10-Q

O[‘

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

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

For the Quarter Ended December 31, 2017

001-08931

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) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No  ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Small Reporting Company ☐
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes ☐ No ☒

As of January 23, 2018, registrant had only one class of common stock of which there were 27,222,907 shares outstanding (after deducting 8,945,300 shares held as treasury stock).

CUBIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended December 31, 2017

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 6.	Exhibits	39

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CUBIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(amounts in thousands, except per share data)

	Three Months Ended
	December 31,
	2017		2016
Net sales:
Products	$	131,743	$	144,760
Services		208,941		189,917
		340,684		334,677
Costs and expenses:
Products		91,573		104,612
Services		169,337		151,142
Selling, general and administrative expenses		65,347		63,758
Research and development		11,977		9,020
Amortization of purchased intangibles		7,959		9,355
Restructuring costs		1,495		891
		347,688		338,778
Operating loss		(7,004)		(4,101)
Other income (expenses):
Interest and dividend income		485		247
Interest expense		(2,674)		(3,540)
Other income (expense), net		(76)		(547)
Loss before income taxes		(9,269)		(7,941)
Income tax provision (benefit)		517		(5,073)
Net loss	$	(9,786)	$	(2,868)
Net loss per share:
Basic	$	(0.36)	$	(0.11)
Diluted	$	(0.36)	$	(0.11)
Weighted average shares used in per share calculations:
Basic		27,207		27,086
Diluted		27,207		27,086

See accompanying notes.

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CUBIC CORPORATION

CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended
	December 31,
	2017		2016
Net loss	$	(9,786)	$	(2,868)
Other comprehensive income (loss):
Foreign currency translation		(192)		(20,518)
Change in unrealized gains/losses from cash flow hedges:
Change in fair value of cash flow hedges, net of tax		28		466
Adjustment for net gains/losses realized and included in net income, net of tax		503		(865)
Total change in unrealized gains/losses realized from cash flow hedges, net of tax		531		(399)
Total other comprehensive income (loss)		339		(20,917)
Total comprehensive loss	$	(9,447)	$	(23,785)

See accompanying notes.

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CUBIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	December 31,		September 30,
	2017		2017
ASSETS
Current assets:
Cash and cash equivalents	$	48,995	$	60,143
Restricted cash		11,770		8,434
Accounts receivable:
Trade and other receivables		12,182		12,378
Long-term contracts		390,916		416,808
Allowance for doubtful accounts		(429)		(436)
		402,669		428,750
Recoverable income taxes		2,156		5,360
Inventories		101,395		87,715
Other current assets		39,137		31,141
Total current assets		606,122		621,543
Long-term contract receivables		17,328		17,457
Long-term capitalized contract costs		54,491		56,471
Property, plant and equipment, net		114,714		113,686
Deferred income taxes		4,647		2,206
Goodwill		416,284		415,912
Purchased intangibles, net		90,713		98,495
Other assets		12,766		10,515
Total assets	$	1,317,065	$	1,336,285
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	88,000	$	55,000
Trade accounts payable		104,707		95,837
Customer advances		54,446		57,477
Accrued compensation and other current liabilities		111,979		158,327
Income taxes payable		8,942		9,838
Total current liabilities		368,074		376,479
Long-term debt		199,769		199,761
Other long-term liabilities		70,099		70,414
Shareholders’ equity:
Common stock		36,789		37,850
Retained earnings		784,699		794,485
Accumulated other comprehensive loss		(106,287)		(106,626)
Treasury stock at cost		(36,078)		(36,078)
Total shareholders’ equity		679,123		689,631
Total liabilities and shareholders’ equity	$	1,317,065	$	1,336,285

See accompanying notes.

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CUBIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	December 31,
	2017		2016
Operating Activities:
Net loss	$	(9,786)	$	(2,868)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		13,109		13,444
Share-based compensation expense		1,581		2,314
Change in fair value of contingent consideration		298		(1,314)
Changes in operating assets and liabilities, net of effects from acquisitions:		(32,140)		(4,478)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(26,938)		7,098
Investing Activities:
Acquisition of businesses, net of cash acquired		(4,650)		(12,924)
Purchases of property, plant and equipment		(6,318)		(6,674)
Purchases of marketable securities		—		(6,246)
Proceeds from sales or maturities of marketable securities		—		6,246
Purchase of non-marketable debt and equity securities		(671)		—
Sale of other assets		—		1,233
NET CASH USED IN INVESTING ACTIVITIES		(11,639)		(18,365)
Financing Activities:
Proceeds from short-term borrowings		82,000		36,800
Principal payments on short-term borrowings		(49,000)		(35,000)
Principal payments on long-term debt		—		(107)
Purchase of common stock		(2,256)		(2,334)
Contingent consideration payments related to acquisitions of businesses		(656)		(1,988)
Net change in restricted cash		(3,243)		(4,226)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		26,845		(6,855)
Effect of exchange rates on cash		584		(12,666)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(11,148)		(30,788)
Cash and cash equivalents at the beginning of the period		60,143		197,127
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	$	48,995	$	166,339
Supplemental disclosure of non-cash investing and financing activities:
Liability incurred to acquire Vocality, net	$	—	$	1,093

See accompanying notes.

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CUBIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

December 31, 2017

Note 1 — Basis for Presentation

Cubic Corporation (“we”, “us”, and “Cubic”) has prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

In our opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented. Operating results for the three-month period ended December 31, 2017 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2017.

The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions 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. Actual results could differ from those estimates.

As described in Note 12, we concluded that Cubic Mission Solutions (CMS) became a separate operating segment beginning on October 1, 2017. Applicable prior period amounts have been adjusted retrospectively to reflect the reportable segment change.

Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared with the policies described in our Annual Report on Form 10-K for the year ended September 30, 2017.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees. We adopted the ASU in the first quarter of fiscal 2018. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards to be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity on the balance sheet. The guidance also requires classification of certain share-based payment activities within the statement of cash flows. These changes were applied prospectively but had no significant impact on our financial position, operating results or classification of cash flows.

In May 2015, the FASB issued Accounting Standards Update ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize investments for which the fair values are measured using the net asset value per share practical expedient within the fair value hierarchy. It also limits certain disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. This guidance was adopted retrospectively in fiscal year 2017. The adoption did not have a material impact on our consolidated financial statements.

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). Also in December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Tax Act for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the

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financial statements. As described in Note 10 below, at December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance will require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. Adoption of ASU 2014-09 will be required for us beginning in the first quarter of fiscal 2019 and we have determined that we will not adopt ASU 2014-09 earlier than required. ASU 2014-09 allows for two methods of adoption: (a) “full retrospective” adoption, meaning the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning the cumulative effect of applying ASU 2014-09 is recognized as an adjustment to the opening retained earnings balance in the year of adoption. We have not yet determined which method of adoption we will select.

We have assigned a task force within management to lead our implementation efforts and we have engaged outside advisors to assist. We are currently in the process of analyzing the impact of the adoption of the new standard on our various revenue streams. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for our fixed-price development and production contracts will generally be recognized over time as costs are incurred, which is consistent with the revenue recognition model we currently use for the majority of these contracts. For certain of our fixed-price production contracts where we currently recognize revenue as units are delivered, in most cases the accounting for those contracts will change under ASU 2014-09 such that we will recognize revenue as costs are incurred. This change will generally result in an acceleration of revenue as compared with our current revenue recognition method for those contracts. Approximately 22% of our net sales used the units-of-delivery method to recognize revenue in fiscal 2017. We continue to analyze the impact of the new standard on our remaining revenue streams and, as the standard will supersede substantially all existing revenue guidance affecting us under GAAP, we expect that it will impact revenue and cost recognition on a significant number of our contracts across our business segments, in addition to our business processes and our information technology systems. Our process of evaluating the effect of the new standard will continue through fiscal year 2018.

In January 2016, the FASB issued Accounting Standards Update ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for us beginning October 1, 2018 and, with the exception of a specific portion of the amendment, early adoption is not permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for us beginning October 1, 2019 with early adoption permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides clarifying guidance on how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

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In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. The adoption of this standard is anticipated to affect our presentation of restricted cash within our statement of cash flows. We are currently evaluating whether to adopt the new guidance early.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance will be effective for us in our fiscal year beginning October 1, 2018 and early adoption is allowed for certain transactions. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit was needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be effective for us in our fiscal year beginning October 1, 2020 with early adoption permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 will be effective for us beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

Note 2 — Acquisitions

On October 31, 2017 we paid cash of $4.7 million to purchase 49% of the outstanding capital stock of MotionDSP, a private artificial intelligence software company based in Burlingame, California, which specializes in real-time video enhancement and computer vision analytics. We are accounting for our investment in MotionDSP using the equity method of accounting. As such, we recorded a $4.7 million investment in MotionDSP within other long-term assets on our Condensed Consolidated Balance Sheet. Since October 31, 2017 we have recorded 49% of the net loss of MotionDSP, totaling $0.1 million, in our Condensed Consolidated Statements of Income within non-operating income (expense).

Consolidated Business Acquisitions

Each of the following acquisitions has been treated as a business combination for accounting purposes. The results of operations of each acquired business has been included in our consolidated financial statements since the respective date of each acquisition.

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Deltenna Ltd.

In July 2017, we acquired all of the outstanding capital stock of Deltenna Ltd (Deltenna), a wireless infrastructure company specializing in the design and delivery of radio and antenna communication solutions. Deltenna designs and manufactures cutting-edge integrated wireless products including compact LTE base stations, broadband range extenders for areas of poor coverage and rugged antennas. The addition of Deltenna, headquartered in Chippenham, U.K., will enhance tactical communication and training capabilities of our Cubic Global Defense Systems (CGD Systems) businesses by effectively delivering high-capacity data networks within challenging and rigorous environments.

Deltenna’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	December 31,
	2017		2016
Sales	$	—	$	—
Operating loss		(0.1)		—
Net loss after taxes		(0.1)		—

Deltenna’s operating results above included the following amounts for the quarter (in millions):

	December 31,
	2017		2016
Amortization	$	0.1	$	—
Acquisition-related expenses		—		—

The estimated acquisition-date fair value of consideration is $5.3 million, which is comprised of cash paid of $4.0 million plus the estimated fair value of contingent consideration of $1.3 million. Under the purchase agreement, we will pay the sellers up to $7.3 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any changes in fair value are recognized in earnings.

The acquisition of Deltenna was paid for with funds from existing cash resources. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	1.0
Technology		1.1
Other net assets acquired (liabilities assumed)		(0.3)
Net identifiable assets acquired		1.8
Goodwill		3.5
Net assets acquired	$	5.3

The estimated fair values of assets acquired and liabilities assumed, including purchased intangibles as well as the estimated fair value of contingent consideration are preliminary estimates pending the finalization of our valuation analyses. The estimated fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. The customer relationships used the excess earnings approach and the technology asset valuations used the relief from royalty approach.

The intangible assets are being amortized using straight-line methods based on the expected period of cash flows from the assets, over a weighted average useful life of eight years from the date of acquisition.

At the time of the acquisition, the goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of Deltenna with our legacy CGD Systems operating segment, and strengthening our capability of developing and integrating products in our defense portfolio, as well as the value of the

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assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill was reassigned to our legacy CGD Systems segment. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017 distinct from our legacy CGD Systems operating segment. In conjunction with the changes to reporting units, on October 1, 2017 we reassigned goodwill between CGD Systems and CMS based on their relative fair values. The amount recorded as goodwill in connection with the acquisition of Deltenna is not expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Deltenna for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.3
2019		0.3
2020		0.3
2021		0.3
2022		0.3
Thereafter		0.7

Vocality

On November 30, 2016, we acquired all of the outstanding capital stock of Vocality International (Vocality), based in Shackleford, U.K., a provider of embedded technology which unifies communications platforms, enhances voice quality, increases video performance and optimizes data throughput. Vocality contributes to our Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) portfolio of products for our CMS segment and expands our customer base. Vocality also sells its technology in the broadcast, oil and gas, mining, and maritime markets.

Vocality’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	Three Months Ended
	December 31,
	2017		2016
Sales	$	2.2	$	0.1
Operating income (loss)		0.1		(1.1)
Net income (loss) loss after taxes		0.1		(0.9)

Vocality’s operating results above included the following amounts for the quarter (in millions):

	Three Months Ended
	December 31,
	2017		2016
Amortization	$	0.2	$	—
Acquisition-related expenses		0.6		0.8

Prior to our acquisition of Vocality, Vocality had a number of share-based payment awards in place to its employees. Due to the structure of some of these share-based payment awards and the acceleration of vesting of certain of these awards in connection with our acquisition of Vocality, we were required to recognize compensation expense, rather than purchase consideration, for the portion of our purchase price that we paid to the seller that was distributed to the recipients of these awards. Consequently, we recognized $0.4 million of compensation expense within general and administrative expenses during the quarter ended December 31, 2016 related to this matter. This compensation is reflected in Vocality’s acquisition-related expenses and results of operations above for the quarter ended December 31, 2016.

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The acquisition date fair value of consideration is $9.6 million, which is comprised of cash paid of $9.7 million plus additional held back consideration to be paid in the future estimated at $0.3 million, less the $0.4 million of cash paid to the seller recorded as compensation expense described above.

The acquisition of Vocality was paid for with funds from existing cash resources. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	2.1
Technology		2.4
Trade name		0.4
Inventory		1.7
Accounts payable and accrued expenses		(0.4)
Other net assets acquired (liabilities assumed)		(0.5)
Net identifiable assets acquired		5.7
Goodwill		3.9
Net assets acquired	$	9.6

The fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. The customer relationships valuation used the excess earnings approach, and the technology and trade name asset valuations used the relief from royalty approach.

The intangible assets are being amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the assets, over a weighted average useful life of nine years from the date of acquisition.

At the time of the acquisition, the goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of Vocality with our legacy CGD Systems operating segment, and strengthening our capability of developing and integrating products in our defense portfolio, as well as the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill was reassigned to our legacy CGD Systems segment. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017 distinct from our legacy CGD Systems operating segment. In conjunction with the changes to reporting units, on October 1, 2017 we reassigned goodwill between CGD Systems and CMS based on their relative fair values. The amount recorded as goodwill in connection with the acquisition of Vocality is not expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Vocality for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.8
2019		0.7
2020		0.6
2021		0.6
2022		0.5
Thereafter		1.3

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Pro forma information

The following unaudited pro forma information presents Cubic Corporation’s consolidated results of operations as if Deltenna and Vocality had been included in our consolidated results since October 1, 2016 (in millions):

	Three Months Ended
	December 31,
	2017		2016
Net sales	$	340.7	$	335.3
Net income (loss)	$	(9.8)	$	(3.3)

The pro forma information includes adjustments to give effect to pro forma events that are directly attributable to the acquisitions and have a continuing impact on operations including the amortization of purchased intangibles and the elimination of interest expense for the repayment of debt. No adjustments were made for transaction expenses, other adjustments that do not reflect ongoing operations or for operating efficiencies or synergies. The pro forma financial information is not necessarily indicative of what the consolidated financial results of our operations would have been had the acquisitions been completed on October 1, 2016, and it does not purport to project our future operating results.

