**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

** **

**Pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934**

** **

**For the Quarter Ended December 31, 2007**

 

**1-8931**

**Commission File Number**

 

##### **CUBIC CORPORATION**

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 markwhether the Registrant (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 the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2of the Exchange Act).

 

| Large accelerated filer o |   | Accelerated filer x |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12-b-2of the Exchange Act).

Yes o    No x

 

As of January 23, 2008, registrant had only one class of commonstock of which there were 26,724,163 shares outstanding (after deducting8,945,066 shares held as treasury stock).

 

 

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**PART I - FINANCIALINFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

 

### **CUBIC CORPORATION**

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, exceptper share data)

 
| ** **                                    | ** ** | **Three Months Ended**                            | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **December 31,**                             | ** ** |
| ** **                                    | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands, except per share data)** | ** ** |
| Net sales:                                    |       |                                              |       |   |   |
| Products                                      |       | $                                                 | 112,347    |   | $ | 120,959 |   |
| Services                                      |       | 90,375                                            |       | 81,976 |   |
|                                          |       | 202,722                                           |       | 202,935 |   |
|                                          |       |                                              |       |   |   |
| Costs and expenses:                           |       |                                              |       |   |   |
| Products                                      |       | 84,190                                            |       | 99,089 |   |
| Services                                      |       | 74,891                                            |       | 68,164 |   |
| Selling, general  and administrative          |       | 24,779                                            |       | 23,210 |   |
| Research and  development                     |       | 1,774                                             |       | 781 |   |
|                                          |       | 185,634                                           |       | 191,244 |   |
|                                          |       |                                              |       |   |   |
| Operating income                              |       | 17,088                                            |       | 11,691 |   |
|                                          |       |                                              |       |   |   |
| Other income  (expense):                      |       |                                              |       |   |   |
| Interest and  dividends                       |       | 1,521                                             |       | 434 |   |
| Interest expense                              |       | (732                                              | )          | (744 | ) |
| Other income  (expense)                       |       | (306                                              | )          | 482 |   |
| Minority  interest in loss of subsidiary      |       | 5                                                 |       | 262 |   |
|                                          |       |                                              |       |   |   |
| Income before income taxes                    |       | 17,576                                            |       | 12,125 |   |
|                                          |       |                                              |       |   |   |
| Income taxes                                  |       | 6,900                                             |       | 3,800 |   |
|                                          |       |                                              |       |   |   |
| Net income                                    |       | $                                                 | 10,676     |   | $ | 8,325 |   |
|                                          |       |                                              |       |   |   |
| Basic and diluted net income per common share |       | $                                                 | 0.40       |   | $ | 0.31 |   |
| Average number of common shares outstanding   |       | 26,722                                            |       | 26,720 |   |

 

*See accompanying notes.*

 

2

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**CUBIC CORPORATION**

CONDENSED CONSOLIDATED BALANCESHEETS

(in thousands)

 
| ** **                                      | ** ** | ** **                  | ** ** | ** **                   | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **December 31,  2007** | ** ** | **September 30,  2007** | ** ** |
| ** **                                      | ** ** | **(Unaudited)**             | ** ** | **(See note below)**         | ** ** |
| **ASSETS**                                      | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Current assets:                                 |       |                        |       |                         |       |
| Cash and cash  equivalents                      |       | $                           | 119,082    |                         | $          | 73,563 |   |
| Short-term  investments                         |       | —                      |       | 27,200                       |       |
| Accounts  receivable - net                      |       | 267,776                     |       | 305,672                      |       |
| Inventories                                     |       | 32,456                      |       | 27,342                       |       |
| Deferred income  taxes and other current assets |       | 36,428                      |       | 39,597                       |       |
| Total current assets                            |       | 455,742                     |       | 473,374                      |       |
|                                            |       |                        |       |                         |       |
| Long-term contract receivables                  |       | 32,100                      |       | 16,650                       |       |
| Property, plant and equipment - net             |       | 56,908                      |       | 57,251                       |       |
| Goodwill                                        |       | 35,853                      |       | 36,003                       |       |
| Other assets                                    |       | 14,800                      |       | 9,287                        |       |
|                                            |       | $                           | 595,403    |                         | $          | 592,565 |   |
|                                            |       |                        |       |                         |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Current liabilities:                            |       |                        |       |                         |       |
| Trade accounts  payable                         |       | $                           | 19,166     |                         | $          | 27,992 |   |
| Customer  advances                              |       | 74,508                      |       | 58,412                       |       |
| Other current  liabilities                      |       | 57,863                      |       | 69,970                       |       |
| Income taxes  payable                           |       | 727                         |       | 4,905                        |       |
| Current portion  of long-term debt              |       | 6,121                       |       | 6,138                        |       |
| Total current liabilities                       |       | 158,385                     |       | 167,417                      |       |
|                                            |       |                        |       |                         |       |
| Long-term debt                                  |       | 26,911                      |       | 32,699                       |       |
| Other long-term liabilities                     |       | 20,117                      |       | 9,678                        |       |
|                                            |       |                        |       |                         |       |
| Shareholders’ equity:                      |       |                        |       |                         |       |
| Common stock                                    |       | 12,400                      |       | 12,357                       |       |
| Retained  earnings                              |       | 383,499                     |       | 375,299                      |       |
| Accumulated  other comprehensive income         |       | 30,160                      |       | 31,184                       |       |
| Treasury stock  at cost                         |       | (36,069                     | )          | (36,069                      | )          |
|                                            |       | 389,990                     |       | 382,771                      |       |
|                                            |       | $                           | 595,403    |                         | $          | 592,565 |   |

