Income Taxes	9 Months Ended
Jun. 30, 2015
Income Taxes
Income Taxes	Note 10 — Income Taxes Our effective tax rate for the three months ended June 30, 2015 was 6% as compared to 22% for the year ended September 30, 2014. The effective tax rate for the three months ended June 30, 2015 is lower than the prior full year effective tax rate primarily due to the disproportionate favorable impact of certain discrete tax events during the quarter, such as the expiration of the statute of limitations in a significant jurisdiction. The amount of net unrecognized tax benefits was $6.7 million as of June 30, 2015 and $4.7 million as of September 30, 2014, exclusive of interest and penalties. The increase in net unrecognized tax benefits was primarily related to acquisitions. At June 30, 2015, the amount of net unrecognized tax benefits from permanent tax adjustments that, if recognized, would favorably impact the effective rate was $4.0 million. During the next 12 months, it is reasonably possible that resolution of reviews by taxing authorities, both domestic and international, could be reached with respect to approximately $3.4 million of the net unrecognized tax benefits depending on the timing of examinations and expiration of statute of limitations, either because our tax positions are sustained or because we agree to their disallowance and pay the related income tax. We are subject to ongoing audits from various taxing authorities in the jurisdictions in which we do business. As of June 30, 2015, the years open under the statute of limitations in significant jurisdictions include fiscal years 2012-2014 in the U.S. We believe we have adequately provided for uncertain tax issues that have not yet been resolved with federal, state and foreign tax authorities. Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards. In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs, including an assessment of our cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cubic’s three-year cumulative U.S. loss history at the end of the fiscal year 2014 and projected for fiscal year 2015. After a review of the four sources of taxable income described above and in view of our three-year cumulative U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a corresponding charge to our income tax provision, of approximately $29.3 million and $0.9 million in the second and third quarters of fiscal 2015, respectively. Through June 30, 2015, a total valuation allowance of $46.2 million has been established for U.S. net deferred tax assets, certain foreign operating losses and other foreign assets. If sufficient positive evidence arises in the future, such as a sustained return to profitability in the U.S., any existing valuation allowance could be reversed as appropriate, decreasing income tax expense in the period that such conclusion is reached. The non-cash charge to establish a valuation allowance does not have any impact on the Company’s consolidated operations or cash flows, nor does such an allowance preclude the Company from using loss carryforwards or other deferred tax assets in the future. Until the Company re-establishes a pattern of continuing profitability in the U.S. tax jurisdiction, in accordance with the applicable accounting guidance, U.S. income tax expense or benefit related to the recognition of deferred tax assets in the condensed consolidated statement of operations for future periods will be offset by decreases or increases in the valuation allowance with no net effect on the consolidated condensed statement of operations.

Note 10 — Income Taxes

Our effective tax rate for the three months ended June 30, 2015 was 6% as compared to 22% for the year ended September 30, 2014. The effective tax rate for the three months ended June 30, 2015 is lower than the prior full year effective tax rate primarily due to the disproportionate favorable impact of certain discrete tax events during the quarter, such as the expiration of the statute of limitations in a significant jurisdiction.

The amount of net unrecognized tax benefits was $6.7 million as of June 30, 2015 and $4.7 million as of September 30, 2014, exclusive of interest and penalties. The increase in net unrecognized tax benefits was primarily related to acquisitions. At June 30, 2015, the amount of net unrecognized tax benefits from permanent tax adjustments that, if recognized, would favorably impact the effective rate was $4.0 million. During the next 12 months, it is reasonably possible that resolution of reviews by taxing authorities, both domestic and international, could be reached with respect to approximately $3.4 million of the net unrecognized tax benefits depending on the timing of examinations and expiration of statute of limitations, either because our tax positions are sustained or because we agree to their disallowance and pay the related income tax.

We are subject to ongoing audits from various taxing authorities in the jurisdictions in which we do business. As of June 30, 2015, the years open under the statute of limitations in significant jurisdictions include fiscal years 2012-2014 in the U.S. We believe we have adequately provided for uncertain tax issues that have not yet been resolved with federal, state and foreign tax authorities.

Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs, including an assessment of our cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cubic’s three-year cumulative U.S. loss history at the end of the fiscal year 2014 and projected for fiscal year 2015.

After a review of the four sources of taxable income described above and in view of our three-year cumulative U.S. loss, we recorded an increase in our valuation allowance on U.S. DTAs, with a corresponding charge to our income tax provision, of approximately $29.3 million and $0.9 million in the second and third quarters of fiscal 2015, respectively. Through June 30, 2015, a total valuation allowance of $46.2 million has been established for U.S. net deferred tax assets, certain foreign operating losses and other foreign assets.

If sufficient positive evidence arises in the future, such as a sustained return to profitability in the U.S., any existing valuation allowance could be reversed as appropriate, decreasing income tax expense in the period that such conclusion is reached.

The non-cash charge to establish a valuation allowance does not have any impact on the Company’s consolidated operations or cash flows, nor does such an allowance preclude the Company from using loss carryforwards or other deferred tax assets in the future. Until the Company re-establishes a pattern of continuing profitability in the U.S. tax jurisdiction, in accordance with the applicable accounting guidance, U.S. income tax expense or benefit related to the recognition of deferred tax assets in the condensed consolidated statement of operations for future periods will be offset by decreases or increases in the valuation allowance with no net effect on the consolidated condensed statement of operations.