Goodwill

Changes in goodwill for the three months ended December 31, 2017 were as follows (in millions):

			Cubic Global		Cubic		Cubic Global
	Transportation		Defense		Mission		Defense
	Systems		Systems		Solutions		Services		Total
Net balances at September 30, 2017	$	50,870	$	270,692	$	—	$	94,350	$	415,912
Reassignment in the first quarter of 2018		—		(125,321)		125,321		—		—
Foreign currency exchange rate changes		342		16		14		—		372
Net balances at December 31, 2017	$	51,212	$	145,387	$	125,335	$	94,350	$	416,284

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill is not amortized but is subject to an impairment test at a reporting unit level on an annual basis and when circumstances indicate that an impairment is more-likely-than-not. We evaluate our reporting units when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017. In conjunction with the changes to reporting units, we reassigned goodwill between CGD Systems and CMS based on their relative fair values.

We estimated the fair value of CGD Systems and CMS based upon market multiples from publicly traded comparable companies in addition to discounted cash flows models for CMS and for a combination of CGD Systems and CMS based on discrete financial forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated based on projected growth rates and financial ratios, influenced by an analysis of historical ratios and by calculating a terminal value at the end of the discrete financial forecasts. The future cash flows were discounted to present value using a discount rate of 13% for our CMS reporting unit and of 11% for the combination of our CGD Systems and CMS reporting units.

Circumstances that might indicate that an impairment is more-likely-than-not include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. The test for goodwill impairment is a two-step process. The first step of the test is performed by comparing the fair value of each reporting unit to its carrying value, including recorded goodwill. If the carrying value of a reporting unit exceeds its fair value, the second step is performed to measure the amount of the impairment, if any, by comparing the implied fair value of goodwill to its carrying value. Any resulting impairment determined would be recorded in the current period.

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In connection with our reassignment of goodwill between CGD Systems and our new CMS reporting unit, we performed a goodwill impairment test on the legacy CGD Systems reporting unit immediately before the reassignment of goodwill. This test indicated that there was no impairment of the legacy CGD Systems reporting unit. We also performed a separate goodwill impairment test on the new CGD Systems and CMS reporting units as of October 1, 2017 after goodwill was reassigned in the amounts identified in the table above. The results of this October 1, 2017 impairment test indicated that the estimated fair values for our CGD Systems reporting unit exceeded its carrying value by over 10%, while the estimated fair value of our CMS reporting unit exceeded its carrying values by over 25%.

Our most recent annual goodwill impairment test for our Cubic Global Defense Services (CGD Services) and Cubic Transportation Systems (CTS) reporting units was our 2017 annual impairment test completed as of July 1, 2017. Subsequent to the effective date of that test, we do not believe that circumstances have occurred that indicate that an impairment for these reporting units is more-likely-than-not. As such, no subsequent interim impairment test has been performed. The results of our 2017 annual impairment test indicated that the estimated fair values for our CTS reporting unit exceeded its carrying value by over 100%, while the estimated fair value of our CGD Services reporting unit exceeded its carrying values by over 10%.

Significant management judgment is required in the forecast of future operating results that are used in our impairment analyses. The estimates we used are consistent with the plans and estimates that we use to manage our business. For our CGD Services reporting unit, significant assumptions utilized in our discounted cash flow approach included growth rates for sales and margins at greater levels than we have achieved in the past six years, but at levels that are less than the average annual growth we achieved over the period from fiscal 2000 through fiscal 2010. Assumptions used in our discounted cash flow approach for our CGD Services reporting unit also included growth rates for sales and margins at greater levels than we have achieved in recent years due to our expectation that the U.S. government will reach a budget agreement with increased defense training spending over that of recent years. While our interim assessment of our reporting units did not indicate that impairment was more-likely-than-not for any reporting unit, we believe that there is a heightened risk that a step two impairment test could be required in the future.

Unforeseen negative changes in future business or other market conditions for any of our reporting units including margin compression or loss of business, could cause recorded goodwill to be impaired in the future. Also, changes in estimates and assumptions we make in conducting our goodwill assessment could affect the estimated fair value of our reporting units and could result in a goodwill impairment charge in a future period.

Note 3 — Net Income (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period, including vested restricted stock units (RSUs).

In periods with a net income, diluted EPS is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of dilutive restricted stock units. Dilutive restricted stock units are calculated based on the average share price for each fiscal period using the treasury stock method. For RSUs with performance-based vesting, no common equivalent shares are included in the computation of diluted EPS until the related performance criteria have been met. In periods with a net loss, common equivalent shares are not included in the computation of diluted EPS, because to do so would be anti-dilutive. For the three months ended December 31, 2017 and December 31, 2016, the effect of 1.0 million and 1.1 million shares of restricted stock, respectively, were excluded from diluted loss per share that would have been included if we had been in a net income position.

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Basic and diluted EPS are computed as follows (amounts in thousands, except per share data).

	Three Months Ended
	December 31,
	2017		2016
Net loss	$	(9,786)	$	(2,868)
Weighted average shares - basic		27,207		27,086
Effect of dilutive securities		—		—
Weighted average shares - diluted		27,207		27,086
Net loss per share, basic	$	(0.36)	$	(0.11)
Effect of dilutive securities		—		—
Net loss per share, diluted	$	(0.36)	$	(0.11)

Note 4 — Balance Sheet Details

Accounts Receivable

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

	December 31,		September 30,
	2017		2017
Trade and other receivables	$	12,182	$	12,378
Long-term contracts:
Billed		172,661		195,492
Unbilled		235,583		238,773
Allowance for doubtful accounts		(429)		(436)
Total accounts receivable		419,997		446,207
Less estimated amounts not currently due		(17,328)		(17,457)
Current accounts receivable	$	402,669	$	428,750

The amount classified as not currently due is an estimate of the amount of long-term contract accounts receivable that will not be collected within one year from December 31, 2017 under transportation systems contracts in the U.S. and Australia, and under a CGD Systems contract in Italy based upon the payment terms in the contracts. The non-current balance at September 30, 2017 represented non-current amounts due from these same customers.

Inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2017		2017
Finished products	$	2,942	$	4,369
Work in process and inventoried costs under long-term contracts		101,134		84,131
Materials and purchased parts		9,322		10,163
Customer advances		(12,003)		(10,948)
Net inventories	$	101,395	$	87,715

Pursuant to contract provisions, agencies of the U.S. government and certain other customers have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments, and progress payments. Contract advances, performance-based payments and progress payments received are recorded as an offset against the related inventory balances for contracts that are accounted for on a percentage-of-completion basis using units-of-delivery as the basis to measure progress toward completing the contract. This determination is performed on a

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contract by contract basis. Any amount of payments received in excess of the cumulative amount of accounts receivable and inventoried costs for a contract is classified as customer advances, which is classified as a liability on the balance sheet.

At December 31, 2017, work in process and inventoried costs under long-term contracts includes approximately $2.4 million in costs incurred outside the scope of work or in advance of a contract award compared to $4.3 million at September 30, 2017. We believe it is probable that we will recover the costs inventoried at December 31, 2017, plus a profit margin, under contract change orders or awards within the next year.

Long-term Capitalized Costs

Long-term capitalized contract costs include costs incurred on certain transportation customer contracts to develop and manufacture systems for customers for which revenue recognition does not begin until the customers begin operating the systems. These capitalized costs are being recognized in cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contracts. Long-term capitalized costs that were recognized as cost of sales totaled $2.3 million and $2.4 million for the quarters ended December 31, 2017 and December 31, 2016, respectively.

Capitalized Software

We capitalize certain costs associated with the development or purchase of internal-use software. The amounts capitalized are included in property, plant and equipment in our Condensed Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the software, which ranges from three to seven years. No amortization expense is recorded until the software is ready for its intended use.

As a part of our efforts to upgrade our current information systems, early in fiscal 2015 we purchased new enterprise resource planning (ERP) software and began the process of designing and configuring this software and other software applications to manage our operations. Various components of our ERP system became ready for their intended use and were placed into service on April 1, 2016, October 1, 2016, and October 1, 2017. As each component became ready for its intended use, the component’s costs were transferred into completed software and we began amortizing these costs over their seven-year estimated useful life.

We continue to capitalize costs associated with the development of other ERP components that are not yet ready for their intended use. We capitalized costs related to ERP components in development totaling $2.5 million and $2.0 million for the quarters ended December 31, 2017 and 2016, respectively.

In addition to software costs that were capitalized, we recognized $6.3 million of expenses during the three months ended December 31, 2017 and during the three months ended December 31, 2016 related to the development and implementation of our ERP system for costs that did not meet the requirements for capitalization. Amounts that were expensed in connection with the development and implementation of these systems are classified within selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

Deferred Compensation Plan

We have a non-qualified deferred compensation plan offered to a select group of highly compensated employees. The plan provides participants with the opportunity to defer a portion of their compensation in a given plan year. The liabilities associated with the non-qualified deferred compensation plan are included in other long-term liabilities in our Condensed Consolidated Balance Sheets and totaled $12.5 million and $11.4 million at December 31, 2017 and September 30, 2017, respectively.

In fiscal 2015, we began making contributions to a rabbi trust to provide a source of funds for satisfying a portion of these deferred compensation liabilities. The total carrying values of assets set aside to fund deferred compensation liabilities as of December 31, 2017 and September 30, 2017 were $5.7 million and $5.3 million, respectively, which were comprised entirely of life insurance contracts. The carrying value of the life insurance contracts is based on the cash surrender value of the policies. Changes in the carrying value of the deferred compensation liability, and changes in the carrying value of the assets held in the rabbi trust are reflected in our Condensed Consolidated Statements of Income (Loss).

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Note 5 — Fair Value of Financial Instruments

The valuation techniques required to determine fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The two types of inputs create the following fair value hierarchy:

· Level 1 - Quoted prices for identical instruments in active markets.

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

· Level 3 - Significant inputs to the valuation model are unobservable.

The fair value of certain of our cash equivalents are based upon quoted prices for identical instruments in active markets. The fair value of our other cash equivalents is based upon a discounted cash flow model and approximate cost. Derivative financial instruments are measured at fair value, the material portions of which are based on active or inactive markets for identical or similar instruments or model-derived valuations whose inputs are observable. Where model-derived valuations are appropriate, we use the applicable credit spread as the discount rate. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.

The fair value of our contingent consideration liabilities to the sellers of businesses that we have acquired are revalued to their fair value each period. Any increase or decrease in the fair value of the contingent consideration liabilities is recorded into selling, general and administrative expense. Changes in the assumed timing and amount of the probability of payment scenarios could impact the fair value.

At December 31, 2017, we have the following remaining contingent consideration arrangements with the sellers of companies which we acquired:

· Deltenna: Payment of up to $7.3 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022.

· GATR: Payment of up to $7.5 million of contingent consideration if GATR meets certain gross profit goals for the 12 month period ended February 28, 2018.

· TeraLogics: Payment of up to $1.8 million if TeraLogics meets certain sales goals in fiscal year 2018; and up to $1.0 million will be paid if specific contract extensions are exercised by TeraLogics customers through fiscal 2018.

· H4 Global: Payment of up to $3.4 million of contingent consideration based upon the value of contracts entered over the five-year period ended September 30, 2020.

The fair value of contingent consideration liabilities that are based upon revenue targets or gross margin targets are based upon a real option approach. The contingent consideration liabilities that are valued using this real option approach include the Deltenna contingent consideration, a portion of the TeraLogics contingent consideration, and the GATR contingent consideration. Under this real option approach, each payment was modeled using long digital options written on the underlying revenue or gross margin metric. The strike price for each option is the respective revenue or gross margin as specified in the related agreement, and the spot price is calibrated to the revenue or gross margin forecast by calculating the present value of the corresponding projected revenues or gross margins using a risk-adjusted discount rate. The volatility for the underlying revenue metrics was based upon analysis of comparable guideline public companies and the volatility factors used in the December 31, 2017 valuations were 43% for Deltenna, 15% for TeraLogics and 15% for GATR. The volatility factor used in the September 30, 2017 valuations were 40% for Deltenna, 15% for TeraLogics and 15% for GATR. The risk-free rate was selected based on the quoted yields for U.S. Treasury securities with terms matching the earn-out payment period.

The fair value of the portion of the TeraLogics contingent consideration that is based on customer execution of contract extensions was estimated using a probability weighted approach. The fair value of the contingent consideration was determined by applying probabilities of achieving the periodic payment to each period’s potential payment, and summing the present value of any estimated future payments.

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The fair value of the H4 Global contingent consideration was estimated using a probability weighted approach. Subject to the terms and conditions of the H4 Global Purchase Agreement, contingent consideration will be paid over a five year term that commenced on October 1, 2015 and ends on September 30, 2020. The payments will be calculated based on the award of certain contracts during the specified period. The fair value of the contingent consideration was determined by applying probabilities to different scenarios, and summing the present value of any future payments.

The inputs to each of the contingent consideration fair value models include significant unobservable inputs and therefore represent Level 3 measurements within the fair value hierarchy. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition dates and each subsequent period. Accordingly, changes in the assumptions described above can materially impact the amount of contingent consideration expense we record in any period.

As of December 31, 2017, the following table summarizes the change in fair value of our Level 3 contingent consideration liability (in thousands):

		H4		TeraLogics (Contract Extensions)		TeraLogics (Revenue Targets)		GATR		Deltenna		Total
Balance as of September 30, 2017	$	591	$	800	$	2,450	$	—	$	1,376	$	5,217
Cash paid to seller		—		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		113		100		100		—		(15)		298
Balance as of December 31, 2017	$	704	$	900	$	800	$	—	$	1,361	$	3,765

The following table presents assets and liabilities measured and recorded at fair value on our balance sheets on a recurring basis (in thousands):

	December 31, 2017								September 30, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	5,001	$	—	$	—	$	5,001	$	8,501	$	—	$	—	$	8,501
Current derivative assets		—		2,416		—		2,416		—		2,591		—		2,591
Noncurrent derivative assets		—		443		—		443		—		1,128		—		1,128
Total assets measured at fair value	$	5,001	$	2,859	$	—	$	7,860	$	8,501	$	3,719	$	—	$	12,220
Liabilities
Current derivative liabilities		—		2,601		—		2,601		—		3,456		—		3,456
Noncurrent derivative liabilities		—		443		—		443		—		1,128		—		1,128
Contingent consideration to seller of Deltenna		—		—		1,361		1,361		—		—		1,376		1,376
Contingent consideration to seller of GATR		—		—		—		—		—		—		—		—
Contingent consideration to seller of TeraLogics - contract extensions		—		—		900		900		—		—		800		800
Contingent consideration to seller of TeraLogics - revenue targets		—		—		800		800		—		—		2,450		2,450
Contingent consideration to seller of H4 Global		—		—		704		704		—		—		591		591
Total liabilities measured at fair value	$	—	$	3,044	$	3,765	$	6,809	$	—	$	4,584	$	5,217	$	9,801

We carry certain financial instruments, including accounts receivable, short-term borrowings, accounts payable and accrued liabilities at cost, which we believe approximates fair value because of the short-term maturity of these instruments.

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The fair value of long-term debt is calculated by discounting the value of the note based on market interest rates for similar debt instruments, which is a Level 2 technique. The following table presents the estimated fair value and carrying value of our long-term debt (in millions):

	December 31,		September 30,
	2017		2017
Fair value	$	201.1	$	202.1
Carrying value	$	200.0	$	200.0

We did not have any significant non-financial assets or liabilities measured at fair value on a non-recurring basis in the first quarter of fiscal 2018 or 2017 other than assets and liabilities acquired in business acquisitions, and the fair value of our new CMS and CGD Systems reporting units described in Note 2 above.

