to operating income and a foreign currency exchange gain that added$1.4 million. The additional sales from TranSys mentioned above did not add tooperating income, because TranSys operates on a break-even basis, as it wasdesigned to do. The difference in the exchange rate between the British Poundand the U.S. Dollar decreased operating income for the quarter by $0.4 million,but resulted in an increase of $0.3 million for the first nine months of thefiscal year compared to last year.

 

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**Defense Systems Segment (CDS)**

 
| ** **                                    | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **June 30,**     | ** ** | **June 30,**      | ** ** |
| ** **                                    | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                    | ** ** | **(in millions)**     | ** ** |
| **Defense Systems Segment Sales**             |       |                  |       |                   |       |   |   |   |   |
| Training systems                              |       | $                     | 202.2      |                   | $          | 173.7 |   | $ | 89.5 |   | $ | 59.1 |   |
| Communications                                |       | 43.0                  |       | 31.9                   |       | 18.3 |   | 12.6 |   |
| Other                                         |       | 2.3                   |       | 1.5                    |       | 0.7 |   | 0.5 |   |
|                                          |       | $                     | 247.5      |                   | $          | 207.1 |   | $ | 108.5 |   | $ | 72.2 |   |
|                                          |       |                  |       |                   |       |   |   |   |   |
| **Defense Systems Segment Operating  Income** |       |                  |       |                   |       |   |   |   |   |
| Training systems                              |       | $                     | 20.6       |                   | $          | 12.2 |   | $ | 11.7 |   | $ | 3.4 |   |
| Communications                                |       | 3.0                   |       | 3.3                    |       | — |   | 1.8 |   |
| Other                                         |       | —                |       | (0.1                   | )          | (0.1 | ) | — |   |
|                                          |       | $                     | 23.6       |                   | $          | 15.4 |   | $ | 11.6 |   | $ | 5.2 |   |

 

**TrainingSystems**

 

Trainingsystems sales increased 51% in the third quarter this year to $89.5 millioncompared to $59.1 million in the third quarter of last year, and were up 16%for the first nine months of the fiscal year from $173.7 million to $202.2million. The primary reason for the sales increase for the quarter was deliveryof virtual small arms training systems to a U.S. government customer. Inaddition, sales of electro-optic training systems and ground combat trainingsystems were higher for the quarter. Sales were also higher in the nine-monthperiod from ground combat training systems, electro-optic training systems andsmall arms training systems. These increases in the first nine months werepartially offset by lower air combat training sales to customers in the FarEast and from the U.S. government P5 contract.

 

Trainingsystems operating income in the third quarter was more than three times thelevel of last year at $11.7 million this year compared to $3.4 million lastyear and for the first nine months increased 69% from $12.2 million last yearto $20.6 million this year. The increase in sales of small arms trainingsystems added significantly to operating income in this year’s third quarter,in addition to higher operating income on higher sales of ground combattraining systems and electro-optic training systems. For the nine-month period,operating income was higher this year from the same product lines due to highersales. In addition, during the nine-month period last year we had established a$3.1 million allowance for doubtful accounts receivable related to a companythrough which we sold training systems products to the U.S. government becausethey failed to pass on to us cash they collected from the government on ourbehalf. In the first nine months of this year we have collected $1.9 million ofthe balance due from this company, which added to operating income for theperiod. These improvements were partially offset by lower operating income fromair combat training systems due to lower sales, especially to customers in theFar East where we had realized higher margins last year.

 

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**Communications**

 

Communicationssales increased 45% in the third quarter to $18.3 million from $12.6 millionlast year and 35% for the first nine months to $43.0 million this year comparedto $31.9 million last year. Sales were higher for the third quarter from datalinks and power amplifiers and for the nine-month period were higher from allthree product lines, including personnel locator systems (PLS). We havedeveloped a new mini-common data link (mini-CDL) product which began generatingsales in the first nine months of this year, contributing to the increase indata link sales. A settlement agreement reached in the first quarter last yearwith the U.S. Navy on a data link development contract had added $3.3 millionto sales in the first nine months last year.

 

Despite the increase in sales, Communications broke even for the thirdquarter compared to operating income of $1.8 million last year, but for thenine-month period was only slightly lower than last year at $3.0 millioncompared to $3.3 million. Development costs for the mini-CDL totaled $1.3million in the third quarter this year, offsetting operating income from poweramplifiers and PLS. Sales of PLS were also lower for the third quarter thanlast year, generating lower operating income. For the first nine months of theyear, higher operating income on higher sales from all three product lines wasoffset by mini-CDL development costs totaling $3.6 million. The settlementagreement with the U.S. Navy referred to above had no significant impact on operatingincome in last year’s first nine months.