 

*Note: The balance sheet at September 30, 2007 has been derivedfrom the audited financial statements at that date.*

# *See accompanying notes.*

# * *

3

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**CUBICCORPORATION**

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                   | ** ** | **December 31,**  | ** ** |
| ** **                                                                                   | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Operating Activities:                                                                        |       |                   |       |   |   |
| Net income                                                                                   |       | $                      | 10,676     |   | $ | 8,325 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                   |       |   |   |
| Depreciation and  amortization                                                               |       | 2,106                  |       | 2,341 |   |
| Changes in  operating assets and liabilities                                                 |       | 14,038                 |       | (15,322 | ) |
| NET CASH  PROVIDED BY (USED IN) OPERATING ACTIVITIES                                         |       | 26,820                 |       | (4,656 | ) |
|                                                                                         |       |                   |       |   |   |
| Investing Activities:                                                                        |       |                   |       |   |   |
| Net additions to  property, plant and equipment                                              |       | (1,828                 | )          | (1,856 | ) |
| Proceeds from  sales of marketable securities                                                |       | 66,300                 |       | 76,302 |   |
| Purchases of  marketable securities                                                          |       | (39,100                | )          | (67,428 | ) |
| NET CASH  PROVIDED BY INVESTING ACTIVITIES                                                   |       | 25,372                 |       | 7,018 |   |
|                                                                                         |       |                   |       |   |   |
| Financing Activities:                                                                        |       |                   |       |   |   |
| Change in  short-term borrowings, net                                                        |       | —                 |       | (10,000 | ) |
| Principal  payments on long-term borrowings                                                  |       | (5,605                 | )          | (5,596 | ) |
| Other                                                                                        |       | 43                     |       | — |   |
| NET CASH USED IN  FINANCING ACTIVITIES                                                       |       | (5,562                 | )          | (15,596 | ) |
|                                                                                         |       |                   |       |   |   |
| Effect of exchange rates on cash                                                             |       | (1,111                 | )          | 617 |   |
|                                                                                         |       |                   |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                        |       | 45,519                 |       | (12,617 | ) |
|                                                                                         |       |                   |       |   |   |
| Cash and cash  equivalents at the beginning of the period                                    |       | 73,563                 |       | 42,380 |   |
|                                                                                         |       |                   |       |   |   |
| CASH AND CASH  EQUIVALENTS AT THE END OF THE PERIOD                                          |       | $                      | 119,082    |   | $ |  29,763 |   |
|                                                                                         |       |                   |       |   |   |
|                                                                                              |            |                        |            |  |  |  |  |  |  |

# *See accompanying notes.*

 

4

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# ***CUBIC CORPORATION***

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS

(UNAUDITED)

 

December 31, 2007

 

**Note1 — Basis for Presentation**

** **

The accompanying unaudited consolidated condensed financial statementshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Qand 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 the opinion of management, all adjustments considered necessary fora fair presentation have been included. Operating results for the three monthperiod ended December 31, 2007 are not necessarily indicative of theresults that may be expected for the year ending September 30, 2008. Forfurther information, refer to the consolidated financial statements andfootnotes thereto included in the Company’s annual report on Form 10-K forthe year ended September 30, 2007.

