** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

 

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

 

**For the Quarter Ended March 31, 2009**

** **

**Commission File Number 1-8931**

 

##### **CUBIC CORPORATION**

Exact Name of Registrant as Specified 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 theRegistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months, and (2) has been subject to such filing requirements for the past90 days.   Yes x   No o

 

Indicate by check mark whether theregistrant has submitted electronically and posted on its corporate Web site,if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).   Yes x   No o

 

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

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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12-b-2 ofthe Exchange Act).   Yes o No x

 

As of April 23,2009, registrant had only one class of common stock of which there were26,731,987 shares outstanding (after deducting 8,945,120 shares held astreasury stock).

 

 

 

----

 

**PART I - FINANCIAL INFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

 

### **CUBIC CORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)

(amounts in thousands, except per share data)

 
| ** **                                     | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                                     | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Net sales:                                     |       |                 |       |                   |       |   |   |   |   |
| Products                                       |       | $                    | 246,727    |                   | $          | 230,096 |   | $ | 123,650 |   | $ | 117,749 |   |
| Services                                       |       | 240,997              |       | 182,906                |       | 119,223 |   | 92,531 |   |
|                                           |       | 487,724              |       | 413,002                |       | 242,873 |   | 210,280 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Costs and  expenses:                           |       |                 |       |                   |       |   |   |   |   |
| Products                                       |       | 181,715              |       | 175,597                |       | 86,731 |   | 91,407 |   |
| Services                                       |       | 203,493              |       | 153,773                |       | 103,262 |   | 78,882 |   |
| Selling, general  and administrative           |       | 56,063               |       | 48,875                 |       | 29,417 |   | 24,096 |   |
| Research and  development                      |       | 3,514                |       | 3,783                  |       | 1,654 |   | 2,009 |   |
|                                           |       | 444,785              |       | 382,028                |       | 221,064 |   | 196,394 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Operating income                               |       | 42,939               |       | 30,974                 |       | 21,809 |   | 13,886 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Other income  (expense):                       |       |                 |       |                   |       |   |   |   |   |
| Interest and  dividends                        |       | 858                  |       | 2,793                  |       | 288 |   | 1,272 |   |
| Interest expense                               |       | (1,027               | )          | (1,391                 | )          | (495 | ) | (659 | ) |
| Other income                                   |       | 530                  |       | 328                    |       | 615 |   | 634 |   |
| Minority  interest in loss of subsidiary       |       | —               |       | 118                    |       | — |   | 113 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Income before  income taxes                    |       | 43,300               |       | 32,822                 |       | 22,217 |   | 15,246 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Income taxes                                   |       | 14,900               |       | 12,500                 |       | 8,000 |   | 5,600 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Net income                                     |       | $                    | 28,400     |                   | $          | 20,322 |   | $ | 14,217 |   | $ | 9,646 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Basic and  diluted net income per common share |       | $                    | 1.06       |                   | $          | 0.76 |   | $ | 0.53 |   | $ | 0.36 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Dividends per  common share                    |       | $                    | 0.09       |                   | $          | 0.09 |   | $ | 0.09 |   | $ | 0.09 |   |
|                                           |       |                 |       |                   |       |   |   |   |   |
| Average number  of commonshares  outstanding   |       | 26,730               |       | 26,723                 |       | 26,732 |   | 26,724 |   |

 

*See accompanying notes.*

 

2

----

 

CUBIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
| ** **                                      | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                      | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| ** **                                      |       | **(Unaudited)**    | ** ** | **(See note below)**   |       |
| **ASSETS**                                      |       |               |       |                   |       |
| Current assets:                                 |       |               |       |                   |       |
| Cash and cash  equivalents                      |       | $                  | 167,141    |                   | $          | 112,696 |   |
| Accounts  receivable - net                      |       | 239,876            |       | 268,884                |       |
| Inventories -  net                              |       | 47,270             |       | 45,118                 |       |
| Deferred income  taxes and other current assets |       | 46,453             |       | 48,630                 |       |
| Total current  assets                           |       | 500,740            |       | 475,328                |       |
|                                            |       |               |       |                   |       |
| Long-term  contract receivables                 |       | 9,627              |       | 19,930                 |       |
| Property, plant  and equipment - net            |       | 50,219             |       | 53,887                 |       |
| Goodwill                                        |       | 59,080             |       | 61,032                 |       |
| Purchased  intangibles                          |       | 17,869             |       | 19,060                 |       |
| Other assets                                    |       | 11,026             |       | 12,015                 |       |
|                                            |       | $                  | 648,561    |                   | $          | 641,252 |   |
|                                            |       |               |       |                   |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**  |       |               |       |                   |       |
| Current  liabilities:                           |       |               |       |                   |       |
| Trade accounts  payable                         |       | $                  | 22,820     |                   | $          | 23,288 |   |
| Customer  advances                              |       | 87,194             |       | 74,963                 |       |
| Other current  liabilities                      |       | 81,867             |       | 85,832                 |       |
| Income taxes  payable                           |       | 2,728              |       | 6,017                  |       |
| Current portion  of long-term debt              |       | 4,498              |       | 6,045                  |       |
| Total current  liabilities                      |       | 199,107            |       | 196,145                |       |
|                                            |       |               |       |                   |       |
| Long-term debt                                  |       | 20,351             |       | 25,700                 |       |
| Other long-term  liabilities                    |       | 29,903             |       | 30,555                 |       |
|                                            |       |               |       |                   |       |
| Shareholders’  equity:                     |       |               |       |                   |       |
| Common stock                                    |       | 12,530             |       | 12,485                 |       |
| Retained  earnings                              |       | 430,862            |       | 404,868                |       |
| Accumulated  other comprehensive income (loss)  |       | (8,121             | )          | 7,570                  |       |
| Treasury stock  at cost                         |       | (36,071            | )          | (36,071                | )          |
|                                            |       | 399,200            |       | 388,852                |       |
|                                            |       | $                  | 648,561    |                   | $          | 641,252 |   |

 

*Note: Thebalance sheet at September 30, 2008 has been derived from the auditedfinancial statements at that date.*

