**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

 

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

 

**For the Quarter Ended December 31, 2008**

 

**1-8931**

**Commission File Number**

 

##### **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 the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months, and (2) hasbeen subject to such filing requirements for the past 90 days.

 
| Yes x |   | No o |
|-------|--------|------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-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-2of the Exchange Act).
| Yes o |   | No x |
|-------|--------|------|

 

As of January 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).

 

 

 

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**PART I - FINANCIAL INFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

 

### **CUBIC CORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)

(amounts in thousands, except per share data)

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **December 31,**            | ** ** |
| ** **                                     | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                           |       |                             |       |   |   |
| Net sales:                                     |       |                             |       |   |   |
| Products                                       |       | $                                | 123,077    |   | $ | 112,347 |   |
| Services                                       |       | 121,774                          |       | 90,375 |   |
|                                           |       | 244,851                          |       | 202,722 |   |
|                                           |       |                             |       |   |   |
| Costs and  expenses:                           |       |                             |       |   |   |
| Products                                       |       | 94,984                           |       | 84,190 |   |
| Services                                       |       | 100,231                          |       | 74,891 |   |
| Selling, general  and administrative           |       | 26,646                           |       | 24,779 |   |
| Research and  development                      |       | 1,860                            |       | 1,774 |   |
|                                           |       | 223,721                          |       | 185,634 |   |
|                                           |       |                             |       |   |   |
| Operating income                               |       | 21,130                           |       | 17,088 |   |
|                                           |       |                             |       |   |   |
| Other income  (expense):                       |       |                             |       |   |   |
| Interest and  dividends                        |       | 570                              |       | 1,521 |   |
| Interest expense                               |       | (532                             | )          | (732 | ) |
| Other expense                                  |       | (85                              | )          | (306 | ) |
| Minority  interest in loss of subsidiary       |       | —                           |       | 5 |   |
|                                           |       |                             |       |   |   |
| Income before  income taxes                    |       | 21,083                           |       | 17,576 |   |
|                                           |       |                             |       |   |   |
| Income taxes                                   |       | 6,900                            |       | 6,900 |   |
|                                           |       |                             |       |   |   |
| Net income                                     |       | $                                | 14,183     |   | $ | 10,676 |   |
|                                           |       |                             |       |   |   |
| Basic and  diluted net income per common share |       | $                                | 0.53       |   | $ | 0.40 |   |
|                                           |       |                             |       |   |   |
| Average number  of common shares  outstanding  |       | 26,727                           |       | 26,722 |   |

 

*See accompanying notes.*

 

2

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CUBIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
| ** **                                          | ** ** | **December 31,** | ** ** | **September 30,**         | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------------------------|------------|
| ** **                                          | ** ** | **2008**              | ** ** | **2008**                       | ** ** |
| ** **                                          | ** ** | **(Unaudited)**       | ** ** | **(See note below)** | ** ** |
| **ASSETS**                                          |       |                  |       |                           |       |
| Current assets:                                     |       |                  |       |                           |       |
| Cash and cash  equivalents                          |       | $                     | 91,276     |                           | $          | 112,696 |   |
| Accounts  receivable - net                          |       | 275,344               |       | 268,884                        |       |
| Inventories                                         |       | 42,658                |       | 45,118                         |       |
| Deferred income  taxes and other current assets     |       | 48,567                |       | 48,630                         |       |
| Total current  assets                               |       | 457,845               |       | 475,328                        |       |
|                                                |       |                  |       |                           |       |
| Long-term  contract receivables                     |       | 12,500                |       | 19,930                         |       |
| Property, plant  and equipment - net                |       | 51,072                |       | 53,887                         |       |
| Goodwill                                            |       | 59,266                |       | 61,032                         |       |
| Purchased  intangibles                              |       | 17,619                |       | 19,060                         |       |
| Deferred income  taxes and other non-current assets |       | 11,496                |       | 12,015                         |       |
|                                                |       | $                     | 609,798    |                           | $          | 641,252 |   |
|                                                |       |                  |       |                           |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**      |       |                  |       |                           |       |
| Current liabilities:                                |       |                  |       |                           |       |
| Trade accounts  payable                             |       | $                     | 21,439     |                           | $          | 23,288 |   |
| Customer  advances                                  |       | 64,495                |       | 74,963                         |       |
| Other current  liabilities                          |       | 74,094                |       | 85,832                         |       |
| Income taxes  payable                               |       | 5,190                 |       | 6,017                          |       |
| Current portion  of long-term debt                  |       | 5,935                 |       | 6,045                          |       |
| Total current  liabilities                          |       | 171,153               |       | 196,145                        |       |
|                                                |       |                  |       |                           |       |
| Long-term debt                                      |       | 19,124                |       | 25,700                         |       |
| Other long-term  liabilities                        |       | 30,105                |       | 30,555                         |       |
|                                                |       |                  |       |                           |       |
| Shareholders’  equity:                         |       |                  |       |                           |       |
| Common stock                                        |       | 12,485                |       | 12,485                         |       |
| Retained  earnings                                  |       | 419,051               |       | 404,868                        |       |
| Accumulated  other comprehensive income (loss)      |       | (6,049                | )          | 7,570                          |       |
| Treasury stock  at cost                             |       | (36,071               | )          | (36,071                        | )          |
|                                                |       | 389,416               |       | 388,852                        |       |
|                                                |       | $                     | 609,798    |                           | $          | 641,252 |   |