 

The preparation of the financial statements in conformity with U. S.generally accepted accounting principles requires management to make estimatesand assumptions 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 ofaccounts receivable are as follows (in thousands):

 
| ** **                               | ** ** | **December 31,** | ** ** | **September 30,**   | ** ** |
|------------------------------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **2007**              | ** ** | **2007**                 | ** ** |
|                                     |       | **(unaudited)**       |       |                     |       |
| Trade and other receivables              |       | $                     | 8,753      |      | $          | 13,024 |   |
| Long-term contracts:                     |       |                  |       |                     |       |
| Billed                                   |       | 68,677                |       | 101,054                  |       |
| Unbilled                                 |       | 227,601               |       | 213,388                  |       |
| Allowance for doubtful accounts          |       | (5,155                | )          | (5,144                   | )          |
| Total accounts  receivable               |       | 299,876               |       | 322,322                  |       |
| Less estimated amounts not currently due |       | (32,100               | )          | (16,650                  | )          |
| Current accounts  receivable             |       | $                     | 267,776    |                     | $          | 305,672 |   |

 

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 December 31, 2007under transportation systems contracts in the U.S., Australia and the U.K. anda defense contract in Canada. The non-current balance at September 30,2007 represented non-current amounts due from the same contracts.

 

5

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

 

 

Inventoriesconsist of the following (in thousands):

 
| ** **                                                       | ** ** | **December 31, 2007** | ** ** | **September 30, 2007** | ** ** |
|------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **(unaudited)**            | ** ** | ** **                  | ** ** |
| Finished products                                                |       | $                          | 223        |                        | $          | 240 |   |
| Work in process  and inventoried costs under long-term contracts |       | 29,521                     |       | 25,005                      |       |
| Raw material and purchased parts                                 |       | 2,712                      |       | 2,097                       |       |
| Total  inventories                                               |       | $                          | 32,456     |                        | $          | 27,342 |   |

 

 

At December 31,2007, work in process and inventoried costs under long-term contracts includesapproximately $5.3 million in costs incurred in advance of contract award oroutside the scope of work on several contracts in the defense segment.Management believes it is probable that these costs, plus appropriate profitmargin, will be recovered under contract change orders or upon the award of newcontracts within the next year.

 

Such costs were $8.4million as of September 30, 2007. Of this amount, $5.7 million has beenreclassified from Work in Process and Inventoried Costs Under Long-termContracts to Other Assets (non-current) as of December 31, 2007. Thecompany has submitted a claim to the Armed Services Board of Contract Appealsrelated to these costs and a trial date is set for January 2009.Management believes it is probable that these costs, plus appropriate profitmargin, will be recovered through this contract claims process.

 

**Note 3 — Comprehensive Income**

 

Comprehensiveincome is as follows (in thousands):

 

| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | **December 31,**  | ** ** |
| ** **                                | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Net income                                |       | $                      | 10,676     |   | $ | 8,325 |   |
| Foreign currency translation adjustments  |       | (1,058                 | )          | 4,120 |   |
| Net unrealized loss from cash flow hedges |       | 34                     |       | 11 |   |
| Comprehensive income                      |       | $                      | 9,652      |   | $ | 12,456 |   |

 

6

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**Note 4 — Segment Information**

Businesssegment financial data is as follows (in millions):

 

| ** **                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------|------------|------------------------|------------|
| ** **                   | ** ** | **December 31,**  | ** ** |
| ** **                   | ** ** | **2007**               | ** ** | **2006** | ** ** |
| **Sales:**                   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Defense                      |       | $                      | 146.2      |   | $ | 143.3 |   |
| Transportation systems       |       | 56.5                   |       | 56.0 |   |
| Corporate and other          |       | —                 |       | 3.6 |   |
| Total sales                  |       | $                      | 202.7      |   | $ | 202.9 |   |
|                         |       |                   |       |   |   |
| **Operating income (loss):** | ** ** | ** **             | ** ** | ** ** | ** ** |
| Defense                      |       | $                      | 9.8        |   | $ | 9.5 |   |
| Transportation systems       |       | 7.3                    |       | 2.3 |   |
| Corporate and other          |       | —                 |       | (0.1 | ) |
| Total operating  income      |       | $                      | 17.1       |   | $ | 11.7 |   |

 

 

**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 December 31, 2007, there were no borrowings under this agreement;however, there were letters of credit outstanding under the agreement totaling$11.2 million.