Note 6 — Financing Arrangements

In March 2013, we entered into a note purchase and private shelf agreement pursuant to which we issued $100.0 million of senior unsecured notes, bearing interest at a rate of 3.35% and maturing on March 12, 2025. In addition, pursuant to the agreement, on July 17, 2015, we issued an additional $25.0 million of senior unsecured notes bearing interest at a rate of 3.70% and maturing on March 12, 2025. Interest payments on the notes issued in 2013 and 2015 are due semi-annually and principal payments are due from 2021 through 2025. The agreement pertaining to the aforementioned notes also contained a provision that the coupon rate would increase by a further 0.50% should our leverage ratio exceed a certain level. On February 2, 2016, we revised the note purchase agreement and we issued an additional $75.0 million of senior unsecured notes bearing interest at 3.93% and maturing on March 12, 2026. Interest payments on these notes are due semi-annually and principal payments are due from 2020 through 2026. At the time of the issuance of this last series of notes, certain terms and conditions of the note purchase and private shelf agreement were revised in coordination with the revision and expansion of the revolving credit agreement as discussed below in order to increase our leverage capacity.

We have a committed revolving credit agreement with a group of financial institutions in the amount of $400.0 million which expires in August 2021 (Revolving Credit Agreement). At December 31, 2017, the weighted average interest rate on outstanding borrowings under the Revolving Credit Agreement was 3.42%. Debt issuance costs incurred in connection with establishment of and amendments to the Revolving Credit Agreement are recorded in other assets on our Condensed Consolidated Balance Sheets, and are being amortized as interest expense using the effective interest method over the stated term of the Revolving Credit Agreement. At December 31, 2017, our total debt issuance costs have an unamortized balance of $2.4 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2017, there were borrowings totaling $88.0 million under this agreement and there were letters of credit outstanding totaling $81.1 million, which reduce the available line of credit to $230.9 million. The $81.1 million of letters of credit includes both financial letters of credit and performance guarantees.

Our Revolving Credit Agreement and note purchase and private shelf agreement each contain a number of customary covenants, including requirements for us to maintain certain interest coverage and leverage ratios and restrictions on our and certain of our subsidiaries’ abilities to, among other things, incur additional debt, create liens, consolidate or merge with any other entity, or transfer or sell substantially all of their assets, in each case subject to certain exceptions and limitations. The occurrence of any event of default under these agreements may result in all of the indebtedness then outstanding becoming immediately due and payable. In May 2017, certain terms and conditions of the Revolving Credit Agreement and note purchase and private shelf agreement were further revised to allow us to maintain a higher level of leverage as of March 31, 2017 and for the remainder of the 2017 fiscal year. The revisions to the agreements do not impact the required leverage ratios in fiscal 2018 and subsequent years. This revision also contains a provision that the coupon rate may increase on all of the term notes discussed above by up to 0.75% should our leverage ratio exceed certain levels. In connection with this revision, we incurred $0.4 million of costs, primarily for amounts charged by our lenders in connection with these modifications. These costs were recorded in May 2017 as a reduction in the carrying value of the related debt liability and which will be amortized into additional interest expense over the life of the related debt.

We maintain a cash account with a bank in the U.K. for which the funds are restricted as to use. The account is required to secure the customer’s interest in cash deposited in the account to fund our activities related to our performance under a fare collection services contract in the U.K. The balance in the account as of December 31, 2017 was $11.8 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

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As of December 31, 2017, we had letters of credit and bank guarantees outstanding totaling $93.9 million, which includes the $81.1 million of letters of credit on the Revolving Credit Agreement above and $12.8 million of letters of credit issued under other facilities. The total of $93.9 million of letters of credit and bank guarantees includes $77.2 million that guarantees either our performance or customer advances under certain contracts and financial letters of credit of $16.7 million which primarily guarantee our payment of certain self-insured liabilities. We have never had a drawing on a letter of credit instrument, nor are any anticipated; therefore, we estimate the fair value of these instruments to be zero.

We have entered into a short-term borrowing arrangement in the U.K. in the amount of £20.0 million British Pounds (equivalent to approximately $27.0 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2017, no amounts were outstanding under this borrowing arrangement.

We maintain a short-term borrowing arrangement in New Zealand totaling $0.5 million New Zealand dollars (equivalent to approximately $0.4 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2017, no amounts were outstanding under this borrowing arrangement.

The terms of certain of our lending and credit agreements include provisions that require and/or limit, among other financial ratios and measurements, the permitted levels of debt, coverage of cash interest expense, and under certain circumstances, payments of dividends or other distributions to shareholders. As of December 31, 2017, these agreements restrict such distributions to shareholders to a maximum of $81.0 million in fiscal year 2018.  

Our self-insurance arrangements are limited to certain workers’ compensation plans, automobile liability and product liability claims. Under these arrangements, we self-insure only up to the amount of a specified deductible for each claim. Self-insurance liabilities included in other current liabilities on the balance sheet amounted to $7.6 million for December 31, 2017 and September 30, 2017.

Note 7 — Pension Plans

The components of net periodic pension cost (benefit) are as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Service cost	$	151	$	151
Interest cost		1,880		1,759
Expected return on plan assets		(3,525)		(3,199)
Amortization of actuarial loss		692		910
Administrative expenses		110		47
Net pension cost (benefit)	$	(692)	$	(332)

Note 8 - Stockholders’ Equity

Long-Term Equity Incentive Plan

In 2013, the Executive Compensation Committee of our Board of Directors (Compensation Committee) approved a long-term equity incentive award program. Through December 31, 2017, the Compensation Committee has granted 1,071,724 RSUs with time-based vesting and 1,172,464 RSUs with performance-based vesting under this program.

Each RSU represents a contingent right to receive one share of our common stock. Dividend equivalent rights accrue with respect to the RSUs when and as dividends are paid on our common stock and vest proportionately with the RSUs to which they relate. Vested shares are delivered to the recipient following each vesting date.

The RSUs granted with time-based vesting generally vest in four equal installments on each of the four October 1 dates following the grant date, subject to the recipient’s continued service through such vesting date.

The performance-based RSUs granted to participants vest over three-year performance periods based on Cubic’s

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achievement of performance goals established by the Compensation Committee over the performance periods, subject to the recipient’s continued service through the end of the respective performance periods. For the performance-based RSUs granted to date, the vesting will be contingent upon Cubic meeting one of three types of vesting criteria over the performance period. These three categories of vesting criteria consist of revenue growth targets, earnings growth targets, and return on equity targets. The level at which Cubic performs against scalable targets over the performance periods will determine the percentage of the RSUs that will ultimately vest.

Through December 31, 2017, Cubic has granted 2,244,188 RSUs of which 621,394 have vested. The grant date fair value of each RSU is the fair market value of one share of our common stock at the grant date. At December 31, 2017, the total number of unvested RSUs that are ultimately expected to vest, after consideration of expected forfeitures and estimated vesting of performance-based RSUs, is 502,530.

The following table summarizes our RSU activity:

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2017	1,045,187		45.86
Granted	326,281		61.14
Vested	(123,237)		46.54
Forfeited	(212,420)		47.93
Unvested at December 31, 2017	1,035,811	$	50.17

Note 9 - Stock-Based Compensation

We recorded non-cash compensation expense related to stock-based awards for the three month periods ended December 31, 2017 and 2016 as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Cost of sales	$	156	$	175
Selling, general and administrative		1,425		2,139
	$	1,581	$	2,314

As of December 31, 2017, there was $48.7 million of unrecognized compensation cost related to unvested RSUs. Based upon the expected forfeitures and the expected vesting of performance based RSUs, the aggregate fair value of RSUs expected to ultimately vest is $26.6 million. This amount is expected to be recognized over a weighted-average period of 1.7 years.

We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods on a cumulative basis in the period the estimated forfeiture rate changes for all stock-based awards when significant events occur. We consider our historical experience with employee turnover as the basis to arrive at our estimated forfeiture rate. The forfeiture rate was estimated to be 12.5% per year as of December 31, 2017. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.

Note 10 – Income Taxes

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). The legislation significantly revises the U.S. corporate income tax system by, among other things, reducing the current corporate federal income tax rate to 21% from 35%, adopting a territorial regime and imposing a one-time transitional tax on deemed repatriated earnings of foreign subsidiaries. The rate reduction is effective January 1, 2018 resulting in a U.S. statutory rate for fiscal year 2018 of 24.5% and 21% for subsequent fiscal years. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain

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cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. 

Based on an initial assessment, a provisional discrete tax benefit of $4.3 million has been recorded in the three months ended December 31, 2017 related to the re-measurement of certain U.S. deferred tax liabilities at the lower enacted corporate tax rate. While other deferred tax assets and liabilities will also be reduced, such reduction is expected to be offset by changes to our U.S. valuation allowance. We are still refining our calculations, in particular the potential utilization of indefinite lived deferred tax liabilities as a source of future taxable income when assessing the realizability of indefinite lived deferred tax assets, which could potentially affect the re-measurement of these balances in a future period. The one-time transition tax is based on post-1986 earnings and profits (E&P) that we previously deferred from US income taxes. At present, we do not anticipate a material impact on the income statement from the one-time transition tax and therefore have recorded a provisional amount of $0 as of December 31, 2017. We have not yet completed our calculation of the total post-1986 E&P of our foreign entities, and as such the calculation is subject to further refinement. 

The impact of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act, regulatory guidance that may be issued, or any updates or changes to estimates we have utilized to calculate the impact. The Securities Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts and additional impacts from the enactment of the Tax Act will be recorded in future periods as they are identified.

Income tax expense recognized on pre-tax losses for the three months ended December 31, 2017 resulted in an effective tax rate of negative 5.6% which differs from the effective tax rate of 391.1% for the year ended September 30, 2017 primarily due to the difference in jurisdictional mix and the overall level of pre-tax income (loss). The effective tax rate for the three months ended December 31, 2017 differs from the U.S. statutory tax rate of 24.5% primarily due to jurisdictional mix of pre-tax income (loss), and U.S. losses for which no tax benefit can be realized due to valuation allowance, offset by discrete tax benefit due from the impact of the Tax Act.

The amount of net unrecognized tax benefits was $6.3 million as of December 31, 2017 and $6.5 million as of September 30, 2017, exclusive of interest and penalties. At December 31, 2017, the amount of net unrecognized tax benefits from permanent tax adjustments that, if recognized, would favorably impact the effective rate was $3.5 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 $3.0 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 December 31, 2017, the years open under the statute of limitations in significant jurisdictions include fiscal years 2013-2017 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.

We evaluated our net deferred income taxes, which included an assessment of the cumulative income or loss over the prior-three year period and future periods, to determine if a valuation allowance is required. After consideration of our recent history of U.S. losses, we recorded a valuation allowance during fiscal year 2015 on net U.S. deferred tax assets, with a corresponding charge to its income tax provision of $35.8 million. As of December 31, 2017, we maintained a valuation allowance against U.S. deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. We will continue to assess the need for a valuation allowance on deferred tax assets by evaluating positive and negative evidence that may exist. Through December 31, 2017, a total valuation allowance of $59.5 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. Until we re-establish 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 Statements of Income (Loss).

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Note 11 — Derivative Instruments and Hedging Activities

In order to manage our exposure to fluctuations in interest and foreign currency exchange rates we utilize derivative financial instruments such as forward starting swaps and foreign currency exchange forwards for periods typically up to three years. We do not use any derivative financial instruments for trading or other speculative purposes.

All derivatives are recorded at fair value, however, the classification of gains and losses resulting from changes in the fair values of derivatives are dependent on the intended use of the derivative and its resulting designation. If a derivative is designated as a fair value hedge, then a change in the fair value of the derivative is offset against the change in the fair value of the underlying hedged item and only the ineffective portion of the hedge, if any, is recognized in earnings. If a derivative is designated as a cash flow hedge, then the effective portion of a change in the fair value of the derivative is recognized as a component of accumulated other comprehensive income (loss) until the underlying hedged item is recognized in earnings, or the forecasted transaction is no longer probable of occurring. If a derivative does not qualify as a highly effective hedge, any change in fair value is immediately recognized in earnings. We formally document all hedging relationships for all derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions. We classify the fair value of all derivative contracts as current or non-current assets or liabilities, depending on the realized and unrealized gain or loss position of the hedged contract at the balance sheet date, and the timing of future cash flows. The cash flows from derivatives treated as hedges are classified in the Condensed Consolidated Statements of Cash Flows in the same category as the item being hedged.

The following table shows the notional principal amounts of our outstanding derivative instruments as of December 31, 2017 and September 30, 2017 (in thousands):

	Notional Principal
	December 31, 2017		September 30, 2017
Instruments designated as accounting hedges:
Foreign currency forwards	$	123,575	$	125,486
Instruments not designated as accounting hedges:
Foreign currency forwards	$	43,264	$	35,117

Included in the amounts not designated as accounting hedges above at December 31, 2017 and September 30, 2017 are foreign currency forwards with notional principal amounts of $28.8 million and $18.5 million, respectively, that have been designed to manage exposure to foreign currency exchange risks, and for which the gains or losses of the changes in fair value of the forwards has approximately offset an equal and opposite amount of gains or losses related to the foreign currency exposure. Unrealized losses of $0.3 million and $3.3 million were recognized in other income (expense), net for the three months ended December 31, 2017 and 2016, respectively, related to these forwards.

The notional principal amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of our exposure to credit or market loss. Credit risk represents our gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current interest or currency exchange rates at each respective date. Our exposure to credit loss and market risk will vary over time as a function of interest and currency exchange rates. The amount of credit risk from derivative instruments and hedging activities was not material for the periods ended December 31, 2017 and September 30, 2017. Although the table above reflects the notional principal amounts of our foreign exchange instruments, it does not reflect the gains or losses associated with the exposures and transactions that the foreign exchange instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. We present our derivative assets and derivative liabilities at their gross fair values. We did not have any derivative instruments with credit-risk related contingent features that would require us to post collateral as of December 31, 2017 or September 30, 2017.

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The table below presents the fair value of our derivative financial instruments that qualify for hedge accounting as well as their classification on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2017		September 30, 2017
Asset derivatives:
Foreign currency forwards	Other current assets	$	2,416	$	2,591
Foreign currency forwards	Other noncurrent assets		443		1,128
		$	2,859	$	3,719
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	2,601	$	3,456
Foreign currency forwards	Other noncurrent liabilities		443		1,128
Total		$	3,044	$	4,584

The tables below present gains and losses recognized in other comprehensive loss for the three months ended December 31, 2017 and 2016 related to derivative financial instruments designated as cash flow hedges, as well as the amount of gains and losses reclassified into earnings during those periods (in thousands):

	Three Months Ended
	December 31, 2017				December 31, 2016
			Gains (losses)				Gains (losses)
	Gains (losses)		reclassified into				reclassified into
	recognized in		earnings -		Gains (losses)		earnings -
Derivative Type	OCI		Effective Portion		recognized in OCI		Effective Portion
Foreign currency forwards	$	656	$	(774)	$	(614)	$	1,331

The amount of gains and losses from derivative instruments and hedging activities classified as not highly effective did not have a material impact on the results of operations for the three-month periods ended December 31, 2017 and 2016. The amount of estimated unrealized net losses from cash flow hedges which are expected to be reclassified to earnings in the next twelve months is $0.1 million, net of income taxes.