 

# *See accompanying notes.*

 

3

----

 

**CUBIC CORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

(in thousands)

 
| ** **                                                                                   | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                                                                                   | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Operating  Activities:                                                                       |       |                 |       |                   |       |   |   |   |   |
| Net income                                                                                   |       | $                    | 28,400     |                   | $          | 20,322 |   | $ | 14,217 |   | $ | 9,646 |   |
| Adjustments to  reconcile net income to net cashprovided by (used in) operating  activities: |       |                 |       |                   |       |   |   |   |   |
| Depreciation and  amortization                                                               |       | 6,848                |       | 4,104                  |       | 3,388 |   | 1,998 |   |
| Changes in  operating assets and liabilities                                                 |       | 49,815               |       | 628                    |       | 62,966 |   | (13,410 | ) |
| NET CASH PROVIDED  BY (USED IN)OPERATING ACTIVITIES                                          |       | 85,063               |       | 25,054                 |       | 80,571 |   | (1,766 | ) |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| Investing  Activities:                                                                       |       |                 |       |                   |       |   |   |   |   |
| Acquisitions,  net of cash acquired                                                          |       | (7,886               | )          | —                 |       | (1,786 | ) | — |   |
| Net additions to  property, plant and equipment                                              |       | (2,610               | )          | (4,864                 | )          | (1,162 | ) | (3,036 | ) |
| Proceeds from  sales of marketable securities                                                |       | —               |       | 66,300                 |       | — |   | — |   |
| Purchases of  marketable securities                                                          |       | —               |       | (39,100                | )          | — |   | — |   |
| NET CASH  PROVIDED BY (USED IN)INVESTING ACTIVITIES                                          |       | (10,496              | )          | 22,336                 |       | (2,948 | ) | (3,036 | ) |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| Financing  Activities:                                                                       |       |                 |       |                   |       |   |   |   |   |
| Principal  payments on long-term borrowings                                                  |       | (5,694               | )          | (5,777                 | )          | (126 | ) | (172 | ) |
| Other                                                                                        |       | 45                   |       | 128                    |       | 45 |   | 85 |   |
| NET CASH USED INFINANCING ACTIVITIES                                                         |       | (5,649               | )          | (5,649                 | )          | (81 | ) | (87 | ) |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| Effect of  exchange rates on cash                                                            |       | (14,473              | )          | (47                    | )          | (1,677 | ) | 1,064 |   |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| NET INCREASE  (DECREASE) IN CASHAND CASH EQUIVALENTS                                         |       | 54,445               |       | 41,694                 |       | 75,865 |   | (3,825 | ) |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| Cash and cash  equivalents at thebeginning of the period                                     |       | 112,696              |       | 73,563                 |       | 91,276 |   | 119,082 |   |
|                                                                                         |       |                 |       |                   |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS ATTHE END OF THE PERIOD                                           |       | $                    | 167,141    |                   | $          | 115,257 |   | $ | 167,141 |   | $ | 115,257 |   |

 

# *See accompanying notes.*

 

4

----

# * *

# ***CUBIC CORPORATION***

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

March 31, 2009

 

**Note 1 — Basis for Presentation**

** **

The accompanyingunaudited consolidated condensed financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included. Operating results for the three and six month periods ended March 31,2009 are not necessarily indicative of the results that may be expected for theyear ending September 30, 2009. For further information, refer to theconsolidated financial statements and footnotes thereto included in the Company’sannual report on Form 10-K for the year ended September 30, 2008.

 

The preparation ofthe financial statements in conformity with U. S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

### **Note 2 — Balance Sheet Details**

 

The components ofaccounts receivable are as follows (in thousands):

 
| ** **                                | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| ** **                                | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| Trade and other  receivables              |       | $                  | 8,454      |                   | $          | 9,014 |   |
| Long-term  contracts:                     |       |               |       |                   |       |
| Billed                                    |       | 84,178             |       | 107,225                |       |
| Unbilled                                  |       | 161,179            |       | 177,453                |       |
| Allowance for  doubtful accounts          |       | (4,308             | )          | (4,878                 | )          |
| Total accounts  receivable                |       | 249,503            |       | 288,814                |       |
| Less estimated  amounts not currently due |       | (9,627             | )          | (19,930                | )          |
| Current accounts  receivable              |       | $                  | 239,876    |                   | $          | 268,884 |   |

 

The amount classified asnot currently due is an estimate of the amount of long-term contract accountsreceivable that will not be collected within one year from March 31, 2009under transportation systems contracts in the U.S., Australia and the U.K., anda defense contract in Canada. The non-current balance at September 30,2008 represented non-current amounts due from customers in the same countries.

 

5

----

### ** **

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

 

Inventoriesconsist of the following (in thousands):

 
| ** **                                                      | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                      | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| ** **                                                      | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| Finished  products                                              |       | $                  | 113        |                   | $          | 172 |   |
| Work in process  and inventoriedcosts under long-term contracts |       | 70,912             |       | 64,179                 |       |
| Customer  advances                                              |       | (25,312            | )          | (20,783                | )          |
| Raw material and  purchased parts                               |       | 1,557              |       | 1,550                  |       |
| Net inventories                                                 |       | $                  | 47,270     |                   | $          | 45,118 |   |

 

At March 31, 2009,work in process and inventoried costs under long-term contracts includesapproximately $3.0 million in costs incurred in advance of contract award oroutside the scope of work on several contracts in the defense segment, comparedto $1.6 million as of September 30, 2008. Management believes it isprobable that these costs, plus appropriate profit margin, will be recoveredunder contract change orders or upon the award of new contracts within the nextyear.