 

 

**Note 6 — Pension Plans**

 

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

 

| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **December 31,**  | ** ** |
| ** **                     | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Service cost                   |       | $                      | 888        |   | $ | 2,254 |   |
| Interest cost                  |       | 2,518                  |       | 2,406 |   |
| Expected return on plan assets |       | (3,261                 | )          | (2,844 | ) |
| Amortization of:               |       |                   |       |   |   |
| Prior service  cost            |       | —                 |       | 3 |   |
| Actuarial loss  (gain)         |       | (53                    | )          | 118 |   |
| Administrative expenses        |       | 30                     |       | 25 |   |
| Net pension cost               |       | $                      | 122        |   | $ | 1,962 |   |

 

7

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**Note 7 — New Accounting Pronouncements**

### ** **

Effective October 1, 2007, the Company adopted FASB InterpretationNo. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48prescribes a more-likely-than-not threshold for financial statement recognitionand measurement of a tax position taken or expected to be taken in a tax return.This interpretation also provides guidance in de-recognition of income taxassets and liabilities, classification of current and deferred income taxassets and liabilities, accounting for interest and penalties associated withtax positions, accounting for income taxes in interim periods and income taxdisclosures. The cumulative effects of applying this interpretation have beenrecorded as a decrease of $2.5 million to retained earnings and an increase of$2.5 million to net deferred income tax assets as of October 1, 2007.

 

The liability for unrecognized tax benefits, exclusive of interest, was$10 million at October 1, 2007, of which $3.9 million, if recognized,would affect the effective tax rate. We recorded no change to the unrecognizedtax benefits as of December 31, 2007. In conjunction with the adoption ofFIN 48, we have classified uncertain tax positions as noncurrent income taxliabilities unless expected to be paid in one year.

 

The Company continues to report income tax-related interest income orexpense and penalties in income tax expense in the Condensed ConsolidatedStatement of Income. As of October 1, 2007 and December 31, 2007, thetotal amount of accrued income tax-related interest and penalties included inthe Condensed Consolidated Balance Sheets was $0.8 million and $0.9 million,respectively.

 

The Company is subject to examination in the U.S. federal taxjurisdiction for the 2004 - 2007 tax years. The Company is also subject toexamination in the U.K. for the 2003 - 2007 tax years. In addition, the Companyis subject to examination in various state and foreign jurisdictions for the2004 - 2007 tax years, none of which were individually material. The Companybelieves appropriate provisions for all outstanding issues have been made forall jurisdictions and all open years.

 

Approximately $1.4million of unrecognized tax benefits relate to items that are affected byexpiring statute of limitations within the next 12 months. Of this amount,approximately $1.0 million, if recognized, would affect the effectivetax rate.

 

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.” SFAS 157 defines fair value, establishes a frameworkand gives guidance regarding the methods used for measuring fair value, andexpands disclosures about fair value measurements. SFAS 157 is effective forfinancial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company is currentlyevaluating the impact of SFAS 157 on its consolidated results of operations andfinancial position.

 

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities — Including an Amendment of FASB Statement No. 115*,which is effective for fiscal years beginning after November 15, 2007.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 Company is currentlyevaluating the potential impact of SFAS 159 on its consolidated results ofoperations and financial position.

 

8

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**Note 7 — New Accounting Pronouncements - Continued**

 

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations (revised 2007)*,which is effective for fiscal years beginning after December 15, 2008.This revised statement is intended to simplify existing guidance andconverge rulemaking under U.S. generally accepted accounting principles (GAAP)with international accounting rules. TheCompany is currently evaluating the potential impact of SFAS 141(R) on itsconsolidated results of operations and financial position.

 

In December 2007, the FASB also issued SFAS No. 160,*Noncontrolling Interests in Consolidated FinancialStatements*, which is effective for fiscal years beginning after December 15,2008. This statement requires all entities to report noncontrolling(minority) interests in subsidiaries as equity in the consolidated financialstatements. The Company is currentlyevaluating the potential impact of SFAS 160 on its consolidated results ofoperations and financial position.

 

9

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**CUBIC CORPORATION**

ITEM 2 - MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OFOPERATIONS

 

December 31, 2007

 

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, distributed interactive simulation, developmentof military training doctrine, force modernization services for NATOentrants and field operations andmaintenance. Our communications products are aimed at intelligence,surveillance, and search and rescue markets.