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Note 12 — Segment Information

We define our operating segments and reportable segments based on the way our chief executive officer, who we have concluded is our chief operating decision maker, manages our operations for purposes of allocating resources and assessing performance and we continually reassess our operating segment and reportable segment designation based upon these criteria. Through September 30, 2017, our company was aligned in three operating segments, which were also our reportable segments: CTS, CGD Systems, and CGD Services.In 2016 we formalized the structure of our CMS business unit within our CGD Systems operating segment. CMS combines and integrates our C4ISR and secure communications operations. Through September 30, 2017, we concluded that CMS was not a separate operating segment based upon factors including the nature of information presented to our chief executive officer and Board of Directors and the consequential level at which certain resource allocations and performance assessments were made. In the first quarter of fiscal 2018, we began providing additional financial information to our chief executive officer and Board of Directors at the CMS level, which allowed greater resource allocation decisions and performance assessments to be made at that level. As such, we concluded that CMS became a separate operating segment beginning on October 1, 2017. Applicable prior period amounts have been adjusted retrospectively to reflect the reportable segment change.

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

	Three Months Ended
	December 31,
	2017		2016
Sales:
Cubic Transportation Systems	$	146.5	$	131.9
Cubic Global Defense Systems		68.8		78.6
Cubic Mission Solutions		33.1		33.9
Cubic Global Defense Services		92.3		90.3
Total sales	$	340.7	$	334.7
Operating income (loss):
Cubic Transportation Systems	$	9.9	$	9.7
Cubic Global Defense Systems		1.4		3.3
Cubic Mission Solutions		(8.9)		(3.8)
Cubic Global Defense Services		2.9		(0.4)
Unallocated corporate expenses		(12.3)		(12.9)
Total operating loss	$	(7.0)	$	(4.1)
Depreciation and amortization:
Cubic Transportation Systems	$	3.2	$	2.4
Cubic Global Defense Systems		1.7		2.0
Cubic Mission Solutions		5.9		6.8
Cubic Global Defense Services		0.7		1.0
Corporate		1.6		1.2
Total depreciation and amortization	$	13.1	$	13.4

Unallocated corporate costs in the first quarter of 2018 include costs of strategic and IT system resource planning as part of our One Cubic Initiatives, which totaled $8.1 million compared to $8.7 million in the first quarter of last year.

Changes in estimates on contracts for which revenue is recognized using the cost-to-cost-percentage-of-completion method increased operating loss by $0.6 million and $6.4 million for the three months ended December 31, 2017 and 2016, respectively. These adjustments increased our net loss by $0.5 million ($0.02 per share) and by $3.9 million ($0.14 per share) for the three months ended December 31, 2017 and 2016, respectively.

As of December 31, 2017 our CMS segment had total loans outstanding of $3.4 million to a private company in the U.S. that develops technologies for unmanned aircraft systems. CMS also obtained warrants in the private company in connection with this debt financing. The note receivable is classified within other current assets and the warrants are classified within non-current other assets on our Condensed Consolidated Balance Sheets. The note receivable is held at amortized cost and the warrants are held at their historical cost. On a quarterly basis we consider whether any portion of

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the value of the warrants or note receivable may have been impaired. No such impairments were identified during the quarter ended December 31, 2017. However, if the private company that we financed does not successfully develop or commercialize its technologies we could be required to recognize impairments in the future.

Note 13 — Legal Matters

We are not a party to any material pending proceedings and we consider all matters to be ordinary proceedings incidental to our business. We believe the outcome of these proceedings will not have a materially adverse effect on our financial position, results of operations, or cash flows.

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CUBIC CORPORATION

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

December 31, 2017

We are a market-leading, technology provider of integrated solutions that increase situational understandingfor transportation, defense, C4ISR and training customers worldwide to decrease urban congestion and improve the militaries’ effectiveness and operational readiness. Cubic Corporation designs, integrates and operates systems, products and services focused in the transportation, defense C4ISR and training markets. We serve the needs of various federal and regional government agencies in the U.S. and allied nations around the world with products and services that have both defense and civil applications. 

We operate in four reportable business segments: Cubic Transportation Systems (CTS), Cubic Global Defense Systems (CGD Systems), Cubic Mission Solutions (CMS), and Cubic Global Defense Services (CGD Services). All of our business segments share a common mission of increasing situational awareness to create enhanced value for our customers worldwide. Our defense customers benefit from increased readiness and effectiveness, while our transportation customers benefit from enhanced efficiency and reduced congestion. We organize our business segments based on the nature of the products and services offered.

CTS is a systems integrator of payment and information technology and services for intelligent travel solutions. We deliver integrated systems for transportation and traffic management, delivering tools for travelers to choose the smartest and easiest way to travel and pay for their journeys, and enabling transportation authorities and agencies to manage demand across the entire transportation network — all in real time. We offer fare collection and revenue management devices, software, systems and multiagency, multimodal integration technologies, as well as a full suite of operational services that help agencies and operators efficiently collect fares and revenue, manage operations, reduce revenue leakage and make transportation more convenient. Through our NextBus and Intelligent Transport Management Solutions (ITMS) businesses, respectively, we also deliver real-time passenger information systems for tracking and predicting vehicle arrival times and we are a leading provider of urban and inter-urban intelligent transportation and enforcement solutions and technology and infrastructure maintenance services to U.K. and other international city, regional and national road and transportation agencies. Through our Urban Insights business we use big data and predictive analytics technology and a consulting model to help the transportation industry improve operations, reduce costs and better serve travelers.

CGD Systems is a diversified supplier of live, virtual, constructive and game-based training solutions to the U.S. Department of Defense, other U.S. government agencies and allied nations. We offer a full range of training solutions for military and security forces. Our customized systems and services accelerate combat readiness in the air, on the ground and at sea while meeting the demands of evolving operations globally. Our range design business offers complete range design solutions for military, law enforcement, special forces and security training centers, including laser-engagement training simulation systems, live-fire range design, exercise planning, expert support and detailed After Action Reviews.

CMS provides networked Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) capabilities for defense, intelligence, security and commercial missions. CMS’ core competencies include communications and electronics solutions such as high-speed data links, search-and-rescue avionics and customized signal intelligence products, deployable and tactical communications products, wideband ultra-portable expeditionary satellite communication terminal solutions, secure video delivery, real time processing, exploitation and dissemination of full motion video in the cloud, deployable secure computing tactical cloud and networking solutions equipment, and communication gateways. Through September 30, 2017, CMS was considered a business within our CGD Systems operating segment. In the first quarter of fiscal 2018 we began considering CMS a separate operating segment. Applicable prior period amounts have been adjusted retrospectively to reflect the segment change.

CGD Services is a leading provider of highly specialized military, security force and intelligence support services to the U.S. government and allied nations. Services provided include live, virtual and constructive training, real-world mission rehearsal exercises, professional military education, intelligence support, information technology, information assurance and related cyber support, development of military doctrine, consequence management, infrastructure protection and force protection, as well as support to field operations, and logistics.

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Consolidated Overview

Sales for the quarter ended December 31, 2017 increased 2% to $340.7 million from $334.7 million in the first quarter of last year. Sales from CTS and CGD Services increased by 11% and 2%, respectively, for the quarter while sales from CGD Systems and CMS decreased by 12% and 2%, respectively, for the quarter. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar had a positive impact on sales of $4.8 million for the first quarter compared to the same period last year. Sales generated by businesses we acquired during 2018 and 2017 totaled $2.2 million for the three months ended December 31, 2017 compared to $0.1 million for the three months ended December 31, 2016.  See the segment discussions following for further analysis of segment sales.

Our consolidated operating loss was $7.0 million in the first quarter of fiscal 2018 compared to $4.1 million in the first quarter of last year. CMS operating loss increased by 134% and CGD Systems operating income decreased by 58% for the quarter. These decreases were partially offset by improved profitability from CGD Services which had operating income of $2.9 million in the first quarter of fiscal 2018 compared to an operating loss of $0.4 million last year. CTS had a slight increase in operating income for the quarter. Unallocated corporate and other costs for the first quarter of 2018 were $12.3 million compared to $12.9 million in 2017. The decrease in unallocated corporate costs includes a decrease in costs incurred in the first quarter of 2018 for strategic and IT system resource planning as part of our One Cubic Initiatives, which totaled $8.1 million in the first quarter of fiscal 2018 compared to $8.7 million in the first quarter of last year. The average exchange rates between the prevailing currency in our foreign operations and the U.S. had a positive impact on our quarterly operating results of $0.5 million in the first quarter compared to the same period last year. See the segment discussions following for further analysis of segment operating income (loss).

Our net loss for the first quarter of fiscal 2018 was $9.8 million, or 36 cents per share, compared to $2.9 million, or 11 cents per share last year. In the first quarter of 2017, we had computed our annual effective tax rate using a worldwide blended methodology, giving us a tax benefit of $5.1 million against our pre-tax loss of $7.9 million. However, in the first quarter of 2018 we computed discrete domestic and foreign annual effective rates to arrive at a total projected rate for the year, resulting in a tax expense of $0.5 million on top of our pre-tax loss of $9.3 million. The difference in methodology only impacts timing of the tax provision within the fiscal year. This income tax expense in the first quarter of 2018 differs from the effective tax rate of 391.1% for the year ended September 30, 2017 primarily due to the difference in jurisdictional mix and overall level of pre-tax income (loss). On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). As a result, tax expense for the three months ended December 31, 2017 includes a one-time non-cash tax benefit of $4.3 million, primarily related to the re-measurement of certain U.S. deferred tax liabilities. This estimated net tax benefit is based on our initial analysis of the Tax Act and may be adjusted in future periods as we collect additional information and evaluate any regulatory guidance. After considering the impact of the U.S. valuation allowance, we have determined that a reliable estimate of the annual effective tax rate for fiscal year 2018 cannot be made, since relatively small changes in our projected income produce a significant variation in our effective tax rate. Interest expense for the first quarter of fiscal 2018 decreased to $2.7 million, compared to $3.5 million in the first quarter of last year. The decreased interest expense was primarily caused by the decrease in our average outstanding debt balances during these quarters.

Our gross margin percentage on product sales increased to 30% in the first quarter of 2018 from 28% in the first quarter last year. In the first quarter of fiscal 2017 our CGD Systems segment had experienced cost growth on ground combat training systems in Europe and the Far East. Our gross margin percentage on service sales was 19% in the first quarter of 2018 compared to 20% in the first quarter of fiscal 2017. The decrease in gross margins on service sales was primarily driven by reduced margins on transportation contracts in the U.K.

Selling, general and administrative (SG&A) expenses increased in the first quarter of 2018 to $65.3 million compared to $63.8 million in 2017. SG&A expenses were consistent as a percentage of sales at 19% in the first quarter of both years.

Company funded research and development (R&D) expenditures, which relate to new defense and transportation technologies under development, increased to $12.0 million for the first quarter compared to $9.0 million last year. For the first quarter of fiscal 2018, R&D expenditures increased as compared to the similar quarter last year for CGD Systems and CMS primarily due to our acceleration of development of innovative training systems and C4ISR technologies. R&D expenditures decreased for CTS from the first quarter of fiscal 2017 to the first quarter of this year. In the first quarter of 2017 CTS had incurred $1.2 million of expenditures related to the development of technologies for use on the New York Fare Payment System project. Such development costs were recognized as R&D expense in fiscal 2017 because we had not yet been awarded this contract. In October 2017 we were awarded the New York Fare Payment

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System contract and therefore, in the first quarter of fiscal 2018, such development costs began being classified as costs of sales.

Amortization of purchased intangibles for the first quarter of 2018 decreased to $8.0 million from $9.4 million in 2017 due to reduction in amortization for intangible assets that are amortized using accelerated methods.

Cubic Transportation Systems Segment (CTS)

	Three Months Ended
	December 31,
	2017		2016
	(in millions)
Transportation Systems Segment Sales	$	146.5	$	131.9
Transportation Systems Segment Operating Income	$	9.9	$	9.7

CTS sales increased 11% in the first quarter to $146.5 million compared to $131.9 million last year. For the quarter, sales were higher in the U.S. primarily due to system development on the New York New Fare Payment System contract, which was awarded in October, 2017. These higher sales were partially offset by slightly lower system development and services provided to our customers in Sydney and London. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in an increase in sales of $4.6 million for the first quarter compared to the same period last year, primarily due to the strengthening of the British Pound against the U.S. dollar.

CTS operating income increased 2% in the first quarter to $9.9 million compared to $9.7 million last year. Operating income for the quarter was higher in the U.S. primarily the result of system development work on the New York New Fare Payment System project. This was partially offset by lower operating income from system development work and services provided to our customers in London. 

CTS operating income benefitted from a decrease in R&D expense of $2.9 million between the first quarter of fiscal 2017 and the same quarter this year. Included in R&D expense in the first quarter of 2017 was $1.2 million of expenditures related to the development of technologies for use on the New York New Fare Payment System project. During the first quarter CTS implemented our new enterprise resource planning (ERP) system, and as a result began amortizing the cost of certain capitalized software into its operating results. This resulted in a decrease in operating income of $1.1 million for the first quarter compared to the same period last year. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in an increase in operating income of $0.7 million for the first quarter compared to the same period last year.

Cubic Global Defense Systems Segment (CGD Systems)

	Three Months Ended
	December 31,
	2017		2016
	(in millions)
Cubic Global Defense Systems Segment Sales	$	68.8	$	78.6
Cubic Global Defense Systems Segment Operating Income	$	1.4	$	3.3

CGD Systems sales decreased 12% in the first quarter to $68.8 million compared to $78.6 million last year. Sales decreased for the quarter from air combat training systems and virtual training systems, partially offset by greater sales from ground combat training systems. Deltenna, the sole business acquired during fiscal years 2018 or 2017 whose operations are included in our CGD Systems operating segment, had no significant sales or operating profits in the first quarter of fiscal 2018, and its operations were not consolidated into our financial statements in the first quarter of fiscal 2017. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in an increase in sales of $0.1 million for the first quarter of 2018 compared to the same period last year.

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CGD Systems operating income was $1.4 million in the first quarter of fiscal 2018 compared to $3.1 million last year. The decrease in operating income was driven by an increase in R&D expense of $2.3 million from the first quarter of fiscal 2017 to the first quarter of 2018. The increase in R&D expenditures is indicative of the acceleration of our development of innovative training systems. Operating profits decreased for the quarter on lower sales of air combat training systems and virtual training systems, partially offset by increased operating profits on higher sales of ground combat training systems. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in a decrease in operating income of $0.1 million for the first quarter of fiscal 2018 compared to the same period last year.

Cubic Mission Solutions Segment (CMS)

	Three Months Ended
	December 31,
	2017		2016
	(in millions)
Cubic Mission Solutions Segment Sales	$	33.1	$	33.9
Cubic Mission Solutions Segment Operating Loss	$	(8.9)	$	(3.8)

CMS sales decreased 2% in the first quarter to $33.1 million compared to $33.9 million last year. Sales of expeditionary satellite communication products decreased for the quarter, partially offset by increased sales of wideband communications and tactical networking products.Vocality, the sole business acquired during fiscal years 2018 or 2017 whose operations are included in our CMS operating segment, had sales of $2.2 million and $0.1 million for the three-month periods ended December 31, 2017 and 2016, respectively.