 

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

# *Seeaccompanying notes.*

 

3

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**CUBIC CORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

(in thousands)

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **December 31,**            | ** ** |
| ** **                                                                         | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Operating  Activities:                                                             |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 14,183     |   | $ | 10,676 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                     |       | 3,460                            |       | 2,106 |   |
| Changes in  operating assets and liabilities                                       |       | (13,151                          | )          | 14,038 |   |
| NET CASH  PROVIDED BY OPERATING  ACTIVITIES                                        |       | 4,492                            |       | 26,820 |   |
|                                                                               |       |                             |       |   |   |
| Investing  Activities:                                                             |       |                             |       |   |   |
| Acquisitions,  net of cash acquired                                                |       | (6,100                           | )          | — |   |
| Net additions to  property, plant and equipment                                    |       | (1,448                           | )          | (1,828 | ) |
| Proceeds from  sales of marketable securities                                      |       | —                           |       | 66,300 |   |
| Purchases of  marketable securities                                                |       | —                           |       | (39,100 | ) |
| NET CASH  PROVIDED BY (USED IN) INVESTING  ACTIVITIES                              |       | (7,548                           | )          | 25,372 |   |
|                                                                               |       |                             |       |   |   |
| Financing  Activities:                                                             |       |                             |       |   |   |
| Principal  payments on long-term borrowings                                        |       | (5,568                           | )          | (5,605 | ) |
| Other                                                                              |       | —                           |       | 43 |   |
| NET CASH USED IN FINANCING ACTIVITIES                                              |       | (5,568                           | )          | (5,562 | ) |
|                                                                               |       |                             |       |   |   |
| Effect of  exchange rates on cash                                                  |       | (12,796                          | )          | (1,111 | ) |
|                                                                               |       |                             |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND  CASH EQUIVALENTS                             |       | (21,420                          | )          | 45,519 |   |
|                                                                               |       |                             |       |   |   |
| Cash and cash  equivalents at the beginning  of the period                         |       | 112,696                          |       | 73,563 |   |
|                                                                               |       |                             |       |   |   |
| CASH AND CASH  EQUIVALENTS AT THE  END OF THE PERIOD                               |       | $                                | 91,276     |   | $ | 119,082 |   |

 

# *Seeaccompanying notes.*

 

4

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# * *

# ***CUBICCORPORATION***

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

December 31, 2008

 