 

###### **Note 3 — Comprehensive Income**

 

Comprehensiveincome is as follows (in thousands):

 
| ** **                                 | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                                 | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                       |       |                 |       |                   |       |   |   |   |   |
| Net income                                 |       | $                    | 28,400     |                   | $          | 20,322 |   | $ | 14,217 |   | $ | 9,646 |   |
| Foreign currency  translation adjustments  |       | (15,615              | )          | 358                    |       | (2,070 | ) | 1,416 |   |
| Net unrealized  loss from cash flow hedges |       | (76                  | )          | (129                   | )          | (2 | ) | (163 | ) |
| Comprehensive  income                      |       | $                    | 12,709     |                   | $          | 20,551 |   | $ | 12,145 |   | $ | 10,899 |   |

 

6

----

 

### **Note 4 — Segment Information**

 

Business segmentfinancial data is as follows (in millions):

 
| ** **                    | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                    | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                    | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                          |       |                 |       |                   |       |   |   |   |   |
| **Sales:**                    |       |                 |       |                   |       |   |   |   |   |
| Defense                       |       | $                    | 343.5      |                   | $          | 284.4 |   | $ | 173.7 |   | $ | 138.2 |   |
| Transportation  systems       |       | 143.0                |       | 128.6                  |       | 68.6 |   | 72.1 |   |
| Corporate and  other          |       | 1.2                  |       | —                 |       | 0.5 |   | — |   |
| Total sales                   |       | $                    | 487.7      |                   | $          | 413.0 |   | $ | 242.8 |   | $ | 210.3 |   |
|                          |       |                 |       |                   |       |   |   |   |   |
| **Operating  income (loss):** |       |                 |       |                   |       |   |   |   |   |
| Defense                       |       | $                    | 24.0       |                   | $          | 12.6 |   | $ | 11.3 |   | $ | 2.8 |   |
| Transportation  systems       |       | 22.5                 |       | 19.2                   |       | 12.5 |   | 11.9 |   |
| Corporate and  other          |       | (3.6                 | )          | (0.8                   | )          | (2.0 | ) | (0.8 | ) |
| Total operating  income       |       | $                    | 42.9       |                   | $          | 31.0 |   | $ | 21.8 |   | $ | 13.9 |   |

 

### **Note 5 — Financing Arrangements**

### ** **

TheCompany has a committed five-year revolving credit agreement with a group offinancial institutions in the amount of $150 million, expiring in March 2010.As of March 31, 2009, there were no borrowings under this agreement;however, there were letters of credit outstanding under the agreement totaling$39.9 million.

 

### **Note 6 — Pension Plans**

### ** **

The components of netperiodic pension benefits costs are as follows (in thousands):

 
| ** **                            | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                            | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                            | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service cost                          |       | $                    | 1,155      |                   | $          | 1,763 |   | $ | 561 |   | $ | 875 |   |
| Interest cost                         |       | 5,051                |       | 5,023                  |       | 2,501 |   | 2,505 |   |
| Expected return  on plan assets       |       | (4,864               | )          | (6,505                 | )          | (2,409 | ) | (3,244 | ) |
| Amortization of:actuarial loss (gain) |       | 210                  |       | (105                   | )          | 105 |   | (52 | ) |
| Administrative  expenses              |       | 88                   |       | 60                     |       | 44 |   | 30 |   |
| Net pension cost                      |       | $                    | 1,640      |                   | $          | 236 |   | $ | 802 |   | $ | 114 |   |

 

7

----

 

### **Note 7 —New Accounting Pronouncements**

### ** **

Duringthe quarter ended December 31, 2008, the Company adopted SFAS No. 157,*Fair Value Measurements*. SFAS 157 defines fair value,establishes a framework and gives guidance regarding the methods used formeasuring fair value, and expands disclosures about fair value measurements. Asof March 31, 2009, the Company had foreign exchange forward contracts thatare valued based on inputs that are observable in the market. These assets andliabilities fall in the Level 2 hierarchy established by SFAS 157, and areimmaterial. Therefore, the adoption of SFAS 157 did not have a material impacton the Company’s results of operations or financial position.

 

Duringthe quarter ended December 31, 2008, the Company adopted SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities — Including an Amendment of FASB Statement No. 115*.This statement permits an entity to choose to measure many financialinstruments and certain other items at fair value at specified election dates.Subsequent unrealized gains and losses on items for which the fair value optionhas been elected will be reported in earnings. The adoption of SFAS 159 did nothave a material impact on the Company’s results of operations or financialposition.

 

Duringthe quarter ended March 31, 2009, the Company adopted SFAS No. 161, *Disclosures about Derivative Instruments and Hedging Activities, anamendment of FASB Statement No. 133*. This statement requires enhanced disclosures about an entity’sfinancial position, financial performance, and cash flows. The statementrequires that objectives for using derivative instruments be disclosed in termsof underlying risks and accounting designation. Refer to Note 10 for additionaldiscussion.

 

InDecember 2007, the FASB issued SFAS No. 141(R), *BusinessCombinations (revised 2007)*, which is effective for fiscal yearsbeginning after December 15, 2008,which for the Company is the fiscal year beginning October 1, 2009. Thisstatement applies to all transactions or other events in which an entityobtains control of one or more businesses. This statement applies to allbusiness entities, including mutual entities that previously used thepooling-of-interests method of accounting for some business combinations. Followingadoption, the resolution of existing balances related to uncertain taxpositions from prior acquisitions that differ from recorded amounts will beadjusted through earnings, rather than goodwill.  Management does notexpect that the adoption of SFAS 141(R) will have a material impact on theCompany’s results of operations or financial position.  Adoptionof this statement is, however, expected to have a significant effect on howacquisition transactions subsequent to October 1, 2009, are reflected inthe financial statements.

 

InDecember 2007, the FASB also issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements*,which is effective for fiscal years beginning after December 15, 2008, which for the Company is the fiscal yearbeginning October 1, 2009. This statement requires all entities toreport noncontrolling (minority) interests in subsidiaries as equity in theconsolidated financial statements. Management does not expect that the adoptionof SFAS 160 will have a material impact on the Company’s consolidated resultsof operations or financial position.

 

8

----

 

### **Note 8 —Income Taxes**

### ** **

Theamount of unrecognized tax benefits determined in accordance with FinancialInterpretation No. 48, “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109” (“FIN 48”), was $5.8 million at March 31,2009 and September 30, 2008, exclusive of interest. The total amount ofunrecognized tax benefits that, if recognized, would favorably impact theeffective tax rate is $2.9 million at March 31, 2009.