 

Our transportation systems segment develops anddelivers innovative fare collection systems for public transit authoritiesworldwide. We provide hardware, software and multi-agency, multimodaltransportation integration technologies and services that allow the agencies toefficiently collect fares, manage their operations, reduce shrinkage and makeusing public transit a more convenient and attractive option for commuters.

 

 

**Consolidated Overview**

Salesfor the quarter ended December 31, 2007 were flat compared to the firstfiscal quarter last year at $202.7 million compared to $202.9 million. Defensesales increased about 2% compared to last year, while transportation systemssales increased less than 1%. Last year’s first quarter included sales of $3.7million from the corrugated box business we sold in the fourth quarter of 2007.The elimination of sales from that business offset the increases in sales fromour defense and transportation systems segments.

 

Operatingincome increased to $17.1 million in the quarter compared to $11.7 million inthe first quarter last year, an increase of 46%. Defense operating incomeincreased about 3%, commensurate with the increase in sales. Transportationsystems operating income increased significantly over the relatively low levellast year. See the segment discussions following for further analysis ofsegment sales and operating income.

 

Net income for the first quarter of fiscal 2008 increased to $10.7million, or 40 cents per share, compared to $8.3 million, or 31 cents pershare, last year as a result of the increase in operating income. Net incomewas impacted by higher income tax expense. See following discussion oneffective tax rate.

 

10

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Selling, generaland administrative (SG&A) expenses increased in the first quarter this yearcompared to last year, increasing from $23.2 million in the first quarter lastyear to $24.8 million this year. As a percentage of sales, SG&A expenses increasedfrom 11.4% to 12.2%. SG&A expenses increased in both segments due primarilyto increased selling expenses incurred for new contract proposals. Research anddevelopment expense also increased in the first quarter this year, primarily inthe defense segment relating to advanced programs dealing with opticaltechnologies.

 

Ourprojected effective tax rate for fiscal 2008 is 39.0%. The projected effectiverate for fiscal 2008 is higher than last year’s first quarter effective rate of35.5% due to the expiration of the U.S. Research and Experimentation credit asof December 31, 2007. The rate is also higher because we are projectinghigher earnings in the U.K. and are required to provide U.S. taxes on theearnings which we do not consider to be permanently reinvested as they may berepatriated in the form of dividends. The effective rate for fiscal 2008 couldbe affected by, among other factors, the mix of business between the U.S. andforeign jurisdictions, our ability to take advantage of available tax credits andaudits of our records by taxing authorities.

 

**Defense Segment**

 

| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **December 31,**  | ** ** |
| ** **                            | ** ** | **2007**               | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(in millions)**      | ** ** |
| **Defense Segment Sales**             | ** ** | ** **             | ** ** | ** ** | ** ** |
| Mission support services (MSBU)       |       | $                      | 72.3       |   | $ | 67.1 |   |
| Readiness systems (RSBU)              |       | 62.9                   |       | 59.0 |   |
| Communications and electronics (CEBU) |       | 8.8                    |       | 14.8 |   |
| Tactical systems and other            |       | 2.2                    |       | 2.4 |   |
|                                  |       | $                      | 146.2      |   | $ | 143.3 |   |
|                                  |       |                   |       |   |   |
| **Defense Segment Operating Income**  | ** ** | ** **             | ** ** | ** ** | ** ** |
| Mission support services (MSBU)       |       | $                      | 5.5        |   | $ | 5.0 |   |
| Readiness systems (RSBU)              |       | 5.5                    |       | 4.0 |   |
| Communications and electronics (CEBU) |       | (0.8                   | )          | 1.0 |   |
| Tactical systems and other            |       | (0.4                   | )          | (0.5 | ) |
|                                  |       | $                      | 9.8        |   | $ | 9.5 |   |

 

Defense segment sales increased 2%, from $143.3 millionin the first quarter of fiscal 2007 to $146.2 million in the first quarter thisyear. The growth came from both the MSBU and the RSBU, while CEBU salesdecreased compared to last year. Operating income in the defense segment improved inthe first quarter to $9.8 million compared to $9.5 million in the first quarterof fiscal 2007, a 3% increase. RSBU and MSBU operating income improved overlast year, while CEBU incurred a loss for the first quarter this year comparedto a profit last year.