**Note 1 – Basis forPresentation**

** **

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 month period ended December 31,2008 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):

 
| ** **                                | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                | ** ** | **2008**              | ** ** | **2008**               | ** ** |
| ** **                                | ** ** | **(unaudited)**       | ** ** | ** **             | ** ** |
| Trade and other  receivables              |       | $                     | 8,352      |                   | $          | 9,014 |   |
| Long-term  contracts:                     |       |                  |       |                   |       |
| Billed                                    |       | 121,440               |       | 107,225                |       |
| Unbilled                                  |       | 158,678               |       | 177,453                |       |
| Allowance for  doubtful accounts          |       | (626                  | )          | (4,878                 | )          |
| Total accounts  receivable                |       | 287,844               |       | 288,814                |       |
| Less estimated  amounts not currently due |       | (12,500               | )          | (19,930                | )          |
| Current accounts  receivable              |       | $                     | 275,344    |                   | $          | 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 December 31,2008 under transportation systems contracts in Australia and the U.K. and adefense contract in Canada. The non-current balance at September 30, 2008represented non-current amounts due from transportation systems contracts inthe U.S., Australia and the U.K. and a defense contract in Canada.

 

5

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

 

Inventories consist ofthe following (in thousands):

 
| ** **                                                       | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                       | ** ** | **2008**              | ** ** | **2008**               | ** ** |
| ** **                                                       | ** ** | **(unaudited)**       | ** ** | ** **             | ** ** |
| Finished  products                                               |       | $                     | 47         |                   | $          | 172 |   |
| Work in process  and inventoried costs under long-term contracts |       | 62,711                |       | 64,179                 |       |
| Customer  advances                                               |       | (21,605               | )          | (20,783                | )          |
| Raw material and  purchased parts                                |       | 1,505                 |       | 1,550                  |       |
| Total  inventories                                               |       | $                     | 42,658     |                   | $          | 45,118 |   |

 

At December 31,2008, work in process and inventoried costs under long-term contracts includes approximately$2.4 million in costs incurred in advance of contract award or outside thescope of work on several contracts in the defense segment, compared to $1.6million as of September 30, 2008. Management believes it is probable thatthese costs, plus appropriate profit margin, will be recovered under contractchange orders or upon the award of new contracts within the next year.

 

###### **Note 3 – Comprehensive Income**

 

Comprehensive income isas follows (in thousands): 

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **December 31,**            | ** ** |
| ** **                                        | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                              |       |                             |       |   |   |
| Net income                                        |       | $                                | 14,183     |   | $ | 10,676 |   |
| Foreign currency  translation adjustments         |       | (13,545                          | )          | (1,058 | ) |
| Net unrealized  gain (loss) from cash flow hedges |       | (74                              | )          | 34 |   |
| Comprehensive  income                             |       | $                                | 564        |   | $ | 9,652 |   |

 

6

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### **Note 4 – Segment Information**

 

Business segmentfinancial data is as follows (in millions): 

 
| ** **                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| ** **                    | ** ** | **December 31,**            | ** ** |
| ** **                    | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Sales:**                    | ** ** | ** **                       | ** ** | ** ** |   |
| Defense                       |       | $                                | 169.8      |   | $ | 146.2 |   |
| Transportation  systems       |       | 74.4                             |       | 56.5 |   |
| Corporate and  other          |       | 0.7                              |       | — |   |
| Total sales                   |       | $                                | 244.9      |   | $ | 202.7 |   |
|                          |       |                             |       |   |   |
| **Operating  income (loss):** |       |                             |       |   |   |
| Defense                       |       | $                                | 12.7       |   | $ | 9.8 |   |
| Transportation  systems       |       | 10.0                             |       | 7.3 |   |
| Corporate and  other          |       | (1.6                             | )          | — |   |
| Total operating  income       |       | $                                | 21.1       |   | $ | 17.1 |   |

### ** **

### **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, 2008, there were no borrowings under this agreement;however, there were letters of credit outstanding under the agreement totaling$20.3 million.