 

As of March 31, 2009, the Company’s open tax years in significantjurisdictions include 2005-2008 in both the U.S. and the U.K. The Companybelieves appropriate provisions for all outstanding issues have been made forall jurisdictions and all open years.

 

TheCompany continues to report income tax-related interest income or expense andpenalties in income tax expense in the Condensed Consolidated Statement ofIncome. The amount of net interest and penalties recognized as a component ofincome tax expense during the three- and six-month periods ended March 31,2009 was not material.  Interest andpenalties accrued at March 31, 2009 amounted to $0.5 million.

 

In October 2008, the Tax Extenders and Alternative Minimum TaxRelief Act of 2008 reinstated the U.S. federal Research and Experimentation(R&E) tax credit, retroactive to January 1, 2008. As a result, theeffective tax rate for the first half of fiscal 2009 reflected a $0.8 milliontax benefit related to fiscal 2008 R&E expenditures.

 

**Note 9 — Legal Matters**

 

In2005, a bus fare collection system customer in North America issued a letterterminating its contract with the Company for default and filed a claim forbreach of contract. The same year, the Company filed an answer and generaldenial and subsequently filed a verified petition alleging breach of contractand other substantive claims. In March 2009 the parties reached asettlement agreement which modified the contract to include additional work torefurbish certain bus fare collection equipment that was supplied by Cubicunder a previous contract and to supply additional equipment. This contractmodification has a value of $2.0 million to be completed over a 12 monthperiod.  The notice of termination fordefault has been withdrawn as a result of this contract modification and alllegal actions between the two parties have been settled and dismissed. TheCompany provided adequate reserves for this settlement in previous periods,therefore, there is no additional cost resulting from the settlement in thequarter ended March 31, 2009.

 

In December 2008,the Company was named in a purported class-action suit in the U.S. DistrictCourt, Southern District, CA, seeking reclassification of certain employeesworking on a U.S. Government subcontract from salaried to hourly, overtime pay,back pay and damages under a variety of theories for violation of Californiaand Federal labor and employment laws. The complaint alleges the value of theseclaims could exceed $5 million. The matter is in the very early stages of thelitigation process and almost no discovery has been conducted to date.Management is vigorously defending the Company against these claims. Managementhas made an indemnification demand on the prime contractor for damages that mayarise from this action and believes there is a reasonable basis for insurancecoverage. At this early stage of the proceeding, management believes it ispossible, but not likely that a significant loss will be incurred and noliability for this claim has been recorded as of March 31, 2009.

 

9

----

 

In 1998, the Ministry ofDefense for the Armed Forces of the Islamic Republic of Iran obtained a UnitedStates District Court judgment enforcing an arbitration award in its favoragainst Cubic Defense Systems (CDS) of $2.8 million, plus interest, relating toa contract executed in 1977. Both parties appealed to the 9th Circuit Courtof Appeals, where the cases are stayed. A third party, Mr. Elahi, who hadobtained a large monetary judgment against Iran, attached Iran’s judgmentagainst CDS. In April, 2009, the United States Supreme Court ruled that Mr. Elahi’slien was invalid because he had accepted funds under the United States Victimsof Trafficking and Violence Protection Act of 2000 (VPA) and had signed arequired statutory release of further claims. The Company is unaware that anyother potential lienor of Iran’s judgment has obtained a valid court orderenforcing a lien, or that any such potential claimant against Iran’s judgmenthas not received VPA funds. Under a 1995 Presidential executive order, alltransactions by United States citizens with Iran are prohibited. Therefore,even if Iran were to prevail in the 9th Circuit litigation, it is unlikely that Cubicwould be permitted to pay any amount to Iran. The Company continues tomaintain the liability reserve it established in 2004 for the full amount ofthe judgment, plus interest.

 

**Note 10 — Derivative Instrumentsand Hedging Activities**

 

InMarch 2008, the FASB issued SFAS No. 161, “*Disclosuresabout Derivative Instruments and Hedging Activities, an amendment of FASBStatement No. 133*” (“SFAS No. 161”). SFAS No. 161requires entities to provide greater transparency in interim and annualfinancial statements about how and why the entity uses derivative instruments,how the instruments and related hedged items are accounted for under SFAS No. 133,“*Accounting for Derivative Instruments and HedgingActivities*” (“SFAS No. 133”), and how the instruments andrelated hedged items affect the financial position, results of operations, andcash flows of the entity. The Company adopted SFAS No. 161 effective January 1,2009.

 

TheCompany utilizes derivative and nonderivative financial instruments, such asforeign currency forwards, foreign currency debt obligations and foreigncurrency cash balances, to manage its exposure to fluctuations in foreigncurrency exchange rates. The Company does not use any derivative financialinstruments for trading or other speculative purposes.

 

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, a change infair value is immediately recognized in earnings. The Company formallydocuments all hedging relationships for all derivative hedges and theunderlying hedged items, as well as the risk management objectives andstrategies for undertaking the hedge transactions.

 

10

----

 

TheCompany classifies the fair value of all derivative contracts as either currentassets or liabilities, depending on the realized and unrealized gain or lossposition of the hedged contract at the balance sheet date. The cash flows fromderivatives treated as hedges are classified in the Consolidated Statements ofCash Flows in the same category as the item being hedged.

 

SFASNo. 161 requires tabular disclosures of the impact that derivativeinstruments and hedging activities have on the Company’s financial statements.The Company has not provided these disclosures because the amounts as of andfor the three months ended March 31, 2009 are not significant. Due todelays in completion of a contract in Sweden, a foreign currency hedge contractbecame classified as not highly effective. As a result, the Company realized a$1.4 million gain on this foreign currency exchange contract during the quarterended March 31, 2009. The amount of gains and losses from other hedgesclassified as not highly effective was not significant. In addition, a foreigncurrency forward has been excluded from the assessment of hedge effectivenessas it is marked to market on a quarterly basis. There are no significant creditrisks related to contingent features in our derivative agreements. Finally, theamount of estimated unrealized net gains or losses from cash flow hedges whichare expected to be reclassified to earnings in the next twelve months is notsignificant.