 

11

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**Mission Support Services (MSBU)**

MSBU sales increased 8% to $72.3 million in the firstquarter this year, compared to $67.1 million last year. Higher sales fromtraining and exercise support activities for the U.S. Army and Marine Corps,the win of a contract to support the US Army’s Quartermaster Center and Schoolas well as increased support to the Defense Threat Reduction Agency contributedto the increase in sales.

 

Mission support services operating incomeincreased 10% from $5.0 million in the first quarter last year to $5.5 millionthis year due primarily to the increase in sales described above and higheroperating income from one of the Marine Corps programs mentioned above.

 

 

**Readiness Systems (RSBU)**

RSBU sales increased from $59.0 million in the firstquarter last year to $62.9 million this year, a 7% increase. The increase isdue primarily to work that began during the quarter on a new contract todevelop an on-board air combat training system for the Joint Strike Fighter.Sales of the transportable, deployable ground combat training system, known asI-HITS and small arms training systems also increased over the first quarter oflast year. Partially offsetting these increases was a decrease in ground combatsystem sales to customers in the Far East and Canada.

 

Training systemsoperating income improved from $4.0 million in the first quarter last year to$5.5 million this year, a 38% increase. Higher air combat training, I-HITS and small arms training sales helped to improve operating income. Operating income from theMILES product line was down for the quarter due to cost growth of $1 million ona contract for the development of the next generation of MILES equipment. Inaddition, the business unit incurred additional costs during the quarter ofapproximately $0.3 million at its San Diego facility due to a two day shutdownduring the San Diego fires in October 2007.

 

 

**Communications and Electronics (CEBU)**

Sales from CEBU were $8.8 million in the first quarter of2008, down from $14.8 million in the same quarter last year, a 41% decrease.Sales decreased from contracts for the supply of data links for unmanned aerialvehicles in the U.S. and U. K. and a data link contract for the Navy was nearlycompleted, yielding lower sales as well. Sales of power amplifiers and othercommunications products also decreased, while sales of personnel locatorsystems increased compared to last year.

 

CEBU incurred anoperating loss of $0.8 million for the first quarter this year compared tooperating income of $1.0 million last year. Cost growth on a data link contractfor unmanned aerial vehicles in the U.K., due primarily to schedule slip by amajor subcontractor, impacted profitability by $1.2 million during the quarterwhen compared to last year. The company may be able to recover some or all ofits increased costs caused by the subcontractor; however, the amount of anypotential cost recovery cannot be determined at this time and therefore thesecosts have been expensed. Lower sales of other data link products and poweramplifiers also resulted in lower operating income. This was partially offsetby increased operating income from sales of personnellocator systems. CEBU was also impacted by the shutdown associated with the SanDiego fires and incurred related costs of approximately $0.1 million.

 

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** **

**Transportation Systems Segment**

 

| ** **                              | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **December 31,**  | ** ** |
| ** **                              | ** ** | **2007**               | ** ** | **2006** | ** ** |
| ** **                              | ** ** | **(in millions)**      | ** ** |
|                                    |       |                   |       |   |   |
| Transportation Segment Sales            |       | $                      | 56.5       |   | $ | 56.0 |   |
|                                    |       |                   |       |   |   |
| Transportation Segment Operating Income |       | $                      | 7.3        |   | $ | 2.3 |   |

 

Transportationsegment sales increased slightly from $56.0 million in the first quarter lastyear to $56.5 million in the first quarter of this fiscal year. Sales fromsystem installation contracts in North America and Australia were lower,although this decrease was partially offset by higher sales of spare parts toU.S. customers. Sales increased due to added work on the Prestige contract inLondon, and due to a higher average exchange rate between the British Pound andthe U.S. Dollar in the current quarter compared to last year’s first quarter,which added approximately $2 million.

 

Operatingincome from transportation systems in the first quarter improved to $7.3million compared to $2.3 million last year. Last year’s first quarter resultsincluded a loss provision of $3.9 million on a contract in Sweden. In addition,operating income from the Prestige contract in London improved during the firstquarter this year compared to last year, due to higher sales volume and animproved profit margin on the contract. The first quarter last year included acontract settlement that added a net of $1.3 million to operating income forthe quarter, while this year’s first quarter did not included such asettlement.

 

**Backlog**

As reflected inthe table below, total backlog decreased approximately $67 million at December 31,2007 compared to September 30, 2007. Transportation systems backlogdecreased $8 million, while defense backlog decreased $59 million during thequarter. Fundedbacklog decreased $10 million during the quarter, with transportation systemsdecreasing $8 million and defense funded backlog decreasing by $2 million.