 

### **Note 6 – Pension Plans**

### ** **

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

 
| ** **                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **December 31,**            | ** ** |
| ** **                      | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Service cost                    |       | $                                | 594        |   | $ | 888 |   |
| Interest cost                   |       | 2,550                            |       | 2,518 |   |
| Expected return  on plan assets |       | (2,455                           | )          | (3,261 | ) |
| Amortization of:                |       |                             |       |   |   |
| Actuarial loss  (gain)          |       | 105                              |       | (53 | ) |
| Administrative  expenses        |       | 44                               |       | 30 |   |
| Net pension cost                |       | $                                | 838        |   | $ | 122 |   |

 

7

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### ** **

### **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 December 31, 2008, the Company had foreign exchange forward contractsthat are valued based on inputs that are observable in the market. These assetsand liabilities 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 financial instrumentsand certain other items at fair value at specified election dates. Subsequentunrealized gains and losses on items for which the fair value option has beenelected will be reported in earnings. The adoption of SFAS 159 did not have amaterial impact on the Company’s results of operations or financial position.

 

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 the pooling-of-interestsmethod of accounting for some business combinations. Following adoption,the resolution of existing balances related to uncertain tax positions fromprior acquisitions that differ from recorded amounts will be adjusted throughearnings, rather than goodwill.  Management does not expect that theadoption of SFAS 141(R) will have a material impact on the Company’sresults of operations or financial position. Adoption of this statement is,however, expected to have a significant effect on how acquisition transactionssubsequent to October 1, 2009, are reflected in the 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.

 

InMarch 2008, the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*, which iseffective for fiscal years and interim periods beginning after November 15,2008, which for the Company is thequarter ending March 31, 2009. This statement requires enhanceddisclosures about an entity’s financial position, financial performance, andcash flows. The statement requires that objectives for using derivativeinstruments be disclosed in terms of underlying risks and accountingdesignation. Management does not expect that the adoption of SFAS 161will have a material impact on the Company’s results of operations or financialposition.

 

8

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### **Note 8 –Income Taxes**

### ** **

The amount of unrecognized tax benefits determined in accordance withFinancial Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes — an interpretation of FASB Statement No. 109” (“FIN 48”), increasedby $0.1 million during the first three months of fiscal 2009 to $5.9 million,exclusive of interest. The total amount of unrecognized tax benefits that, ifrecognized, would favorably impact the effective tax rate is $3.0 million at December 31,2008.

 

As of December 31, 2008, the Company’s open tax years insignificant jurisdictions include 2005-2008 in both the U.S. and the U.K. TheCompany believes appropriate provisions for all outstanding issues have beenmade for all 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 of Income.The amount of net interest and penalties recognized as a component of incometax expense during the three months ended December 31, 2008 was notmaterial.  Interest and penalties accruedat December 31, 2008 amounted to $0.5 million.

 

During the three months ended December 31, 2008, the Tax Extendersand Alternative Minimum Tax Relief Act of 2008 reinstated the U.S. federalResearch and Experimentation (R&E) tax credit, retroactive to January 1,2008. As a result, the effective tax rate for the three months ended December 31,2008 reflected a $0.8 million tax benefit related to fiscal 2008 R&Eexpenditures.

 

**Note 9 – Legal Matters**

 

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. Management believes the allegations havelittle, if any, merit and plans to vigorously defend the Company against theseclaims. No court date has been established while the court reviews jurisdictionalissues. Management has made an indemnification demand on the prime contractorfor damages that may arise from this action. Management intends also to workwith the U.S. Government to rectify this litigation. No liability for thisclaim has been recorded as of December 31, 2008.

 

9

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**CUBIC CORPORATION**

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

December 31, 2008

 

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 first quarter ended December 31, 2008 increased to $244.9 millioncompared to $202.7 million last year, an increase of 21%. Defense salesincreased 16% compared to last year, and transportation systems sales increasedby 32%. Of the increase in total sales, $17.5 million, came from the company weacquired in late fiscal 2008, Omega Training Group (Omega), and is included inthe defense segment results. See the segment discussions following for furtheranalysis of segment sales.

 

Operatingincome increased 23% to $21.1 million in the first quarter compared to $17.1million in the first quarter of last year. Defense operating income increased30% while transportation systems operating income increased 37%. Also included inoperating income were corporate and other costs of $1.6 million this year,compared to zero in the first quarter of last year. These costs included a $0.8million investment in the development and marketing of new security relatedtechnologies. Of the increase in total operating income for the quarter, $1.2million came from Omega and is included in the defense segment results. See thesegment discussions following for further analysis of segment operating income.