 

11

----

 

**CUBIC CORPORATION**

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

March 31, 2009

 

Our two primary businesses are in the defense and transportation industries. These are high technology businesses that design, manufacture and integrate complex systems and provide essential services to meet the needs of various federal and regional government agencies in the U.S. and other nations around the world.

 

Our defense segment is a diversified supplier ofconstructive, live and virtual military training systems, services 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 engagement andvirtual simulation systems; and precision gunnery solutions. Our services arefocused on training, mission support, computer simulation training, distributedinteractive simulation, development of military training doctrine, forcemodernization services for NATO entrants and field operations and maintenance.Our communications products are aimed at intelligence, surveillance, and searchand rescue markets.

 

Our transportation systems segment develops anddelivers innovative fare collection systems for public transit authoritiesworldwide.  We provide hardware, softwareand multi-agency, multimodal transportation integration technologies andservices that allow the agencies to efficiently collect fares, manage theiroperations, reduce shrinkage and make using public transit a more convenientand attractive option for commuters.

 

**Consolidated Overview**

** **

Salesfor the quarter ended March 31, 2009 increased to $242.8 million comparedto $210.3 million last year, an increase of 15%. Defense sales increased 26%compared to the second quarter last year, while transportation systems salesdecreased by 5%. Of the increase in total sales for the quarter, $12.2 million,came from the company we acquired in late fiscal 2008, Omega Training Group(Omega), and is included in the defense segment results.

 

Salesincreased to $487.7 million for the first six months of the fiscal yearcompared to $413.0 million for the first six months of 2008, an increase of18%. Defense sales increased 21% and transportation systems sales increased 11%for the period. Of the increase in total sales, Omega contributed $29.7 millionfor the six month period. See the segment discussions following for furtheranalysis of segment sales.

 

Operatingincome increased 57% to $21.8 million in the quarter compared to $13.9 millionin the second quarter of last year. Defense operating income was four timeshigher this year for the quarter than the low level last year whiletransportation systems operating income increased 5%. Corporate and other costsfor the quarter were $2.0 million this year, compared to $0.8 million in thesecond quarter of last year. These costs included $1.2 million for thedevelopment and marketing of new security related technologies.

 

12

----

 

Operatingincome for the first six months of the fiscal year increased 38% from $31.0million in 2008 to $42.9 million this year. Defense segment operating incomeincreased 90% and transportation systems segment operating income increased 17%compared to the first half of 2008. See the segment discussions following forfurther analysis of segment operating income.

 

Netincome for the second quarter of fiscal 2009 increased to $14.2 million, or 53cents per share, compared to $9.6 million, or 36 cents per share last year. For the first six months of the year, netincome increased to $28.4 million, or $1.06 per share, from $20.3 million, or76 cents per share last year. Net income increased for thefirst six months of this fiscal year as a result of the increase in operatingincome and the tax benefit described below, partially offset by a decrease ininvestment income resulting primarily from lower interest rates, as most of ourcash is now invested in government-backed obligations.

 

Selling, generaland administrative (SG&A) expenses increased in the second quarter thisyear to $29.4 million compared to $24.1 million last year. For the first sixmonths of the year SG&A expenses increased from $48.9 million in 2008 to$56.1 million this year. As a percentage of sales, SG&A expenses decreased from 11.8% to11.5%. About half of the increase in SG&A expenses for the six-month periodcame from Omega, including amortization of purchased intangibles of $2.8million. In addition, the defense segment made a provision of $3.1 million inthe second quarter for a receivable that is doubtful of collection, asdescribed in the defense segment section below. Company funded research anddevelopment expenditures were lower for the second quarter and first six monthscompared to last year and the focus shifted to transportation and securityrelated projects with less invested this year in defense related technologies.

 

Our projectedeffective tax rate for fiscal 2009 is 37.0% and is reflected in the taxprovision for the first six months. In addition, the tax expense provided forthe first half of the year benefited from a credit of approximately $0.8million recorded in the first quarter, that resulted from the retroactivereinstatement by the U.S. Congress of the R&E credit to January 1,2008. The effective rate for fiscal 2009 could be affected by, among otherfactors, the mix of business between the U.S. and foreign jurisdictions, ourability to take advantage of available tax credits and audits of our records bytaxing authorities.

 

13

----

 

**Defense Segment**

** **
| ** **                            | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                            | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                            | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **(in millions)**    | ** ** |
| **Defense  Segment Sales**            |       |                 |       |                   |       |   |   |   |   |
| Mission support  services             |       | $                    | 208.6      |                   | $          | 148.0 |   | $ | 104.8 |   | $ | 75.7 |   |
| Training systems                      |       | 114.6                |       | 113.4                  |       | 60.8 |   | 50.5 |   |
| Communications                        |       | 19.3                 |       | 17.6                   |       | 7.4 |   | 8.8 |   |
| Tactical systems  and other           |       | 1.0                  |       | 5.4                    |       | 0.7 |   | 3.2 |   |
|                                  |       | $                    | 343.5      |                   | $          | 284.4 |   | $ | 173.7 |   | $ | 138.2 |   |
|                                  |       |                 |       |                   |       |   |   |   |   |
| **Defense  Segment Operating Income** |       |                 |       |                   |       |   |   |   |   |
| Mission support  services             |       | $                    | 13.8       |                   | $          | 10.7 |   | $ | 6.3 |   | $ | 5.2 |   |
| Training systems                      |       | 9.9                  |       | 6.0                    |       | 3.8 |   | 0.5 |   |
| Communications                        |       | 1.6                  |       | (3.1                   | )          | 1.6 |   | (2.3 | ) |
| Tactical systems  and other           |       | (1.3                 | )          | (1.0                   | )          | (0.4 | ) | (0.6 | ) |
|                                  |       | $                    | 24.0       |                   | $          | 12.6 |   | $ | 11.3 |   | $ | 2.8 |   |

 

**MissionSupport Services**

 

Salesfrom Mission Support Services increased 38% to $104.8 million in the secondquarter of this year, from $75.7 million last year. For the first half of theyear, sales increased from $148.0 million last year to $208.6 million thisyear, a 41% increase. Of these increases in the second quarter and first sixmonths of the year, $12.2 million and $29.7 million, respectively, came fromOmega, the company acquired late last fiscal year. Higher sales in both thequarter and six-month periods also came from an increase in activity at theJoint Readiness Training Center (JRTC) in Fort Polk, LA. and from a contract atthe U.S. Army’s Quartermaster Center and School.