The CMS operating loss was $8.9 million in the first quarter of fiscal 2018 compared to $3.8 million last year. CMS increased its expenditures on R&D activities by $3.5 million from the first quarter of fiscal 2017 to the first quarter of fiscal 2018. Also, while the total CMS revenue did not change significantly between these quarters, the decrease in sales of higher-margin expeditionary satellite communications products due to timing of sales had a negative impact on the operating results in the first quarter of fiscal 2018. These decreases in operating income were partially offset by increased operating profit on higher sales of wideband communications and tactical networking products. Vocality had an operating income of $0.1 million in the first quarter of fiscal 2018 compared to an operating loss of $1.1 million the same quarter last year.

Cubic Global Defense Services Segment (CGD Services)

	Three Months Ended
	December 31,
	2017		2016
	(in millions)
Cubic Global Defense Services Segment Sales	$	92.3	$	90.3
Cubic Global Defense Services Segment Operating Income (Loss)	$	2.9	$	(0.4)

CGD Services sales increased 2% in the first quarter of fiscal 2018 to $92.3 million compared to $90.3 million last year. Sales for the first quarter of fiscal 2018 were higher primarily due to increased activity on U.S. Army contracts including our contract with the Joint Readiness Training Center (JRTC).

CGD Services operating income was $2.9 million in the first quarter of fiscal 2018 compared to an operating loss of $0.4 million last year. The increase in operating income was primarily driven by improved margins on readiness and training contracts. Operating income also improved due to the increased activity on the U.S. Army training contracts noted

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above. In addition, operating profit was positively impacted by a decrease of $0.3 million in the amortization expense on purchased intangible assets which are amortized based upon accelerated methods.

Backlog

	December 31,		September 30,
	2017		2017
	(in millions)
Total backlog
Transportation Systems	$	2,581.9	$	2,043.9
Cubic Global Defense Systems		394.9		420.3
Cubic Mission Solutions		59.0		72.3
Cubic Global Defense Services		601.0		567.1
Total	$	3,636.8	$	3,103.6
Funded backlog
Transportation Systems	$	2,581.9	$	2,043.9
Cubic Global Defense Systems		394.9		420.3
Cubic Mission Solutions		59.0		72.3
Cubic Global Defense Services		116.4		119.6
Total	$	3,152.2	$	2,656.1

Total backlog increased by $533.2 million from September 30, 2017 to December 31, 2017 primarily due to the October 2017 award of the New York New Fare Payment System contract to CTS. This contract award added $554 million to backlog during the quarter. Changes in exchange rates between the prevailing currency in our foreign operations and the U.S. dollar as of the end of the quarter increased backlog by $5.1 million compared to September 30, 2017.

The difference between total backlog and funded backlog represents options under multiyear CGD Services contracts. Funding for these contracts comes from annual operating budgets of the U.S. government and the options are normally exercised annually. Funded backlog includes unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer (Congress, in the case of U.S. government agencies). Options for the purchase of additional systems or equipment are not included in backlog until exercised. In addition to the amounts identified above, we have been selected as a participant in or, in some cases, the sole contractor for several substantial indefinite delivery/indefinite quantity (ID/IQ) contracts. ID/IQ contracts are not included in backlog until an order is received. In the past, many of the contracts we were awarded in CGD Services were long-term in nature, spanning periods of five to ten years. The U.S. Department of Defense now awards shorter-term contracts for the services we provide and increasingly relies upon ID/IQ contracts which can result in a lower backlog and/or lower funded backlog due to the shorter-term nature of task orders issued under these ID/IQ awards.

Liquidity and Capital Resources

Operating activities used cash of $26.9 million in the first quarter of fiscal 2018. Operating cash flows were negatively impacted by the timing of collections in the Middle East on CGD Systems contracts, higher unbilled accounts receivable for CGD Services and an increase in inventory at CTS for upcoming scheduled deliveries.

As a part of our efforts to upgrade our current information systems, early in fiscal 2015 we began the process of designing and implementing new ERP software and other software applications to manage our operations. Certain costs incurred in the development of internal-use software and software applications, including external direct costs of materials and services and applicable compensation costs of employees devoted to specific software development, are capitalized as computer software costs. Costs incurred outside of the application development stage, or that do not meet the capitalization requirements, are expensed as incurred. Cash used in connection with ERP design and development totaled $8.8 million in the first quarter of fiscal 2018. Of this amount, $6.3 million was recognized as expense and is reflected in cash flows used in operations, while $2.5 million was capitalized and is included in purchases of property, plant and equipment in investing cash flows. Investing activities for the three-month period also included a $4.7 million investment to purchase a 49% interest in a business by our CGD Systems segment.

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Financing activities for the three-month period consisted primarily of net short-term borrowings of $33.0 million. We also used $2.2 million for the repurchase of common stock in connection with our stock-based compensation plan. 

A change in exchange rates between foreign currencies, primarily between the Australian dollar and the U.S. dollar and between the British Pound and the U.S. dollar, resulted in an increase of $0.6 million to our cash balance as of December 31, 2017 compared to September 30, 2017.

In March 2013, we entered into a note purchase and private shelf agreement pursuant to which we issued $100.0 million of senior unsecured notes, bearing interest at a rate of 3.35% and maturing on March 12, 2025. In addition, pursuant to the agreement, on July 17, 2015, we issued an additional $25.0 million of senior unsecured notes bearing interest at a rate of 3.70% and maturing on March 12, 2025. Interest payments on the notes issued in 2013 and 2015 are due semi-annually and principal payments are due from 2021 through 2025. The agreement pertaining to the aforementioned notes also contained a provision that the coupon rate would increase by a further 0.50% should our leverage ratio exceed a certain level. On February 2, 2016, we revised the note purchase agreement and we issued an additional $75.0 million of senior unsecured notes bearing interest at 3.93% and maturing on March 12, 2026. Interest payments on these notes are due semi-annually and principal payments are due from 2020 through 2026. At the time of the issuance of this last series of notes, certain terms and conditions of the note purchase and private shelf agreement were revised in coordination with the revision and expansion of the revolving credit agreement as discussed below in order to increase our leverage capacity.

We have a committed revolving credit agreement with a group of financial institutions in the amount of $400.0 million which expires in August 2021 (Revolving Credit Agreement). At December 31, 2017, the weighted average interest rate on outstanding borrowings under the Revolving Credit Agreement was 3.42%. Debt issuance costs incurred in connection with establishment of and amendments to the Revolving Credit Agreement are recorded in other assets on our Condensed Consolidated Balance Sheets, and are being amortized as interest expense using the effective interest method over the stated term of the Revolving Credit Agreement. At December 31, 2017, our total debt issuance costs have an unamortized balance of $2.4 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2017, there were borrowings totaling $88.0 million under this agreement and there were letters of credit outstanding totaling $81.1 million, which reduce the available line of credit to $230.9 million. The $81.1 million of letters of credit includes both financial letters of credit and performance guarantees.

Our Revolving Credit Agreement and note purchase and private shelf agreement each contain a number of customary covenants, including requirements for us to maintain certain interest coverage and leverage ratios and restrictions on our and certain of our subsidiaries’ abilities to, among other things, incur additional debt, create liens, consolidate or merge with any other entity, or transfer or sell substantially all of their assets, in each case subject to certain exceptions and limitations. These agreements also contain customary events of default, including, without limitation: (a) failure by Cubic to pay principal or interest on the Notes when due; (b) failure by Cubic or certain of its subsidiaries to comply with the covenants in the agreements; (c) failure of the representations and warranties made by Cubic or certain of its subsidiaries to be correct in any material respect; (d) cross-defaults with other indebtedness of Cubic or certain of its subsidiaries resulting in the acceleration of the maturity thereof; (e) certain bankruptcy and insolvency events with respect to Cubic or certain of its subsidiaries; (f) failure by Cubic or certain of its subsidiaries to satisfy certain final judgments when due; and (g) a change in control of Cubic, in each case subject to certain exceptions and limitations. The occurrence of any event of default under these agreements may result in all of the indebtedness then outstanding becoming immediately due and payable. In May 2017, certain terms and conditions of the Revolving Credit Agreement and note purchase and private shelf agreement were further revised to allow us to maintain a higher level of leverage as of March 31, 2017 and for the remainder of the 2017 fiscal year. The revisions to the agreements do not impact the required leverage ratios in fiscal 2018 and subsequent years. This revision also contains a provision that the coupon rate may increase on all of the term notes discussed above by up to 0.75% should our leverage ratio exceed certain levels. In connection with this revision, we incurred $0.4 million of costs, primarily for amounts charged by our lenders in connection with these modifications. These costs were recorded in May 2017 as a reduction in the carrying value of the related debt liability and which will be amortized into interest expense over the life of the related debt.

We maintain a cash account with a bank in the U.K. for which the funds are restricted as to use. The account is required to secure the customer’s interest in cash deposited in the account to fund our activities related to our performance under a fare collection services contract in the U.K. The balance in the account as of December 31, 2017 was $11.8 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

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We have entered into a short-term borrowing arrangement in the U.K. in the amount of £20.0 million British Pounds (equivalent to approximately $27.0 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2017, no amounts were outstanding under this borrowing arrangement.

The terms of certain of our lending and credit agreements include provisions that require and/or limit, among other financial ratios and measurements, the permitted levels of debt, coverage of cash interest expense, and under certain circumstances, payments of dividends or other distributions to shareholders. As of December 31, 2017, these agreements restrict such distributions to shareholders to a maximum of $86.1 million in fiscal year 2018.  

As of December 31, 2017, $38.0 million of the $49.0 million of our cash, cash equivalents, including restricted cash, was held by our foreign subsidiaries, primarily in the U.K., New Zealand and Australia.

Our financial condition remains strong with working capital of $238.0 million and a current ratio of 1.6 to 1 at December 31, 2017. We expect that cash on hand, cash flows from operations, and our unused lines of credit will be adequate to meet our liquidity requirements for the foreseeable future.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees. We adopted the ASU in the first quarter of fiscal 2018. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards to be recorded in income tax expense in the income statement and impacts. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity on the balance sheet. The guidance also requires classification of certain share-based payment activities within the statement of cash flows. These changes were applied prospectively but had no significant impact on our financial position, operating results or classification of cash flows.

In May 2015, the FASB issued Accounting Standards Update ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize investments for which the fair values are measured using the net asset value per share practical expedient within the fair value hierarchy. It also limits certain disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. This guidance was adopted retrospectively in fiscal year 2017. The adoption did not have a material impact on our consolidated financial statements.

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). Also in December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118  which provides guidance on accounting for the tax effects of the Tax Act for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. As described in Note 10 below, at December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance will require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. Adoption of ASU 2014-09 will be required for us beginning in the first quarter of fiscal 2019 and we have determined that we will not adopt ASU 2014-09 earlier than required. ASU 2014-09 allows for two methods of adoption: (a) “full retrospective” adoption, meaning the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning the cumulative effect

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of applying ASU 2014-09 is recognized as an adjustment to the opening retained earnings balance in the year of adoption. We have not yet determined which method of adoption we will select.

We have assigned a task force within management to lead our implementation efforts and we have engaged outside advisors to assist. We are currently in the process of analyzing the impact of the adoption of the new standard on our various revenue streams. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for our fixed-price development and production contracts will generally be recognized over time as costs are incurred, which is consistent with the revenue recognition model we currently use for the majority of these contracts. For certain of our fixed-price production contracts where we currently recognize revenue as units are delivered, in most cases the accounting for those contracts will change under ASU 2014-09 such that we will recognize revenue as costs are incurred. This change will generally result in an acceleration of revenue as compared with our current revenue recognition method for those contracts. Approximately 22% of our net sales used the units-of-delivery method to recognize revenue in fiscal 2017. We continue to analyze the impact of the new standard on our remaining revenue streams and, as the standard will supersede substantially all existing revenue guidance affecting us under GAAP, we expect that it will impact revenue and cost recognition on a significant number of our contracts across our business segments, in addition to our business processes and our information technology systems. Our process of evaluating the effect of the new standard will continue through fiscal year 2018.

In January 2016, the FASB issued Accounting Standards Update ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for us beginning October 1, 2018 and, with the exception of a specific portion of the amendment, early adoption is not permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for us beginning October 1, 2019 with early adoption permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides clarifying guidance on how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. The adoption of this standard is anticipated to affect our presentation of restricted cash within our statement of cash flows. We are currently evaluating whether to adopt the new guidance early.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with

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evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance will be effective for us in our fiscal year beginning October 1, 2018 and early adoption is allowed for certain transactions. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit was needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be effective for us in our fiscal year beginning October 1, 2020 with early adoption permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 will be effective for us beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

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, purchased intangibles, accounting for business combinations, 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 further information, refer to “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies, Estimates and Judgments” and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2017.

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION

This report, including the documents incorporated by reference herein, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by such Act. Any statements about our expectations, beliefs, plans, objectives, assumptions, future events or our future financial and/or operating performance are not historical and may be forward-looking. These statements are often, but not always, made through the use 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 or phrases. These forward-looking statements involve risks, estimates, assumptions and uncertainties, including those discussed in “Part I - Item 1A. Risk Factors” in our Annual Report on

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Form 10-K for the year ended September 30, 2017, and throughout this report that could cause actual results to differ materially from those expressed in these statements. Such risks, estimates, assumptions and uncertainties include, among others:

· our ability to monitor and evaluate the effectiveness of new processes and procedures we have implemented to remediate the material weaknesses that previously existed in our internal control over financial reporting;

· our dependence on U.S. and foreign government contracts;

· delays in approving U.S. and foreign government budgets and cuts in U.S. and foreign government defense expenditures;

· the ability of certain government agencies to unilaterally terminate or modify our contracts with them;

· the effect of sequestration on our contracts;

· our assumptions covering behavior by public transit authorities;

· our ability to successfully integrate new companies into our business and to properly assess the effects of such integration on our financial condition;

· the U.S. government’s increased emphasis on awarding contracts to small businesses, and our ability to retain existing contracts or win new contracts under competitive bidding processes;

· negative audits by the U.S. government;

· the effects of politics and economic conditions on negotiations and business dealings in the various countries in which we do business or intend to do business;

· competition and technology changes in the defense and transportation industries;

· the change in the way transit agencies pay for transit systems;

· our ability to accurately estimate the time and resources necessary to satisfy obligations under our contracts;

· the effect of adverse regulatory changes on our ability to sell products and services;

· our ability to identify, attract and retain qualified employees;

· our failure to properly implement our enterprise resource planning system;

· unforeseen problems with the implementation and maintenance of our information systems;

· business disruptions due to cyber security threats, physical threats, terrorist acts, acts of nature and public health crises;

· our involvement in litigation, including litigation related to patents, proprietary rights and employee misconduct;

· our reliance on subcontractors and on a limited number of third parties to manufacture and supply our products;

· our ability to comply with our development contracts and to successfully develop, introduce and sell new products, systems and services in current and future markets;

· defects in, or a lack of adequate coverage by insurance or indemnity for, our products and systems;

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· changes in U.S. and foreign tax laws, exchange rates or our economic assumptions regarding our pension plans; and

· other factors discussed elsewhere in this report.

Because the risks, estimates, assumptions and uncertainties referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to anticipate results or future period trends. Further, any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks at December 31, 2017 have not changed materially from those described under “Item 7A. Quantitative and Qualitative Disclosure about Market Risk” in our Annual Report on Form 10-K for the year ended September 30, 2017.