 

10

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Selling, general and administrative (SG&A) expenses increasedin the first quarter of this year to $26.6 million compared to $24.8 millionlast year, but as apercentage of sales, decreased from 12.2% to 10.9%. All of the increase inSG&A expenses came from the newly acquired company mentioned above,including amortization of purchased intangibles of $1.4 million. Company fundedresearch and development expenditures were up only slightly in the firstquarter compared to last year, however, the focus shifted to transportation andsecurity related projects with less invested this year in defense relatedtechnologies.

 

Our projectedeffective tax rate for fiscal 2009 is 37.3%, including expected benefits fromthe research and experimentation (R&E) credit that was reinstated by theU.S. Congress in October 2008. The first quarter tax provision alsobenefited from the retroactive reinstatement of the R&E credit to January 1,2008, which reduced the provision by approximately $0.8 million. The effectiverate for fiscal 2009 could be affected by, among other factors, the mix ofbusiness between the U.S. and foreign jurisdictions, our ability to takeadvantage of available tax credits and audits of our records by taxingauthorities.

 

Netincome for the first quarter of fiscal 2009 increased to $14.2 million, or 53cents per share, compared to $10.7 million, or 40 cents per share last year asa result of the increase in operating income and the tax benefit describedabove, partially offset by a decrease in investment income resulting primarilyfrom lower interest rates, as most of our cash is now invested ingovernment-backed obligations.

 

**Defense Segment**

** **
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **December 31,**            | ** ** |
| ** **                            | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **(in millions)**           | ** ** | ** ** | ** ** |
| **Defense  Segment Sales**            |       |                             |       |   |   |
| Mission support  services             |       | $                                | 103.8      |   | $ | 72.3 |   |
| Training systems                      |       | 53.8                             |       | 62.9 |   |
| Communications                        |       | 11.9                             |       | 8.8 |   |
| Tactical systems  and other           |       | 0.3                              |       | 2.2 |   |
|                                  |       | $                                | 169.8      |   | $ | 146.2 |   |
|                                  |       |                             |       |   |   |
| **Defense  Segment Operating Income** |       |                             |       |   |   |
| Mission support  services             |       | $                                | 7.5        |   | $ | 5.5 |   |
| Training systems                      |       | 6.1                              |       | 5.5 |   |
| Communications                        |       | —                           |       | (0.8 | ) |
| Tactical systems  and other           |       | (0.9                             | )          | (0.4 | ) |
|                                  |       | $                                | 12.7       |   | $ | 9.8 |   |

 

**MissionSupport Services**

 

Salesfrom Mission Support Services increased 44% to $103.8 million in the firstquarter of this year, from $72.3 million last year. Of this increase $17.5million came from Omega, the company acquired late last fiscal year. Highersales also came from an increase in activity during the first quarter at theJoint Readiness Training Center (JRTC) in Fort Polk, LA. and from a contract atthe U.S. Army’s Quartermaster Center and School.

 

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Mission Support Services operating income increased 36% to $7.5 millionin the first quarter of this year from $5.5 million in the first quarter oflast year. Of this increase, $1.2 million came from Omega, net of amortizationof purchased intangibles of $1.4 million. Higher sales from the JRTC alsoresulted in higher operating income; however, this was more than offset bylower profits from our U.S. Marine Corp. program, as we started a new five yearcontract cycle with lower margins than previously realized. During the quarterwe received a contract modification related to the completed U.S. Marine Corp.contract that reimbursed us for out-of-scope costs expensed last year, adding$1.2 million to operating income.

 

**TrainingSystems**

 

Trainingsystems sales decreased from $62.9 million in the first quarter of last year to$53.8 million this year, a decrease of 14%. Sales were lower from the JointStrike Fighter (JSF) development contract and the P5 air combat training systemcontract. Sales were also lower from several ground combat training systems andelectro-optics (laser-based tactical engagement systems) contracts during thequarter. Sales increased for the quarter from small arms training systems.