 

Mission Support Services operating income increased 21% to $6.3 millionin the second quarter of this year from $5.2 million last year. Results fromOmega were an operating loss of $0.3 million for the quarter after amortizationof purchased intangible assets and an accrual for other acquisition-relatedcosts, which together totaled $1.5 million. Higher sales from the JRTC resultedin higher operating income as well as improved performance from our operationsand maintenance business. These increases were partially offset by lowerprofits from our U.S. Marine Corp. program, as we started a new five yearcontract cycle late last year with lower margins than previously realized.

 

For the first six months of the year, Mission Support Servicesoperating income increased from $10.7 million last year to $13.8 million thisyear, an increase of 29%. Omega contributed $0.9 million of this increase, netof amortization of purchased intangible assets and an accrual for otheracquisition-related costs, which totaled $2.9 million for the period. Highersales from the JRTC contract and higher profit margins from operations andmaintenance contracts also contributed to the increase, as well as a contractmodification received in the first quarter that reimbursed us for out-of-scopecosts expensed last year, adding $1.2 million to operating income.

 

14

----

 

**TrainingSystems**

 

Trainingsystems sales increased from $50.5 million in the second quarter of last yearto $60.8 million this year, an increase of 20%. All of the increase can beattributed to higher sales of air combat training systems, including the U.S.government P5 contract, the Joint Strike Fighter contract and contracts in theFar East. Sales were lower from several ground combat training systems andelectro-optics (laser-based tactical engagement systems) contracts during thequarter, offset by an increase in sales of small arms training systems. For the first six months, trainingsystems sales were 1% higher than last year. Higher sales of air combattraining systems and small arms training systems were nearly offset bylower sales of ground combat training systems and related electro-optictraining systems.

 

Training systemsoperating income increased to $3.8 million in the second quarter this year from$0.5 million last year. Higher sales of air combat training systems and smallarms training systems added to operating profits for the quarter. Despite costgrowth of $1.8 million on an electro-optic system contract, overall performanceimproved from ground combat training and electro-optical contracts for thequarter compared to last year. Partially offsetting these profit improvementswas a $3.1 million allowance for doubtful accounts established during thequarter. A company through which we sold training systems products to the U.S.government in previous periods failed to pass on to us cash they collected fromthe government on our behalf. We were able to collect a portion of the moneythey owed us, however, the company appears to be in financial trouble andcollection of the remainder appears doubtful at this point, although wecontinue in our efforts to collect the full amount due.

 

Training systemsoperating income increased 65% from $6.0 million in the first half of last yearto $9.9 million this year. Higher sales of air combat training systems andsmall arms training systems resulted in a significant increase in operatingincome from those product lines for the period; however, this was partiallyoffset by the allowance for doubtful accounts and cost growth on theelectro-optics contract mentioned above.

 

**Communications**

 

Communicationssales were $7.4 million in the second quarter of 2009, a decrease of 16% from$8.8 million in the same quarter last year. Sales were higher for the quarterfrom data links and personnel locator systems but were lower from poweramplifiers. For the first half of the year, communications sales were $19.3million this year compared to $17.6 million last year, a 10% increase. Asettlement agreement reached in the first quarter with the U.S. Navy on a datalink development contract added $3.3 million to sales and facilitated progresstoward completion of the contract, further increasing sales for the six monthperiod. Lower sales of personnel locator systems and power amplifiers partiallyoffset the growth in data link sales for the first half of the year.

 

After breakingeven in the first quarter of this year, communications operating income for thesecond quarter was $1.6 million, compared to operating losses of $2.3 millionand $3.1 million in the second quarter and first half of last year,respectively. In addition to profitable data link spare parts sales this year,three data link contracts that had experienced cost growth in the first andsecond quarters last year generated operating income this year due to contractrestructurings and change orders received. Although power amplifier sales weresomewhat lower this year, improved profit margins resulted in little change inprofitability from the product line compared to last year. Lower sales ofpersonnel locator systems in the first six months of this year resulted in asmall loss for the product line compared to a small profit last year.

 

15

----

 

**Transportation Systems Segment**

 
| ** **                               | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                               | ** ** | **March 31,**   | ** ** | **March 31,**     | ** ** |
| ** **                               | ** ** | **2009**             | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                               | ** ** | **(in millions)**    | ** ** |
|                                     |       |                 |       |                   |       |   |   |   |   |
| Transportation  Segment Sales            |       | $                    | 143.0      |                   | $          | 128.6 |   | $ | 68.6 |   | $ | 72.1 |   |
|                                     |       |                 |       |                   |       |   |   |   |   |
| Transportation  Segment Operating Income |       | $                    | 22.5       |                   | $          | 19.2 |   | $ | 12.5 |   | $ | 11.9 |   |

 

Transportationsegment sales decreased from $72.1 million in the second quarter of last yearto $68.6 million this year, a decrease of 5%. For the six-month period, salesincreased 11%, from $128.6 million to $143.0 million. Sales increased in NorthAmerica from a fare collection development contract awarded last year and fromthe sale of spare parts. In the U.K., higher sales came primarily from sales totrain operating companies. A lower average exchange rate between the BritishPound and the U.S. Dollar in 2009 resulted in a decrease in the dollar value ofU.K. sales during the second quarter of $12.3 million compared to the rate ineffect in 2008. For the six-month period, the exchange rate difference impactedsales by $21.9 million.