ITEM 4 - CONTROLS AND PROCEDURES

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2017. The evaluation was performed with the participation of senior management of each business segment and key corporate functions, and under the supervision of our Chief Executive Officer and our Chief Financial Officer. Based on our evaluation, we concluded that our disclosure controls and procedures were operating and effective as of that date.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC) and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

During the third quarter of fiscal 2016, we began the implementation of a new enterprise resource planning (ERP) system by transitioning our corporate operations, including corporate payroll, corporate general ledger, corporate procurement and payments, and corporate cash receipts functions. During the first quarter of fiscal 2017, this transition to our new ERP system continued with our North American manufacturing operations transitioning to a new material requirements planning (MRP) system and certain of our North American subsidiaries transitioning their payroll, general ledger, procurement, payment, billing and cash receipts functions to our new ERP system. During the first quarter of 2018, we transitioned the payroll, general ledger, procurement, payment, billing and cash receipts functions for significant portions of our Australian and U.K. operations to our new ERP system. We have accordingly in fiscal 2017 and fiscal 2018 modified our existing internal controls infrastructure, as well as added other processes and internal controls, to adapt to our new ERP system as well as take advantage of the increased functionality of the new system. The transition of our remaining operations to our new ERP system will occur in phases in fiscal 2018. We believe that the new ERP system and related changes to processes and the design of our internal controls will enhance our internal control over financial reporting while providing us with the ability to scale our business. We believe we have taken the necessary steps to monitor and maintain appropriate internal control over financial reporting during the first three months of fiscal 2018 and we will continue to evaluate the operating effectiveness of related key controls during subsequent periods.

There were no other changes in our internal control over financial reporting during the quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

We are not a party to any material pending proceedings and we consider all matters to be ordinary proceedings incidental to our business. We believe the outcome of these proceedings will not have a materially adverse effect on our financial position, results of operations, or cash flows.

ITEM 1A - RISK FACTORS

There have been no material changes to the risk factors disclosed in “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2017

, other than the addition of the risk factor below.

Recent U.S. tax legislation may materially adversely affect our financial condition, results of operations and cash flows.

Recently-enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate, limiting interest deductions, adopting elements of a territorial tax system, imposing a one-time transition tax (or “repatriation tax”) on all undistributed earnings and profits of certain U.S.-owned foreign corporations, revising the rules governing net operating losses and the rules governing foreign tax credits, and introducing new anti-base erosion provisions. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (IRS), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.

While our analysis and interpretation of this legislation is ongoing, based on our current evaluation, we have recorded a one-time non-cash tax benefit of $4.3 million in the three months ended December 31, 2017 related to the re-measurement of certain U.S. deferred tax liabilities. This amount may be subject to further adjustment in subsequent periods throughout fiscal 2018 in accordance with subsequent interpretive guidance issued by the SEC or the IRS.

While some of the changes made by the tax legislation may be beneficial to us in one or more reporting periods and prospectively, other changes may adversely affect us on a going forward basis. We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us. We urge our investors to consult with their legal and tax advisors with respect to such legislation.

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ITEM 6 - EXHIBITS

(a) The following exhibits are included herein:

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation. Incorporated by reference to Form 10-Q for the quarter ended June 30, 2006 file No. 001-08931, Exhibit 3.1.
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation. Incorporated by reference to Form 10-Q for the quarter ended March 31, 2016, file No. 001-08931, Exhibit 3.2.
3.3	Amended and Restated Bylaws. Incorporated by reference to Form 8-K filed April 22, 2014, file No. 001-08931, Exhibit 3.1.
10.1*	Form of Performance-Based Vesting Restricted Stock Unit Award Grant Notice and Award Agreement under the Cubic Corporation 2015 Incentive Award Plan.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101	Financial statements from the Cubic Corporation Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Income (Loss), (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.

*Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

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

		CUBIC CORPORATION
Date	February 6, 2018	/s/ Anshooman Aga
		Anshooman Aga
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)
Date	February 6, 2018	/s/ Mark A. Harrison
		Mark A. Harrison
		Senior Vice President and Corporate Controller
		(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

Performance-Based Vesting Version

CUBIC CORPORATION

2015 INCENTIVE AWARD PLAN

RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND

RESTRICTED STOCK UNIT AWARD AGREEMENT

Cubic Corporation, a Delaware corporation (the “Company”), pursuant to its 2015 Incentive Award Plan (the “Plan”), hereby grants to the participant listed below (“Participant”), an award of restricted stock units (“Restricted Stock Units” or “RSUs”) with respect to the number of shares of the Company’s Common Stock (the “Shares”) indicated below. Each RSU is hereby granted in tandem with a corresponding dividend equivalent, as further described in Article II of the Restricted Stock Unit Agreement (the “Dividend Equivalents”).  This award for Restricted Stock Units and the corresponding Dividend Equivalents (this “Award”) is subject to all of the terms and conditions as set forth herein, in the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Restricted Stock Unit Agreement”) and in the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Restricted Stock Unit Agreement.

Participant:
Grant Date:
Target Number of RSUs (as adjusted pursuant to Article II and Section 4.2):
Distribution Schedule:	Subject to the terms of the Restricted Stock Unit Agreement, the RSUs (and their corresponding Dividend Equivalents) shall be distributable in accordance with Section 1.1 of the Restricted Stock Unit Agreement.
Vesting Schedule:	Subject to the terms of the Restricted Stock Unit Agreement, the RSUs shall vest as set forth on Exhibit B to this Grant Notice.

By electronically accepting this Grant Agreement, Participant agrees to be bound by the terms and conditions of the Plan, the Restricted Stock Unit Agreement and this Grant Notice.  In addition, Participant explicitly acknowledges and agrees to be bound by the Restrictive Covenants set forth in Section 3.6 of the Restricted Stock Unit Agreement.  Participant has reviewed the Restricted Stock Unit Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Restricted Stock Unit Agreement and the Plan.  Participant has been provided with a copy or electronic access to a copy of the prospectus for the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board (or any Committee to which administration of the Plan has been delegated by the Board) upon any questions arising under the Plan, this Grant Notice or the Restricted Stock Unit Agreement.  The Award is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and the Restricted Stock Unit Agreement, the terms of the Plan shall control.

Participant acknowledges that his or her acceptance of the terms and conditions of the Plan, the Restricted Stock Unit Agreement and this Grant Notice by his or her electronic acceptance of the Grant Agreement is a condition to the receipt of this Award.  As a result, unless otherwise determined by the Board (or any Committee to which administration of the Plan has been delegated by the Board), in the event Participant does not electronically accept this Grant Notice within ninety (90) days of the Grant Date, this Award shall be forfeited and Participant shall have no further rights thereto.

Participant acknowledges that Section 4.5 of the Restricted Stock Unit Agreement amends the governing law of Participant’s Invention & Secrecy Agreement (as defined in the Restricted Stock Unit Agreement) and hereby agrees to such amendment.

EXHIBIT A

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE

RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (this “Agreement”) is attached, the Company has granted to Participant the right to receive the number of RSUs set forth in the Grant Notice, and their corresponding Dividend Equivalents pursuant to Article II, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan.

ARTICLE I

AWARD OF RESTRICTED STOCK UNITS

1.1         Award of Restricted Stock Units.

(a)         Award. In consideration of Participant’s continued employment or service with the Company or any Affiliate thereof and for other good and valuable consideration, the Company hereby grants to Participant the right to receive the number of RSUs set forth in the Grant Notice and their corresponding Dividend Equivalents pursuant to Article II, subject to all of the terms and conditions set forth in this Agreement, the Grant Notice and the Plan. Prior to actual issuance of any Shares, the RSUs, the Dividend Equivalents and the Award represent an unsecured obligation of the Company, payable only from the general assets of the Company.

(b)         Vesting. The RSUs subject to the Award shall vest in accordance with the Vesting Schedule set forth in Exhibit B to the Grant Notice. Unless and until the RSUs have vested in accordance with the Vesting Schedule set forth in the Grant Notice, Participant will have no right to any distribution with respect to such RSUs.  Unless otherwise provided in Exhibit B to the Grant Notice, in the event of Participant’s Termination of Service prior to the vesting of all of the RSUs, any unvested RSUs will terminate automatically without any further action by the Company and be forfeited without further notice and at no cost to the Company.

(c)         Distribution of RSUs.

(i)          Shares of Common Stock shall be distributed to Participant (or in the event of Participant’s death, to his or her estate) with respect to Participant’s vested RSUs within ten (10) days following the date on which such RSUs vest as specified in the Vesting Schedule set forth in Exhibit B to the Grant Notice (or, in the event the vesting date is the date of a Change in Control, the RSUs (and their corresponding Dividend Equivalents) shall be settled immediately prior to such Change in Control), subject to the terms and provisions of the Plan and this Agreement.

(ii)         All distributions of the RSUs shall be made by the Company in the form of whole shares of Common Stock.

(iii)        Neither the time nor form of distribution of Common Stock with respect to the RSUs and the Dividend Equivalents may be changed, except as may be permitted by the Board (or any Committee to which administration of the Plan has been delegated by the Board) in accordance with the Plan and Section 409A of the Code and the Treasury Regulations thereunder.

(d)         Generally. Shares issued under the Award shall be issued to Participant or Participant’s beneficiaries, as the case may be, at the sole discretion of the Board (or any Committee to which administration of the Plan has been delegated by the Board), in either (i) uncertificated form, with the Shares recorded in the name of Participant in the books and records of the Company’s transfer agent with appropriate notations regarding the restrictions on transfer imposed pursuant to this Agreement; or (ii) certificate form.  In no event will fractional shares be issued upon settlement of the Award.  In lieu of any fractional Share, the Company shall make a cash payment to Participant equal to the Fair Market Value of such fractional Share on the date the RSUs and the Dividend Equivalents are settled pursuant to this Section 1.1.

1.2         Tax Withholding.

(a)         The Company shall not be obligated to deliver any certificate representing Shares issuable with respect to the RSUs or any cash payment in respect of the Dividend Equivalents to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the vesting of the RSUs or the Dividend Equivalents, the distribution of the Shares issuable with respect thereto, the settlement of the Dividend Equivalents, or any other taxable event related to the RSUs or the Dividend Equivalents (the “Tax Withholding Obligation”).

(b)         Unless Participant elects to satisfy the Tax Withholding Obligation by some other means in accordance with clause (c) below, prior to the time the Tax Withholding Obligation arises, Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company to, and the Company shall, withhold a net number of vested Shares otherwise issuable pursuant to the RSUs having a then-current Fair Market Value not exceeding the amount necessary to satisfy the Tax Withholding Obligation of the Company and its Affiliates with respect to the vesting or distribution of the RSUs based on the minimum applicable statutory withholding rates.  In the event Participant’s Tax Withholding Obligation will be satisfied under this Section 1.2(b), then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of shares from those Shares issuable to Participant upon settlement of the RSUs as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy Participant’s Tax Withholding Obligation with respect to the vesting or distribution of the RSUs.  Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described above, including the transactions described in the previous sentence, as applicable.  Any Shares to be sold at the Company’s direction through a broker-assisted sale will be sold on the day the Tax Withholding Obligation with respect to the vesting or distribution of the RSUs arises or as soon thereafter as practicable.  The Shares may be sold as part of a block trade with other participants of the Plan in which all participants receive an average price.  Participant will be responsible for all broker’s fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. To the extent the proceeds of such sale exceed Participant’s Tax Withholding Obligation with respect to the vesting or distribution of the RSUs, the Company agrees to pay such excess in cash to Participant as soon as practicable. Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy Participant’s Tax Withholding Obligation.

(c)         At any time not less than five (5) business days before any Tax Withholding Obligation arises, Participant may elect to satisfy the Tax Withholding Obligation by delivering to the

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Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation in one or more of the forms specified below:

(i)          by the deduction of such amount from other compensation payable to Participant;

(ii)         by tendering vested Shares owned by Participant having a then-current Fair Market Value not exceeding the amount necessary to satisfy the Tax Withholding Obligation of the Company and its Affiliates based on the minimum applicable statutory withholding rates;

(iii)        through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to the Shares issuable pursuant to the RSUs then vesting and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company or its Affiliate with respect to which the Tax Withholding Obligation arises in satisfaction of such obligation; provided that payment of such proceeds is then made to the Company or the applicable Affiliate at such time as may be required by the Board (or any Committee to which administration of the Plan has been delegated by the Board), but in any event not later than the settlement of such sale; or

(iv)        in any combination of the foregoing.

(d)         To the maximum extent permitted by applicable law, the Company further has the authority to deduct or withhold such amount as is necessary to satisfy any Tax Withholding Obligation from other compensation payable to Participant with respect to any taxable event arising from vesting of the RSUs or the Dividend Equivalents, the receipt of the Shares upon settlement of the RSUs or the settlement of the Dividend Equivalents.

ARTICLE II

DIVIDEND EQUIVALENTS

2.1         Grant of Dividend Equivalents.  The Company hereby grants to Participant an award of Dividend Equivalents as set forth in this Article II (the “Dividend Equivalents”), subject to all of the terms and conditions in this Agreement and the Plan.  The Dividend Equivalents hereunder shall remain outstanding from the Grant Date through the earlier to occur of (a) the termination or forfeiture for any reason of the RSU to which such Dividend Equivalent corresponds, or (b) the delivery to Participant of the shares of Common Stock underlying the RSU to which such Dividend Equivalent corresponds.  Participant shall not be entitled to any payment under a Dividend Equivalent with respect to any dividend with a record date that occurs prior to the Grant Date or after the termination of such RSU for any reason, whether due to payment, forfeiture or otherwise.  If any RSU linked to a Dividend Equivalent fails to vest and is forfeited for any reason, then (a) the linked Dividend Equivalent shall be forfeited as well, (b) any amounts otherwise payable in respect of such Dividend Equivalent shall be forfeited without payment, and (c) the Company shall have no further obligations in respect of such Dividend Equivalent.

2.2         Payment of Dividend Equivalents.  Dividend Equivalents shall be paid in cash only on the number of shares of Common Stock underlying the RSUs that vest in accordance with this Agreement by determining the sum of the cash dividends paid or payable on such number of shares of Common Stock with respect to each record date that occurs between the Grant Date and the date on which the RSUs are settled pursuant to Section 1.1(c) (without any interest or compounding).  The payment of cash in settlement of the Dividend Equivalents shall occur at the same time as the vested RSUs to which such Dividend Equivalents correspond are settled pursuant to Section 1.1(c).

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2.3         Separate Payments.  Dividend Equivalents and any amounts that may become distributable in respect thereof shall be treated separately from the RSUs and the rights arising in connection therewith for purposes of the designation of time and form of payments required by Section 409A of the Code.

ARTICLE III

RESTRICTIONS

3.1         Award and Interests Not Transferable. This Award, including the RSUs and the Dividend Equivalents awarded hereunder, may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares issuable pursuant to the Award have been issued, and all restrictions applicable to such Shares have lapsed. This Award and the rights and privileges conferred hereby, including the RSUs and the Dividend Equivalents awarded hereunder, shall not be liable for the debts, contracts or engagements of Participant or his or her successors in interest and shall not be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

3.2         Rights as Stockholder. Neither Participant nor any person claiming under or through Participant shall have any of the rights or privileges of a stockholder of the Company in respect of any Shares issuable hereunder unless and until certificates representing such Shares (which may be in uncertificated form) will have been issued and recorded on the books and records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant shall have all the rights of a stockholder of the Company, including with respect to the right to vote the Shares and the right to receive any cash or share dividends or other distributions paid to or made with respect to the Shares.