 

Training systemsoperating income increased 11% from $5.5 million in the first quarter of lastyear to $6.1 million this year. The increase in sales of small arms training systemsadded to operating profits for the quarter, in addition to the sale of spareparts for an air combat training system in the Far East. Last year’s firstquarter had also included costs incurred during a plant shutdown resulting fromthe San Diego fires in October 2007. Partially offsetting these profitimprovements were additional costs incurred on two electro-optics contracts during the firstquarter of this year.

 

**Communications**

 

Communicationssales were $11.9 million in the first quarter of 2009, an increase of 35% from$8.8 million in the same quarter last year. A settlement agreement reached inthe first quarter with the U.S. Navy on a data link development contract added$3.3 million to sales for the quarter, accounting for the increase. Sales decreasedfrom the sale of personnel locator systems, partially offset by higher salesfrom data link contracts, in addition to the settlement mentioned above.

 

Operating resultsfrom communications were break-even for the first quarter of this year comparedto an operating loss of $0.8 million for the first quarter of last year. Theoperating loss last year came primarily from a data link development contractfor unmanned aerial vehicles in the U.K. In the current year, operating incomefrom the sale of power amplifiers was offset by cost growth from a data linkdevelopment contract in the U.S. and a loss from personnel locator systems dueto very low sales volume in the quarter. The settlement agreement with the U.S.Navy referred to above had no significant impact on operating income for thequarter.

 

**Transportation Systems Segment**

 
| ** **                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **December 31,**            | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                               | ** ** | **(in millions)**           | ** ** | ** ** | ** ** |
|                                     |       |                             |       |   |   |
| Transportation  Segment Sales            |       | $                                | 74.4       |   | $ | 56.5 |   |
|                                     |       |                             |       |   |   |
| Transportation  Segment Operating Income |       | $                                | 10.0       |   | $ | 7.3 |   |

 

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### ** **

Transportationsegment sales increased from $56.5 million in the first quarter of last year to$74.4 million this year, an increase of 32%. Sales increased primarily in NorthAmerica from a fare collection development contract awarded last year and from thesale of spare parts. Sales to train operating companies in the U.K. alsoincreased over the first quarter of last year.

 

Operatingincome from transportation systems increased 37% in the first quarter from $7.3million last year to $10.0 million this year. Higher profits came fromincreased spares sales in the U.S. and increased sales to train operatingcompanies in the U.K. During the first quarter, Transport for London (TfL)awarded Cubic directly a new three year contract for the period from August 2010to August 2013 that includes virtually all of the services currently beingperformed under the PRESTIGE contract by our 37.5% owned subsidiary, TranSys,through Cubic and the other primary shareholder. At the same time, an agreementwas reached that resolves several disputed issues with the other primaryshareholder of TranSys. Settlement agreements were also reached during thequarter with two other customers to restructure our contracts with them. Thetwo contract restructurings and the dispute resolution added a net $1.6 millionto operating income for the quarter. As a result of one of the contractrestructurings, we wrote off accounts receivable of $4.0 million against theassociated allowance for doubtful accounts, resulting in no impact on operatingincome.

 

A lower average exchange rate between the British Pound and the U.S.Dollar in the current quarter compared to the first quarter of 2008, decreasedsales by $9.6 million and operating income by $2.5 million in the quarter.

 

**Backlog**

 
| ** **                      | ** ** | **December 31,  2008** | ** ** | **September 30,  2008** | ** ** |
|---------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | **(in millions)**      | ** ** |
| **Total  backlog**              |       |                        |       |                         |       |
| Transportation  systems         |       | $                           | 653.6      |                         | $          | 480.6 |   |
| Defense:                        |       |                        |       |                         |       |
| Mission support  services       |       | 799.5                       |       | 880.0                        |       |
| Training systems                |       | 341.8                       |       | 363.6                        |       |
| Communications  and electronics |       | 45.4                        |       | 45.9                         |       |
| Tactical systems  and other     |       | 2.4                         |       | 2.4                          |       |
| Total defense                   |       | 1,189.1                     |       | 1,291.9                      |       |
| Total                           |       | $                           | 1,842.7    |                         | $          | 1,772.5 |   |