 

**Mission Support Services Segment (MSS)**

 
| ** **                                        | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                        | ** ** | **June 30,**     | ** ** | **June 30,**      | ** ** |
| ** **                                        | ** ** | **2010**              | ** ** | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                        | ** ** | **(in millions)**     | ** ** |
|                                              |       |                  |       |                   |       |   |   |   |   |
| Mission Support Services Segment Sales            |       | $                     | 320.9      |                   | $          | 308.7 |   | $ | 111.3 |   | $ | 100.1 |   |
|                                              |       |                  |       |                   |       |   |   |   |   |
| Mission Support Services Segment Operating Income |       | $                     | 18.7       |                   | $          | 19.9 |   | $ | 7.6 |   | $ | 6.1 |   |

 

Salesfrom MSS increased 11% in the third quarter this year to $111.3 million from$100.1 million last year and for the first nine months increased 4% from $308.7million last year to $320.9 million this year. Activity at the Joint ReadinessTraining Center (JRTC) in Fort Polk, LA. increased in the third quartercompared to last year and was higher than last year for the first nine monthsof the fiscal year. In addition, higher sales from two contracts with the U.S.Marine Corp, a contract at the Joint Warfighting Center (JWFC) and a contractwith the Quartermaster Center and School all generated higher sales for thethird quarter and nine-month period. Partially offsetting these improvementswere lower sales from a trainer maintenance contract that we lost to a smallbusiness competitor and from a contract for services performed in Iraq that hadadded approximately $5.7 million to sales last year, but was completed. Asmentioned last quarter, we also have recently lost a number of individualpositions on our contracts due to expanded U.S. Department of Defensein-sourcing policies that have limited growth from MSS and may continue to doso in the near term.

 

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MSSoperating income increased 25% in the third quarter this year to $7.6 millionfrom $6.1 million last year. Higher sales from the JRTC and QuartermasterCenter and School contracts contributed to the increase in operating income forthe quarter. For the first nine months of the year, MSS operating incomedecreased 6% from $19.9 million last year to $18.7 million this year. Last year’sfirst nine months had included $1.2 million from a contract settlement paymentreceived and the contract in Iraq mentioned above had added approximately $2.0million to operating income. In addition, during the first quarter this year werecorded a provision of $2.0 million for a dispute with a customer overcontract terms. We are continuing to pursue alternatives for resolution thatcould lead to ultimate recovery of the full amount.  At this time, however, we cannot quantify ordetermine the likelihood of recovery. Higher operating income on higher salesfrom the contracts mentioned above partially offset these decreases.

 

**Backlog**

 
| ** **                     | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|--------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                     | ** ** | **2010**          | ** ** | **2009**               | ** ** |
| ** **                     | ** ** | **(in millions)** | ** ** |
| **Total backlog**              |       |              |       |                   |       |
| Transportation Systems         |       | $                 | 1,098.8    |                   | $          | 772.2 |   |
| Mission Support Services       |       | 773.7             |       | 855.5                  |       |
| Defense Systems:               |       |              |       |                   |       |
| Training systems               |       | 463.8             |       | 484.4                  |       |
| Communications and electronics |       | 43.8              |       | 69.0                   |       |
| Other                          |       | 6.9               |       | 2.3                    |       |
| Total Defense Systems          |       | 514.5             |       | 555.7                  |       |
| Total                          |       | $                 | 2,387.0    |                   | $          | 2,183.4 |   |
|                           |       |              |       |                   |       |
| **Funded backlog**             |       |              |       |                   |       |
| Transportation Systems         |       | $                 | 1,098.8    |                   | $          | 772.2 |   |
| Mission Support Services       |       | 192.3             |       | 206.7                  |       |
| Defense Systems:               |       |              |       |                   |       |
| Training systems               |       | 463.8             |       | 484.4                  |       |
| Communications and electronics |       | 43.8              |       | 69.0                   |       |
| Other                          |       | 6.9               |       | 2.3                    |       |
| Total Defense Systems          |       | 514.5             |       | 555.7                  |       |
| Total                          |       | $                 | 1,805.6    |                   | $          | 1,534.6 |   |

 

As reflected in the table above, total backlog increased $203.6 millionand funded backlog increased $271.0 million from September 30, 2009 to June 30,2010. During the quarter ended June 30, we were awarded a $341 million(383 million Australian dollars) contract to provide greater Sydney’sElectronic Ticketing System, which is included in Transportation Systemsbacklog. In MSS, the difference between total backlog and funded backlogrepresents options under multi-year service contracts. Funding for thesecontracts comes from annual operating budgets of the U.S. government and theoptions are normally exercised annually. We do not include options for thepurchase of additional systems or equipment in backlog until exercised, nor dowe include indefinite delivery, indefinite quantity contracts until an order isreceived.