 

Operatingincome from transportation systems increased 5% in the second quarter from$11.9 million last year to $12.5 million this year. Higher profits came fromimproved performance on contracts in North America, a favorable resolution of acontract dispute that added $1.2 million in the quarter and a currency exchangegain related to a contract in Sweden. The company had a hedge contract in placeto protect the Swedish contract value from currency fluctuations; however, becauseof delays in completion of the contract, this hedge position became classifiedas not highly effective and no longer qualifies for hedge accounting treatment.Due to a favorable exchange and interest rate environment, the result was arealized gain of $1.4 million from the foreign exchange contract during thequarter without a corresponding decrease in the value of the underlyingcontract. These increases in operating income for the quarter were partiallyoffset by a lower exchange rate between the British Pound and the U.S. Dollarwhich decreased the dollar value of U.K. operating income by $3.1 million whencompared to 2008 exchange rates.

 

Forthe first half of the year, transportation systems operating income improvedfrom $19.2 million in 2008 to $22.5 million this year, a 17% increase. Inaddition to the second quarter events described above, higher sales of spareparts added to operating income for the first six months and contractrestructuring agreements reached during the first quarter added a net $1.6million to operating income. As a result of one of the contract restructurings,we wrote off accounts receivable of $4.1 million against the associatedallowance for doubtful accounts, resulting in no impact on operating income.The lower British Pound vs. U.S. Dollar exchange rate impacted operating incomefor the first half of 2009 by $5.6 million, when comparing 2009 averageexchange rates to 2008 rates.

 

16

----

 

**Backlog**

 
| ** **                      | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|---------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                      | ** ** | **2009**           | ** ** | **2008**               | ** ** |
| ** **                      | ** ** | **(in millions)**  | ** ** |
| **Total  backlog**              |       |               |       |                   |       |
| Transportation  systems         |       | $                  | 625.8      |                   | $          | 480.6 |   |
| Defense:                        |       |               |       |                   |       |
| Mission support  services       |       | 828.4              |       | 880.0                  |       |
| Training systems                |       | 455.7              |       | 363.6                  |       |
| Communications  and electronics |       | 50.9               |       | 45.9                   |       |
| Tactical systems  and other     |       | 4.2                |       | 2.4                    |       |
| Total defense                   |       | 1,339.2            |       | 1,291.9                |       |
| Total                           |       | $                  | 1,965.0    |                   | $          | 1,772.5 |   |
|                            |       |               |       |                   |       |
| **Funded  backlog**             |       |               |       |                   |       |
| Transportation  systems         |       | $                  | 625.8      |                   | $          | 480.6 |   |
| Defense:                        |       |               |       |                   |       |
| Mission support  services       |       | 178.4              |       | 180.6                  |       |
| Training systems                |       | 455.7              |       | 363.6                  |       |
| Communications  and electronics |       | 50.9               |       | 45.9                   |       |
| Tactical systems  and other     |       | 4.2                |       | 2.4                    |       |
| Total defense                   |       | 689.2              |       | 592.5                  |       |
| Total                           |       | $                  | 1,315.0    |                   | $          | 1,073.1 |   |

 

As reflected inthe table above, total backlog increased $192.5 million at March 31, 2009compared to September 30, 2008. Transportation systems backlog increased$145.2 million and defense backlog increased $47.3 million during the firsthalf of the fiscal year. A new contract awarded by Transport for Londonadded approximately $244 million (£170 million) to transportation systems backlogduring the period, however, a lower exchange rate between the British Pound andthe U.S. Dollar as of March 31, 2009 decreased backlog by approximately$54 million compared to September 30, 2008. Funded backlog increased $241.9 million duringthe period, with transportation systems increasing $145.2 million and defensefunded backlog increasing by $96.7 million.

 

In defense, thedifference between total backlog and funded backlog represents options undermulti-year service contracts. Funding for these contracts comes from annualoperating budgets of the U.S. government and the options are normally exercisedannually. Options for the purchase of additional systems or equipment are notincluded in backlog until exercised nor are indefinite delivery, indefinitequantity contracts until an order is received.

 

17

----

 

###### **Liquidity and Capital Resources**

###### ** **

Operatingactivities provided cash of $80.6 million for the second quarter and $85.1million for the first half of the fiscal year. In addition to net income forthe period, customer advances and reductions in accounts receivable contributedto the positive cash flows. Positive operating cash flows came from both thetransportation systems and defense segments, with the greater portion comingfrom the defense segment.

 

Investing activities for the six-month period consisted of capitalexpenditures of $2.6 million, acquisition of a small transportation business inAustralia for $1.8 million, and the final payment related to our fiscal year2008 acquisition of Omega, amounting to $6.1 million.  Financing activities for the six-month periodconsisted of scheduled payments on our long-term debt of $5.7 million.

 

A significantly lower exchange rate between foreign currencies,especially the British Pound, and the U.S. Dollar resulted in a decrease of$14.5 million to our cash balance as of March 31, 2009 compared to September 30,2008, and a decrease to Accumulated Other Comprehensive Income of $15.6 millionduring the period. Although this does not directly impact liquidity, if theseexchange rates remain low or continue to decrease, there will be an impact onour sales and operating income, as noted in the transportation systems sectionabove. This may also influence our future decisions to pay dividends from ourforeign subsidiaries to the U.S. parent company and potentially decreaseworking capital available in the U.S.

 

While our pension plans in the U.S. and U.K. have ample funds to meetbenefit payments, current market conditions have negatively impacted assetvalues, which decreased nearly 20% from September 30, 2008 to March 31,2009. Future funding requirements will depend upon the funded status of theplans as of the next actuarial valuation date and for the U.S. plan will bepartially mitigated by temporary funding relief provided by the Worker, Retireeand Employer Recovery Act of 2008, enacted into law in December 2008. Weare not legally required to make any contributions to our U.S. plan and nosignificant additional contributions to our U.K. plan for the remainder offiscal 2009. However, in order to improve the funded status of our plans, wemay make additional voluntary contributions in 2009. Based on currentconditions, it is likely that our pension expense for fiscal 2010 will increaseover the current level.

 

Our financial conditionremains strong with working capital of $301.6 million and a current ratio of2.5 to 1 at March 31, 2009. We expect that cash on hand and our unusedlines of credit will be adequate to meet our liquidity requirements for theforeseeable future.