 
| **Funded  backlog**             |   |   |    |   |   |
|---------------------------------|--------|--------|---------|--------|--------|
| Transportation  systems         |   | $      | 653.6   |   | $      | 480.6 |   |
| Defense:                        |   |   |    |   |   |
| Mission support  services       |   | 160.8  |    | 180.6  |   |
| Training systems                |   | 341.8  |    | 363.6  |   |
| Communications  and electronics |   | 45.4   |    | 45.9   |   |
| Tactical systems  and other     |   | 2.4    |    | 2.4    |   |
| Total defense                   |   | 550.4  |    | 592.5  |   |
| Total                           |   | $      | 1,204.0 |   | $      | 1,073.1 |   |

 

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As reflected inthe table above, total backlog increased $70.2 million at December 31,2008 compared to September 30, 2008. Transportation systems backlogincreased $173.0 million and defense backlog decreased $102.8 million duringthe quarter. The new contract awarded by TfL added $255 million(£170 million) to transportation systems backlog during the quarter, however, alower exchange rate between the British Pound and the U.S. Dollar as of the endof the quarter decreased backlog by approximately $50 million compared to September 30,2008. Funded backlogincreased $130.9 million during the period, with transportation systemsincreasing $173.0 million and defense funded backlog decreasing by $42.1million.

 

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 $4.5 million for the first quarter. Net income forthe period was partially offset by a reduction in customer advances and othercurrent liabilities and an increase in accounts receivable.  Positive operating cash flows came from thetransportation systems segment while defense cash flows were negative for thequarter. A receipt of $9.8 million that was due from the U.S. Government duringthe quarter was delayed due to an administrative error. This amount wasreceived subsequent to the end of the quarter.

 

Investing activities for the three-month period consisted of capitalexpenditures of $1.4 million and the final payment related to our fiscal year2008 acquisition of Omega, amounting to $6.1 million.  Financing activities for the quarterconsisted of scheduled payments on our long-term debt of $5.6 million.

 

A significantly lower exchange rate between foreign currencies,especially the British Pound, and the U.S. Dollar resulted in a decrease of$12.8 million to our cash balance as of December 31, 2008 compared to September 30,2008, and a decrease to Accumulated Other Comprehensive Income of $13.5 millionduring the quarter. 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.

 

Our financial conditionremains strong with working capital of $286.7 million and a current ratio of2.7 to 1 at December 31, 2008. 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

 

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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.

 

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 the negatives of these words orphrases.  These statements involveestimates, assumptions and uncertainties, including those discussed in “RiskFactors” in the Company’s annual report on Form 10-K for the year ended September 30,2008, and throughout this filing that could cause actual results to differmaterially from those expressed in these statements.

 

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.

 

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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),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 December 31, 2008. 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, 2008.

 

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 December 31, 2008 thathave materially affected, or are reasonably likely to materially affect, itsinternal control over financial reporting.

 

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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                 |       | 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                 |
| 15                   |       | Report  of Independent Registered Public Accounting Firm                                                                                                                             |
| 31.1                 |       | Certification  of CEO                                                                                                                                                                |
| 31.2                 |       | Certification  of CFO                                                                                                                                                                |
| 32.1                 |       | CEO  Certification                                                                                                                                                                   |
| 32.2                 |       | CFO  Certification                                                                                                                                                                   |

 

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SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |                               | CUBIC CORPORATION                        |
|--------|------------------------------------|------------------------------------------|
|   |                               |                                     |
|   |                               |                                     |
| Date   |   February 4,  2009 |                                     | /s/ William W. Boyle |
|   |                               |                                     | William W. Boyle |
|   |                               |                                     | Senior Vice President  and CFO |
|   |                               |                                     |   |
| Date   |   February 4,  2009 |                                     | /s/ Mark A. Harrison |
|   |                               | Mark A. Harrison                         |
|   |                               | Vice President and  Corporate Controller |

 

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