 

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**Liquidity and Capital Resources**

 

Operatingactivities provided cash of $11.1 million for the third quarter of the fiscalyear and $57.3 million for the nine-month period. In addition to net income,advance payments by customers and reductions in inventory contributed to thepositive cash flows for the three- and nine-month periods, and reductions inaccounts receivable also provided positive cash flows for the first ninemonths. Partially offsetting the positive operating cash flows for the thirdquarter and first nine months was a payment of $27.0 million in value added tax(VAT) during the third quarter, related to the wind-up of the PRESTIGE contractwithin TranSys, our 50% owned joint-venture company. We consolidated TranSyswith our results for the first time in the second quarter, adding cash of $38.3million to investing activities, a portion of which was used to make this VATpayment which is included in operating activities. Positive operating cashflows came from the MSS and CTS segments, with the greater portion coming fromCTS.

 

Investing activities for the nine-month period included capitalexpenditures of $4.6 million, two acquisitions of small defense relatedbusiness for $6.3 million net of cash acquired, and net purchases of short-terminvestments of $71.2 million. As mentioned above, the consolidation of TranSysadded $38.3 million to cash from investing activities. Financing activities forthe nine-month period consisted primarily of scheduled payments on ourlong-term debt of $4.4 million, and dividends paid to our shareholders of $2.4million.

 

Wehave a committed revolving credit agreement with a group of financialinstitutions in the amount of $150 million through December 2012. As of June 30,2010, there were no borrowings under this agreement; however, there wereletters of credit outstanding under the agreement totaling $67.4 million.

 

Ourfinancial condition remains strong with working capital of $341.1 million and acurrent ratio of 2.2 to 1 at June 30, 2010. We expect that cash on handand our unused lines of credit will be adequate to meet our liquidityrequirements for the foreseeable future.

 

**CriticalAccounting Policies, Estimates and Judgments**

 

Our financialstatements are prepared in accordance with accounting principles that aregenerally accepted in the United States. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets and liabilities, and disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amountsof revenues and expenses during the reporting period. We continually evaluateour estimates and judgments, the most critical of which are those related torevenue recognition, income taxes, valuation of goodwill, purchased intangiblesand pension costs. We base our estimates and judgments on historical experienceand other factors that we believe to be reasonable under the circumstances.Materially different results can occur as circumstances change and additionalinformation becomes known.

 

Besides theestimates identified above that are considered critical, we make many otheraccounting estimates in preparing our financial statements and relateddisclosures. All estimates, whether or not deemed critical affect reportedamounts of assets, liabilities, revenues and expenses, as well as disclosuresof contingent assets and liabilities. These estimates and judgments are alsobased 

 

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on historical experience and other factors that are believed to bereasonable under the circumstances. Materially different results can occur ascircumstances change and additional information becomes known, even forestimates and judgments that are not deemed critical.

 

For further information, refer to the consolidated financial statementsand notes thereto included in our annual report on Form 10-K for the yearended September 30, 2009.

 

 

**CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION**

 

Thisreport, including the documents that we incorporate by reference, containsforward-looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended, that are subject to the “safeharbor” created by those sections. Any statements about our expectations,beliefs, plans, objectives, assumptions or future events or our futurefinancial and/or operating performance are not historical and may beforward-looking. These statements are often, but not always, made through theuse of words or phrases such as “may,” “will,” “anticipate,” “estimate,” “plan,”“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “predict,” “potential,”“opportunity” and similar words or phrases or the negatives of these words orphrases.  These statements involveestimates, assumptions and uncertainties, including those discussed in “RiskFactors” in our annual report on Form 10-K for the year ended September 30,2009, and throughout this filing that could cause actual results to differmaterially from those expressed in these statements.