 

**Critical Accounting Policies, Estimates and Judgments**

 

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

 

18

 

Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

 

For furtherinformation, refer to the consolidated financial statements and notes theretoincluded in the Company’s annual report on Form 10-K for the year ended September 30,2008.

 

**CAUTIONARY STATEMENT ABOUTFORWARD-LOOKING INFORMATION**

 

This report,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 thenegatives of these words or phrases. These statements involve estimates, assumptions and uncertainties,including those discussed in “Risk Factors” in the Company’s annual report on Form 10-Kfor the year ended September 30, 2008, and throughout this filing thatcould cause actual results to differ materially from those expressed in thesestatements.

 

Because the riskfactors referred to above could cause actual results or outcomes to differmaterially from those expressed in any forward-looking statements made by us oron our behalf, you should not place undue reliance on any forward-lookingstatements.  In addition, past financial and/oroperating performance is not necessarily a reliable indicator of futureperformance and you should not use our historical performance to anticipateresults or future period trends. Further, any forward-looking statement speaks only as of the date onwhich it is made, and we undertake no obligation to update any forward-lookingstatement to reflect events or circumstances after the date on which thestatement is made or to reflect the occurrence of unanticipated events. Newfactors emerge from time to time, and it is not possible for us to predictwhich factors will arise. In addition, we cannot assess the impact of eachfactor on our business or the extent to which any factor, or combination offactors, may cause actual results to differ materially from those contained inany forward-looking statements.

 

19

----

 

ITEM 4 - STATEMENT ONDISCLOSURE CONTROLS AND PROCEDURES.

 

Wemaintain disclosure controls and procedures, including internal control overfinancial reporting, which are designed to ensure that information required tobe disclosed in our periodic filings with the SEC is reported within the timeperiods specified in the SEC’s rules and forms, and to provide reasonableassurance that assets are safeguarded and transactions are properly executedand recorded. Our disclosure controls and procedures are also designed toensure that information is accumulated and communicated to our management,including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO),as appropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating such controls and procedures, we recognize that anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives, andmanagement necessarily is required to use its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

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.

 

Weperformed an evaluation of the effectiveness of our disclosure controls andprocedures as of March 31, 2009. 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 March 31, 2009.

 

TheCompany has made changes to its internal control over financial reporting inconnection with a transition to a new accounting software system in its MissionSupport Services business. During fiscal 2009, the Company establishedadditional temporary compensating controls to support the Company’s internalcontrol over financial reporting while the transition to the new accountingsoftware system is in process. The Company expects to maintain certain of theseadditional temporary compensating controls until implementation of the newsystem is complete. Except for those made in connection with the new accountingsoftware system, there were no other changes in the Company’s internal controlover financial reporting during the quarter ended March 31, 2009 that havematerially affected, or are reasonably likely to materially affect, itsinternal control over financial reporting.

 

20

----

 

**PART II - OTHER INFORMATION**

 

ITEM 4 – SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

 

The Company held its annual meeting of shareholders on February 24,2009.  Matters voted upon were (1) electionof directors and (2) ratification of the Board’s selection of Ernst &Young LLP as the Company’s independent auditors for the fiscal year ending September 30,2009.

 

The number of votes cast for, against or withheld, with respect to eachmatter are set out below.

 

1.  Election of Directors

 
| **Director**                            | ** ** | **For**    | ** ** | **Against** | ** ** | **Withheld** | ** ** |
|-----------------------------------------|------------|------------|------------|-------------|------------|--------------|------------|
| Walter J. Zable                         |       | 24,931,779 |       | —      |       | 414,309      |       |
| Walter C. Zable                         |       | 24,854,534 |       | —      |       | 491,554      |       |
| Bruce G. Blakley                        |       | 25,011,814 |       | —      |       | 334,275      |       |
| William W. Boyle                        |       | 24,040,689 |       | —      |       | 1,305,399    |       |
| Raymond L. deKozan                      |       | 24,838,561 |       | —      |       | 507,527      |       |
| Edwin A. Guiles                         |       | 25,011,804 |       | —      |       | 334,285      |       |
| Raymond E. Peet                         |       | 24,955,718 |       | —      |       | 390,371      |       |
| Robert S. Sullivan                      |       | 25,018,841 |       | —      |       | 327,247      |       |
| John H. Warner, Jr.                |       | 25,011,071 |       | —      |       | 335,017      |       |
|                                    |       |       |       |        |       |         |       |
| ** **                              | ** ** | **For**    | ** ** | **Against** | ** ** | **Abstain**  | ** ** |
| 2. Ratification of Independent Auditors |       | 25,218,423 |       | 115,893     |       | 11,772       |       |

 

21

----

 

**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. 1-8931, Exhibit 3.1. |
| 3.2                  |       | Bylaws. Incorporated by reference to  Form 10-K filed for the fiscal year ended September 30, 2004, file  No. 1-8931, 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. 1-8931, 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. 1-8931, Exhibit 10.2.  |
| 10.3                 |       | Credit Agreement dated March 10, 2005.  Incorporated by reference to Form 10-Q for the quarter ended  March 31, 2005, file No. 1-8931, Exhibit 10.          |
| 10.4                 |       | Revised Deferred Compensation Plan. Incorporated  by reference to Form 10-Q for the quarter ended March 31, 2008,  file No. 1-8931, Exhibit 10.4                 |
| 10.5                 |       | Compensatory Arrangements of Certain Officers.  Incorporated by reference to Form 8-K filed February 5, 2009, file  No. 1-8931                                        |
| 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                                                                                                                                                                    |

 

22

----

 

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   | May 5,  2009 |                                     | /s/ William W.  Boyle |
|   |              | William  W. Boyle                        |
|   |              | Senior  Vice President and CFO           |
|   |              |                                     |
|   |              |                                     |
| Date   | May 5,  2009 |                                     | /s/ Mark A. Harrison |
|   |              | Mark  A. Harrison                        |
|   |              | Vice  President and Corporate Controller |

 

23

----