3.3         Trading Restrictions.  The Company may establish periods from time to time during which Participant’s ability to engage in transactions involving the Company’s Common Stock is subject to specific restrictions (“Restricted Periods”).  Participant may be subject to restrictions giving rise to a Restricted Period for any reason that the Company determines appropriate, including, restrictions generally applicable to employees or groups of employees or restrictions applicable to Participant during an investigation of allegations of misconduct or conduct detrimental to the Company or any Affiliate by Participant.

3.4         Award Subject to Clawback.  This Award, including the RSUs and the Dividend Equivalents awarded hereunder, and any Shares issuable upon vesting of the RSUs or the cash issuable upon settlement of the Dividend Equivalents, are subject to forfeiture, recovery by the Company or other action pursuant to, in addition to the provisions set forth in Section 3.6 of this Agreement, any clawback or recoupment policy which the Company may adopt from time to time pursuant to laws or regulations, including without limitation, any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by applicable law.

3.5         Conditions to Issuance of Shares or Settlement of Award.  The Company shall not be required to issue or deliver any Shares issuable upon the vesting of the RSUs or settle the Dividend Equivalents prior to the fulfillment of all of the following conditions:  (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the U.S. Securities and Exchange Commission or other governmental regulatory body, which the Board (or any

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Committee to which administration of the Plan has been delegated by the Board) shall, in its sole and absolute discretion, deem necessary and advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Board (or any Committee to which administration of the Plan has been delegated by the Board) shall, in its absolute discretion, determine to be necessary or advisable, (d) the lapse of any such reasonable period of time following the date the RSUs vest as the Board (or any Committee to which administration of the Plan has been delegated by the Board) may from time to time establish for reasons of administrative convenience, and (e) the receipt by the Company of full payment of any applicable withholding tax in any manner permitted under Section 1.2 above.

3.6         Restrictive Covenants.

(a)         Forfeiture for Violation of Restrictive Covenants.  The grant of the RSUs provided herein and Participant’s agreement to the Restrictive Covenants (as defined below) are intended to be mutually dependent promises and in the event Participant breaches or threatens to breach the Restrictive Covenants, then to the greatest extent permitted by applicable law: (i) RSUs that have not yet been settled (whether vested or unvested) shall immediately be cancelled; (ii) any Shares issued upon settlement of the RSUs during the time period that is twelve (12) months prior to and twelve (12) months following Participant’s Termination of Service that have not yet been sold by Participant shall be forfeited back to the Company for no consideration; and (iii) if Participant received Shares upon settlement of the RSUs during the time period that is twelve (12) months prior to and twelve (12) months following Participant’s Termination of Service and subsequently sold the received Share(s), any gain represented by the fair market value of the Shares issued upon settlement of the RSUs on the settlement date multiplied by the number of Shares issued to Participant upon settlement of the RSUs shall be paid by Participant to the Company, in cash, without regard to any market price decrease or increase subsequent to the settlement of the RSUs.

(b)         Certain Covenants.  Participant acknowledges that, to assist Participant in the performance of Participant’s duties, the Company agrees to provide and shall provide and has provided Participant with Confidential Information (as defined below) and materials.  Due to the sensitive nature of this Confidential Information, Participant acknowledges that the Company has legitimate business and competitive interests and legal rights to require non-disclosure of the Confidential Information to other companies and/or individuals and to require that the Confidential Information be used only for the benefit of the Company.  Therefore, in order to protect the Company’s Confidential Information and the Company’s business goodwill and competitive position, and in exchange for the Company providing Participant the consideration set forth herein, and in order to protect the value of the equity-based compensation provided to Participant in this Agreement, Participant agrees:

(i)          At any time during the term of Participant’s service to the Company and thereafter for so long as such Confidential Information remains confidential, other than by reason of its wrongful disclosure (whether directly or indirectly) by Participant, Participant will not use, disclose or allow to be disclosed to any person, firm, or corporation, the Company’s Confidential Information, unless previously authorized by the Company for use in the pursuit of Company business;

(ii)         During the term of Participant’s service to the Company (which for purposes of this Section shall be deemed to include any period for which Participant continues to be paid by the Company following termination or resignation) and for a period of twelve (12) months following Participant’s termination of service, whether voluntary or involuntary, Participant will not, anywhere in the world, directly or indirectly, compete with any portion of the Business (as defined below) of the Company in any way, or act as an officer, director, employee, consultant, lender, partner, trustee, member, shareholder, or agent of any person or entity that is engaged in any business in competition with the Business as now conducted by the Company or its Affiliates or in which the Company or its Affiliates becomes engaged during the term of Participant’s service to the Company, including, without limitation,

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any member of the Competitive Group.  Notwithstanding the foregoing, this clause (ii) shall not (A) preclude Participant from going to work for a separate business unit of any member of the Competitive Group that is not engaged in the Business, or (B) apply to services rendered by Participant in California after the date Participant’s service by the Company terminates (which for purposes of this Section shall be deemed to include any period for which Participant continues to be paid by the Company following termination or resignation); and

(iii)        Both during Participant’s service to the Company and for a period of twelve (12) months following Participant’s termination of service, whether voluntary or involuntary, Participant will not: (A) directly or indirectly solicit, entice, induce or attempt to induce or influence any employee or independent contractor of the Company to terminate or alter his, her or its relationship with the Company; and (B) provide any information about the Company’s employees or independent contractors to any other person for the purpose of assisting any third party to solicit the Company’s employees for outside employment.

(c)         Use of Certain Information.  Participant shall not knowingly use in his or her work for the Company, any ideas, processes, code, inventions, improvements, developments and discoveries subject to any right or obligation of a third party, including trade secrets, patents, copyrights, trademarks, or open source obligations.

(d)         Business Opportunities.  Participant will promptly disclose to the Company any business opportunity of which Participant becomes aware during his/her employment or service to the Company that relates to any products or services planned, under development, developed, produced or marketed by the Company.  Participant will not take advantage of or divert any such opportunity for his/her (or any other person or entity) own gain, profit or benefit, without the prior written consent of the Company.

(e)         Company Materials.  All Company Materials are the Company’s property and may not be copied or removed from the Company’s premises (physically or electronically), unless done for the sole benefit of the Company as part of Participant’s job responsibilities or expressly approved by an authorized representative of the Company, for the benefit of the Company.

(f)          Return of Company Materials.  Immediately upon the Participant’s Termination of Service for any reason, or upon Company’s request at any other time, Participant will deliver to Company all Company Materials.  Participant shall not retain, copy, or remove (either physically or electronically) any Company Materials from Company premises, computers, or other electronic equipment or storage devices.

(g)         Definitions.  For purposes of this Section 3.6:

(i)          The term “Business” shall mean the business of providing integrated payment and information solutions and related services for intelligent travel applications to transportation and traffic management entities, as well as providing mission-centered training systems and services, C4ISR systems, intelligence, and cyber solutions for the United States and allied nations.

(ii)         The term “Confidential Information” or “Company Confidential Information” means all forms and types of business, technical, financial, economic, sales, marketing or customer information of the Company that Participant receives, develops or has access to as a result of his/her employment or service to the Company, which has not been previously disclosed to the general public by an authorized Company representative or customer, regardless of whether such information would be deemed a trade secret under applicable law.  Confidential Information shall be interpreted broadly and includes, but is not limited to, business strategies and plans, financial information, projections, pricing and

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cost information, proposals, lists of present or future customers, all information obtained from or about current or future customers, supplier lists and information, plans and results of research and development, reports, manuals, policies, personnel information (other than Participant’s own information), evaluations, designs, specifications, blueprints, drawings, patterns, compilations, formulas, programs, software, prototypes, methods, processes, devices, procedures, “Inventions,” special techniques of any kind peculiar to the Company’s operations, or other confidential or proprietary information or intellectual property related to the Business, products, services, or plans of the Company, whether tangible or intangible, and whether stored or memorialized physically, electronically, photographically, or in Participant’s memory.  This specifically includes all information the Company receives from customers or other third parties that is not generally known to the public or is subject to a confidentiality agreement.

(iii)        The term “Company” means the Company, its subsidiaries and its Affiliates.

(iv)        The term “Company Materials” means all forms of written or recorded information, data, or materials, including, but not limited to, documents, files, memoranda, notes, lists, as well as photographs, drawings, blueprints, and schematics (and all copies thereof) relating to the Company’s business, customers, suppliers, products or services, whether in tangible or electronic form (including items stored in computer memories, computer disks, thumb drives, CDs, or any other electronic means), whether made or compiled by Participant or others.

(v)         The term “Competitive Group” includes, but is not limited to, the following entities: ACS, Accenture, Active Exhaust, BAE Systems, Bering Sea Environmental, Boeing, Booz Allen Hamilton, DRS Training & Control Systems, Elbit Systems, Engility, General Dynamics, HP Enterprise Services, Information Assurance Specialist, IBM, Israeli Aircraft Industries, Kapsch-Group Beteiligungs, L-3, LG, Leidos, Lockheed Martin, Northrup Grumman, Raytheon, Rockwell Collins, Royal Imtech, Ruag, SAIC, Saab Training Systems, Scheidt and Bachmann, Thales, Xerox, Siemens, TransCore, Trapeze Group, IVU Traffic Technologies, Indra Sistemas, Init AG (and U.S. subsidiaries), Econolite Group, Trafficware, and Q-Free ASA (and U.S. subsidiaries), as well as any entity that is a successor to, acquires a majority of the assets of, or merges in whole or in part with any of the foregoing entities.

(vi)        The term “Inventions” includes, but is not limited to, any creation, discovery, development, idea, technique, formula, method, process, use, apparatus, product, device, machine, composition, code, design, program, technical data, configuration of any kind, or improvements to any of these things, which is discovered, conceived, developed, made or produced by Participant (alone or in conjunction with others), whether or not patentable or registerable under patent, copyright or similar statutes.

(vii)       The term “Restrictive Covenants” means the restrictions set forth in this Section 3.6 or, if Participant is a party to an employment agreement with the Company, which agreement sets forth provisions regarding Confidential Information, non-solicitation or non-competition that are more restrictive than the provisions set forth in this Section 3.6, the provisions set forth in such employment agreement.

(h)         Reasonableness of Restrictions.  Participant has carefully read and considered the Restrictive Covenants, and, having done so, agrees and acknowledges that the Restrictive Covenants limit Participant’s ability to engage in competition during the period provided for above.  Participant expressly warrants and represents that these restrictions with respect to time and scope of activity are reasonable and necessary to protect the Confidential Information and the Company’s business goodwill and competitive position.

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(i)          Remedies for Breach.  In the event of a breach of any of the Restrictive Covenants, in addition to the forfeiture provisions set forth in Section 3.6(a), the Company shall have the right to seek monetary damages for any such breach.  In addition, in the event of a breach or threatened breach of any of the Restrictive Covenants, the Company shall have the right to seek equitable relief, including specific performance by means of an injunction against Participant or against Participant’s partners, agents, representatives, servants, employers, employees, and/or any and all persons acting directly or indirectly by or with him or her, to prevent or restrain any such breach.

(j)          Blue Penciling.  In the event a court of competent jurisdiction determines that the geographic area, duration, or scope of activity of any restriction under this Agreement is more extensive than is necessary to protect the legitimate business interests of the Company and its affiliates or are otherwise unenforceable, the Company may, in its sole discretion, reform and modify the restrictions under this Agreement to the extent required to render them valid and enforceable under applicable law.

(k)         Defend Trade Secrets Act.  The federal Defend Trade Secrets Act of 2016 provides immunity in certain circumstances to employees, contractors, and consultants for limited disclosures of a company’s trade secrets. Specifically, employees, contractors, and consultants may disclose trade secrets: (i) in confidence, either directly or indirectly, to a federal, state, or local government official, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Additionally, employees, contractors, and consultants who file retaliation lawsuits for reporting a suspected violation of law may also: (A) disclose the trade secret to his/her attorney, and (B) use the information in related court proceeding, as long as the individual files documents containing the trade secret under seal, and does not otherwise disclose the trade secret except pursuant to court order.

ARTICLE IV

OTHER PROVISIONS

4.1         No Right to Continued Employment, Service or Awards.

(a)         Nothing in the Plan, the Grant Notice, or this Agreement shall confer upon Participant any right to continue in the employ or service of the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company and any Affiliate, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, except to the extent expressly provided otherwise in a written agreement between the Company or any Affiliate and Participant.

(b)         The grant of the Award is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future.  Future grants, if any, will be at the sole discretion of the Company.  In addition, the value of the Award is an extraordinary item of compensation outside the scope of any employment contract.  As such, the Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments. The future value of the underlying Common Stock is unknown and cannot be predicted with certainty.

4.2         Adjustments. Participant acknowledges that the Award, including the vesting of the Award and the number of Shares subject to the Award, is subject to adjustment in the discretion of the Board (or any Committee to which administration of the Plan has been delegated by the Board) upon the occurrence of certain events as provided in this Agreement and Section 11 of the Plan.

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4.3         Notices.  Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s corporate headquarters or to the then-current email address for the Secretary of the Company, and any notice to be given to Participant shall be addressed to Participant at the most recent physical or email address for Participant listed in the Company’s personnel records. By a notice given pursuant to this Section 4.3, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

4.4         Titles.  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

4.5         Governing Law; Venue; Severability. The laws of the state in which Participant resides shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws. The parties agree that any suit, action, or proceeding arising out of or relating to the Plan or this Agreement shall be brought in the United States District Court for the Southern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in San Diego County, California) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection a party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Agreement shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.    Notwithstanding anything to the contrary contained in the Participant’s Employee Inventions & Secrecy Agreement (the “Inventions & Secrecy Agreement”), Section 16 of such agreement is hereby amended to be consistent with this Section 4.5 and this constitutes an amendment of such Inventions & Secrecy Agreement to change the governing law of such agreement to be consistent with this Section 4.5 (with references therein to the “Agreement” to continue to be deemed references to the Inventions & Secrecy Agreement).

4.6         Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the United States Securities and Exchange Commission, including, without limitation, Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan, the Grant Notice and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

4.7         Tax Representations. Participant has reviewed with Participant’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Participant understands that Participant (and not the Company) shall be responsible for Participant’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

4.8         Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns

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of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.

4.9         Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the RSUs, the Dividend Equivalents, the Plan and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

4.10       Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board (or any Committee to which administration of the Plan has been delegated by the Board); provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall impair any rights or obligations under this Agreement in any material way without the prior written consent of Participant.

4.11       Paperless Administration.  By accepting this Award, Participant hereby agrees to receive documentation related to the Award by electronic delivery, such as a system using an internet website or interactive voice response, maintained by the Company or a third party designated by the Company.