 

Becausethe risk factors referred to above could cause actual results or outcomes todiffer materially from those expressed in any forward-looking statements madeby us or on our behalf, you should not place undue reliance on anyforward-looking statements.  In addition,past financial and/or operating performance is not necessarily a reliableindicator of future performance and you should not use our historicalperformance to anticipate results or future period trends.  Further, any forward-looking statement speaksonly as of the date on which it is made, and we undertake no obligation toupdate any forward-looking statement to reflect events or circumstances afterthe date on which the statement is made or to reflect the occurrence ofunanticipated events. New factors emerge from time to time, and it is notpossible for us to predict which factors will arise. In addition, we cannotassess the impact of each factor on our business or the extent to which anyfactor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements.

 

ITEM 4 - STATEMENT ONDISCLOSURE CONTROLS AND PROCEDURES

 

Wemaintain disclosure controls and procedures which are designed to ensure thatinformation required to be disclosed in our periodic filings with the SEC isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Our disclosure controls and procedures arealso designed to ensure that information is accumulated and communicated to ourmanagement, including our Chief Executive Officer (CEO) and Chief FinancialOfficer (CFO), as appropriate, to allow timely decisions regarding requireddisclosure. In designing and evaluating such controls and procedures, werecognize that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management necessarily is required to use its judgmentin evaluating the cost-benefit relationship of possible controls andprocedures.

 

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Weperformed an evaluation of the effectiveness of our disclosure controls andprocedures as of June 30, 2010. The evaluation was performed with theparticipation of senior management of each business segment and key corporatefunctions, and under the supervision of the CEO and CFO. Based on ourevaluation, we concluded that our disclosure controls and procedures wereeffective as of June 30, 2010.

 

Weroutinely review our system of internal control over financial reporting andmake changes to our processes and systems to improve controls and increaseefficiency, while ensuring that we maintain an effective internal controlenvironment. Changes may include such activities as implementing new, moreefficient systems and migrating certain processes from our operating units toour corporate shared service center. In addition, if we acquire new businesses,we will review the controls and procedures of the acquired business as part ofour integration activities.

 

Therewere no changes in our internal control over financial reporting during themost recently completed fiscal quarter that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II - OTHER INFORMATION**

 

ITEM 6 - EXHIBITS

 

(a) The following exhibits are included herein:

 
| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
|                 | 3.1        |            | Amended and Restated Certificate of Incorporation.  Incorporated by reference to Form 10-Q filed for the quarter ended June,  30, 2006, file No. 001-08931, Exhibit 3.1. |
|                 | 3.2        |            | Bylaws. Incorporated by reference to  Form 10-K filed for the fiscal year ended September 30, 2004, file  No. 001-08931, Exhibit 3. |
|                 | 10.1       |            | 2005 Equity Incentive Plan.  Incorporated by reference to Form 10-K  filed for the fiscal year ended September 30, 2005, file  No. 001-08931, Exhibit 10.1. |
|                 | 10.2       |            | Amended Transition Protection Plan.  Incorporated by reference to Form 10-K  filed for the fiscal year ended September 30, 2007, file  No. 001-08931, Exhibit 10.2. |
|                 | 10.3       |            | Credit Agreement dated December 16,  2009.  Incorporated by reference to  Form 10-Q filed for the quarter ended December 31, 2009, file  No. 001-08931, Exhibit 10.3. |
|                 | 10.4       |            | Revised Deferred Compensation Plan. Incorporated  by reference to Form 10-Q for the quarter ended March 31, 2008,  file No. 001-08931, Exhibit 10.4 |
|                 | 10.5       |            | Compensatory Arrangements of Certain Officers.  Incorporated by reference to Form 8-K filed February 23, 2010, file  No. 001-08931 |
|                 | 15    |            | Report of Independent Registered Public Accounting  Firm |
|                 | 31.1  |            | Certification of CEO |
|                 | 31.2  |            | Certification of CFO |
|                 | 32.1       |            | CEO  Certification |
|                 | 32.2       |            | CFO  Certification |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   |                 | CUBIC  CORPORATION |
|--------|----------------------|--------------------|
|   |                 |               |
|   |                 |               |
| Date   | August 3,  2010 |               | /s/ William W.  Boyle |
|   |                 |               | William  W. Boyle |
|   |                 |               | Senior  Vice President and CFO |
|   |                 |               |   |
| Date   | August 3,  2010 |               | /s/ Mark A.  Harrison |
|   |                 |               | Mark  A. Harrison |
|   |                 |               | Vice  President and Corporate Controller |

 

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