 

 

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| ** **                      | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|---------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                      | ** ** | **2007**              | ** ** | **2007**               | ** ** |
|                            |       | **(in  millions)**    |       |
| **Total backlog**               | ** ** | ** **            | ** ** | ** **             | ** ** |
| Transportation  systems         |       | $                     | 779.0      |                   | $          | 787.3 |   |
| Defense:                        |       |                  |       |                   |       |
| Mission support  services       |       | 712.9                 |       | 776.6                  |       |
| Readiness  systems              |       | 390.4                 |       | 383.4                  |       |
| Communications  and electronics |       | 55.1                  |       | 56.4                   |       |
| Tactical systems  and other     |       | 29.6                  |       | 30.6                   |       |
| Total defense                   |       | 1,188.0               |       | 1,247.0                |       |
| Total                           |       | $                     | 1,967.0    |                   | $          | 2,034.3 |   |
|                            |       |                  |       |                   |       |
|                            |       |                  |       |                   |       |
| ** **                      | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
| ** **                      | ** ** | **2007**              | ** ** | **2007**               | ** ** |
| ** **                      | ** ** | **(in  millions)**    | ** ** |
| **Funded backlog**              | ** ** | ** **            | ** ** | ** **             | ** ** |
| Transportation  systems         |       | $                     | 779.0      |                   | $          | 787.3 |   |
| Defense:                        |       |                  |       |                   |       |
| Mission support  services       |       | 124.7                 |       | 131.2                  |       |
| Readiness  systems              |       | 390.4                 |       | 383.4                  |       |
| Communications  and electronics |       | 55.1                  |       | 56.4                   |       |
| Tactical systems  and other     |       | 29.6                  |       | 30.6                   |       |
| Total defense                   |       | 599.8                 |       | 601.6                  |       |
| Total                           |       | $                     | 1,378.8    |                   | $          | 1,388.9 |   |

 

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.

 

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

Operatingactivities provided cash of $26.8 million for the first three months of thefiscal year. In addition to net income for the period, customer advances andreductions in accounts receivable and prepaid expenses contributed to thepositive cash flows. Positive operating cash flows came from both thetransportation systems and defense segments, with the majority coming from thedefense systems segment.

 

Investing activities for the three-month period included capitalexpenditures of $1.8 million and net positive cash flows from the liquidationof short-term investments of $27.2 million. In light of the turmoil in thecredit market, we made a portfolio shift to shorter duration investments.

 

 

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Financing activities for the first three months included scheduledpayments on our long-term debt of $5.6 million.

 

Our financial conditionremains strong with working capital of $297.4 million and a current ratio of2.9 to 1 at December 31, 2007. 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.

 

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. Refer to Note 7 for discussion of the Company’s implementation of FIN 48, which has affected the method for calculating income tax liabilities.

 

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 30,2007.

 

**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 future financialand/or operating performance are not historical and may be forward-looking.These statements are often, but not always, made through the use of words orphrases 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 or phrases.  These statements involve estimates,assumptions and uncertainties, including those discussed in “Risk Factors” inthe Company’s annual report on Form 10-K for the year ended September 30,2007, and throughout this filing that could cause actual results to differmaterially from those expressed in these statements.

 

 

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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 financialand/or operating 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.

 

ITEM 4 - STATEMENT ON DISCLOSURE CONTROLS ANDPROCEDURES.

 

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), asappropriate, 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 December 31, 2007. 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 December 31, 2007.

 

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) Thefollowing 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                 |       | Deferred Compensation Plan Summary. Incorporated  by reference to Form 8-K filed April 6, 2005, file No. 1-8931,  Exhibit 10.                                    |
| 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 therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   |                  |   | CUBIC CORPORATION             |
|--------|-----------------------|--------|-------------------------------|
|   |                  |   |                          |
|   |                  |   |                          |
| Date   | February 5, 2008 |   | /s/ William W. Boyle          |
|   |                  |   | William W. Boyle              |
|   |                  |   | Senior Vice President and CFO |
|   |                  |   |                          |
| Date   | February 5, 2008 |   | /s/ Mark A. Harrison          |
|   |                  |   | Mark A. Harrison              |
|   |                  |   | Vice President and Controller |

 

 

 

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