4.12       Entire Agreement.  The Plan, the Grant Notice, this Agreement and the Inventions & Secrecy Agreement constitute the entire agreement of the parties and supersede in their entirety all oral, implied or written promises, statements, understandings, undertakings and agreements between the Company and Participant with respect to the subject matter hereof, including without limitation, the provisions of any employment agreement or offer letter regarding equity awards to be awarded to Participant by the Company, or any other oral, implied or written promises, statements, understandings, undertakings or agreements by the Company or any of its representatives regarding equity awards to be awarded to Participant by the Company. Notwithstanding the foregoing, Section 3.6 of this Agreement is in addition to and does not limit the effect of other agreements or understandings between Participant and the Company or any Affiliate with respect to matters addressed therein, including the Inventions & Secrecy Agreement or any other agreement with respect to prohibitions against solicitation and the protection of the Company’s trade secrets and confidential information and noncompetition and nonsolicitation covenants of Participant; provided, however, that to the extent the provisions of Section 3.6 of this Agreement are more restrictive that any such agreements, including the Inventions & Secrecy Agreement, Participant and the company agree that the provisions of Section 3.6 of this Agreement shall govern.

4.13       Section 409A.

(a)         Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Code (together with any Treasury Regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Grant Date, “Section 409A”). The Board (or any Committee to which administration of the Plan has been delegated by the Board) may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Board (or any Committee to which administration of the Plan has been delegated by the Board) determines are necessary or appropriate to comply with the requirements of Section 409A.

A-10

(b)         This Agreement is not intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, the Shares issuable pursuant to the RSUs and the cash issuable upon settlement of the Dividend Equivalents corresponding thereto shall be distributed to Participant no later than the later of: (i) the fifteenth (15th) day of the third month following Participant’s first taxable year in which such RSUs are no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third month following first taxable year of the Company in which such RSUs are no longer subject to substantial risk of forfeiture, as determined in accordance with Section 409A and any Treasury Regulations and other guidance issued thereunder.

(c)         For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), each payment that Participant may be eligible to receive under this Agreement shall be treated as a separate and distinct payment.

A-11

EXHIBIT B

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE

VESTING SCHEDULE

1.           Performance-Based Vesting.  The RSUs shall vest based on the Company’s Sales Growth Rate (as defined below), Return on Equity (as defined below) and Adjusted EBITDA Growth Rate (as defined below) for the Performance Period (as defined below) as follows:

(a)         Performance Vesting Provisions.  In the event the Measurement Date (as defined below) occurs on September 30, [Year 3], such number of RSUs shall vest on the Determination Date (as defined below) as is determined as follows:

(i)          Sales Growth.  Such number of RSUs shall vest based on the Company’s calculated Sales Growth Factor during the Performance Period as is determined by multiplying (i) the Target RSUs set forth in the Grant Notice, by (ii) 40%, by (iii) Sales Growth Achievement Percentage (as defined in the chart below) determined pursuant to the chart set forth below as of the Measurement Date.

Sales Growth RateFor
Performance Period Sales Growth Factor Sales Growth Achievement
Percentage

If the Company’s Sales Growth Factor during the Performance Period is between two achievement levels, the Sales Growth Achievement Percentage shall be determined by linear interpolation between the applicable achievement levels.

(ii)         Return on Equity Performance.  Such number of RSUs shall vest based on the Company’s Return on Equity during the Performance Period as is determined by multiplying (i) the Target RSUs set forth in the Grant Notice, by (ii) 20%, by (iii) the Return on Equity Achievement Percentage (as defined in the chart below) determined pursuant to the chart set forth below as of the Measurement Date.

Return on Equity Achieved
During Performance Period Return on Equity Achievement
Percentage

If the Company’s Return on Equity achievement is between two achievement levels, the Return on Equity Achievement Percentage shall be determined by linear interpolation between the applicable achievement levels.

(iii)      Adjusted EBITDA Growth.  Such number of RSUs shall vest based on the Company’s calculated Adjusted EBITDA Growth Factor during the Performance Period as is determined by multiplying (i) the Target RSUs set forth in the Grant Notice, by (ii) 40%, by (iii) Adjusted EBITDA

Growth Achievement Percentage (as defined in the chart below) determined pursuant to the chart set forth below as of the Measurement Date.

Adjusted EBITDA Growth Rate
for Performance Period Adjusted EBITDA
Growth Factor Adjusted EBITDA
Growth Achievement
Percentage

If the Company’s Adjusted EBITDA Growth Factor during the Performance Period is between two achievement levels, the Adjusted EBITDA Growth Achievement Percentage shall be determined by linear interpolation between the applicable achievement levels.

(iv)        Continued Service Requirement.  Subject to clauses (b), (c) and (d) below, Participant must not have experienced a Termination of Service prior to September 30, [Year 3] in order to be eligible for vesting pursuant to this clause (a).

(b)         Vesting Upon a Change in Control.  Notwithstanding the foregoing, such number of RSUs shall vest immediately prior to the date of such Change in Control as is equal to the Target RSUs.  Participant must not have experienced a Termination of Service prior to the date of such Change in Control in order to be eligible for vesting pursuant to this clause (b).

(c)         Vesting Upon Covered Termination or Disability.  Notwithstanding the foregoing, in the event Participant’s Service terminates as a result of his or her Covered Termination or Disability, the RSUs shall continue to be eligible to vest on the Determination Date pursuant to clause (a) based on the Company's performance for the Performance Period, with the exception that the number of RSUs that shall vest pursuant to clause (a), if any, shall be multiplied by the percentage determined by dividing (x) the number of calendar days elapsed from the beginning of the Performance Period through and including the date of such Covered Termination or Disability, by (y) one thousand ninety-five.

(d)         Vesting Upon Death.  Notwithstanding the foregoing, such number of RSUs shall vest immediately in the event Participant’s service terminates as a result of his or her death as is determined by multiplying (i) the Target RSUs, by (ii) the percentage determined by dividing (x) the number of calendar days elapsed from the beginning of the Performance Period through and including the date of death, by (y) one thousand ninety-five.

2.           Forfeiture.  Any portion of the Award and any RSUs which do not vest pursuant to Section 1 above shall automatically and without further action be cancelled and forfeited by Participant, and Participant shall have no further right or interest in or with respect to such portion of the Award or RSUs.

3.           Definitions.  For purposes of this Agreement, the following terms shall have the meanings given below:

(a)         “Actual Cumulative Sales Amount” means the aggregate of the Company’s Sales during the Performance Period.

(b)         “Actual Cumulative Adjusted EBITDA Amount” means the aggregate of the Company’s Adjusted EBITDA (as defined below) during the Performance Period, as presented in the

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Company’s filings with the U.S. Securities and Exchange Commission.

(c)         “Adjusted EBITDA” means (i) net income (loss) attributable to the Company if the Company has no discontinued operations in accordance with accounting principles generally accepted in the United States during the Performance Period or (ii) income (loss) from continuing operations if the Company has discontinued operations in accordance with accounting principles generally accepted in the United States during the Performance Period, in either case plus or minus the following amounts to the extent that these items were added or deducted in determining net income (loss) or income (loss) from continuing operations, as applicable: plus interest expense, less interest income, plus provision for income taxes, less benefit for income taxes, plus depreciation, plus amortization of purchased intangible assets, plus goodwill impairment charges, plus intangible asset impairment charges, plus fixed asset and other long-lived asset impairment charges, plus other non-operating expense, less non-operating income, plus expenses incurred to implement the Company’s Enterprise Resource Planning (ERP) systems and improve its supply chain management, plus expenses incurred related to contemplated or completed business acquisitions including retention bonus expenses, due diligence and consulting costs incurred in connection with the acquisitions, expense recognized as a result of the seller modifying employee equity awards or cash bonuses, expenses recognized related to the change in the fair value of contingent consideration for acquisitions, plus expenses incurred related to restructuring the Company, including the costs of a reduction in force and other associated costs, such as presented in the Company’s 8-K filing with the U.S. Securities and Exchange Commission on November 20, [Year 0]. If the Company adopts Accounting Standards Update No. 2014-09, Revenue for Contracts with Customers (ASU 2014-09), using the cumulative effect method of adoption (modified retrospective method), amounts included in the calculation of Adjusted EBITDA as described above during the Performance Period will be determined for fiscal years [Year 1] and [Year 2] excluding any impacts of adoption of ASU 2014-09. If the Company adopts ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), the amount of Adjusted EBITDA for fiscal year [Year 3] will be equal to the Adjusted EBITDA for fiscal year [Year 3] as reported in the fiscal year [Year 3] earnings release filed on Form 8-K multiplied by the ratio calculated as (i) the fiscal [Year 2] Adjusted EBITDA calculated with net income (loss) or income (loss) from continuing operations and income tax provision (benefit) disclosed in the footnotes of the [Year 2] Form 10-K which discloses the amount that these amounts would have been absent the adoption of ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), divided by (ii) the fiscal [Year 2] Adjusted EBITDA calculated with net income (loss) or income (loss) from continuing operations and income tax provision (benefit) disclosed on the income statement of the [Year 2] Form 10-K which were impacted by the adoption of ASU 2014-09. If the Company adopts ASU 2014-09 using the full retrospective method of adoption, all amounts will be determined for fiscal year [Year 1] as reported in the fiscal [Year 1] financial statements in the Annual Report on Form 10-K filed by the Company for the fiscal year ending September 30, [Year 1]  (the “[Year 1] 10-K”) and the earnings release filed on Form 8-K in connection with that filing. If the full retrospective method of adoption is used, the amount of net income attributable to the Company and the income tax provision (benefit) for fiscal years [Year 2] and [Year 3] will be equal to the respective amounts for fiscal years [Year 2] and [Year 3] as reported in the Annual Report on Form 10-K filed by the Company for the fiscal year ending September 30, [Year 3] (the “[Year 3] 10-K”) multiplied by the ratio calculated as (i) the sum of the fiscal [Year 1] and fiscal [Year 0] amounts as reported in the [Year 1] Form 10-K divided by (ii) the sum of the fiscal [Year 1] and fiscal [Year 0] amounts as reported in the [Year 2] Form 10-K.

(d)         “Adjusted EBITDA Growth Factor” for the Performance Period shall mean (i) the Company’s Actual Cumulative Adjusted EBITDA for the Performance Period divided by (ii) the Baseline Cumulative Adjusted EBITDA Amount, and the “Adjusted EBITDA Growth Factor” shall be calculated to the fourth decimal point.

(e)         “Baseline Cumulative Sales Amount” means $[______] if the Company has no

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discontinued operations (as determined in accordance with accounting principles generally accepted in the United States during the Performance Period).  If the Company does have discontinued operations during the Performance Period (as determined in accordance with accounting principles generally accepted in the United States during the Performance Period), the Baseline Cumulative Sales Amount means $[______].

(f)          “Baseline Cumulative Adjusted EBITDA Amount” means $[______] if the Company has no discontinued operations (as determined in accordance with accounting principles generally accepted in the United States during the Performance Period).  If the Company does have discontinued operations during the Performance Period (as determined in accordance with accounting principles generally accepted in the United States during the Performance Period), the Baseline Cumulative Adjusted EBITDA Amount means $[______].

(g)         “Constructive Termination” means a voluntary termination of employment by Participant after one of the following is undertaken without Participant’s express written consent:

(i)          a substantial reduction in the nature or scope of Participant’s authority, duties, function or responsibilities (and not simply a change in title or reporting relationships);

(ii)         a material reduction in Participant’s base compensation (except for base compensation decreases generally applicable to the Company’s other similarly-situated employees); or

(iii)        an increase in Participant’s one-way driving distance from Participant’s principal personal residence to the principal office or business location at which Participant is required to perform services of more than 50 miles, except for required travel for the Company’s business to the extent substantially consistent with Participant’s prior business travel obligations;

(iv)        a material breach by the Company of any provisions of this Agreement or any enforceable written agreement between the Company and Participant.

Notwithstanding the foregoing, a voluntary termination shall not be deemed a Constructive Termination unless (x) Participant provides the Company with written notice that Participant believes that an event described above has occurred, (y) such notice is given within three (3) months of the date the event occurred, and (z) the Company does not rescind or cure the conduct giving rise to the event described above within ten (10) days of receipt by the Company of such notice from Participant.  A Participant’s resignation from employment with the Company for Good Reason must occur within ninety (90) days following the expiration of the foregoing cure period.

(h)         “Covered Termination” shall mean Participant’s Involuntary Termination Without Cause or Constructive Termination.

(i)          “Determination Date” means the date on which the Committee certifies in writing the Company’s Sales Growth Rate, Return on Equity and Adjusted EBITDA for the Performance Period.  The Company expects the Determination Date will occur prior to November 30, [Year 3], but in all events such date shall occur during [Year 3].

(j)          “Involuntary Termination Without Cause” shall mean Participant’s involuntary termination of employment by the Company other than for one of the following reasons:

(i)The willful and continued failure of Participant to perform substantially his or her duties to the Company as those duties exist on the date of termination, other than any failure resulting from circumstances outside Participant’s control, or from incapacity of Participant due to physical

B-4

or mental illness or Disability, or following Participant’s delivery of notice of Constructive Termination, after a written demand for substantial performance is delivered to Participant, which demand specifically identifies the manner in which the Company believes the Participant has not substantially performed his or her duties satisfactorily, and provided that the Company demonstrates that such failure has a demonstrably harmful impact on the Company or its reputation, and provided further that Participant has been given a period of at least thirty (30) days to cure his or her failure in performance.  No act or failure to act shall be considered “willful” unless it is done, or omitted to be done, in bad faith or without reasonable belief that the action was in the best interests of the Company or its Affiliates;

(ii)Participant’s gross negligence or breach of fiduciary duty to the Company involving personal profit, personal dishonesty or recklessness, or Participant’s material breach of any agreement with the Company, including a material violation of Company policies and procedures; provided that such termination of employment occurs within twelve (12) months following the Company’s discover of such event; or

(iii)Participant’s conviction (which has become final) or entry of a plea of guilty or nolo contendere regarding an act that would be deemed a felony under California or Federal criminal statutes (or any comparable criminal laws of any jurisdiction in which Participant is permanently employed by the Company or an Affiliate) that has a demonstrably harmful impact on the Company’s business or reputation, as determined in good faith by the Company’s Executive Compensation Committee, provided that such termination of employment occurs within twelve (12) months following the Company’s discover of such event.

(k)         “Measurement Date” means September 30, [Year 3].

(l)          “Performance Period” means the period beginning on October 1, [Year 0] and ending on the Measurement Date.

(m)        “Return on Equity” for the Performance Period shall mean the Company’s net income return on equity for the Performance Period, expressed as an average annual percentage of beginning equity (to the third decimal point), determined as follows:

(i)          the sum of:

(A)        the percentage determined by dividing (A) the Company’s net income for the fiscal year ending September 30, [Year 1], by (B) the Company’s beginning equity as of October 1, [Year 0]; plus

(B)         the percentage determined by dividing (A) the Company’s net income for the fiscal year ending September 30, [Year 2], by (B) the Company’s beginning equity as of October 1, [Year 1]; plus

(C)         the percentage determined by dividing (A) the Company’s net income for the fiscal year ending September 30, [Year 3], by (B) the Company’s beginning equity as of October 1, [Year 2];

(ii)         divided by three (3).

The Company’s Return on Equity shall be determined in accordance with accounting principles generally accepted in the United States. If the Company adopts ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), the net income and beginning equity amounts for

B-5

fiscal years [Year 1], [Year 2], and [Year 3]will be determined for such fiscal years excluding any impacts of adoption of ASU 2014-09. If the Company adopts ASU 2014-09 using the full retrospective method of adoption, the net income and beginning equity amounts for fiscal years [Year 1], [Year 2], and [Year 3]will be determined as the amounts that are reported for such fiscal years, respectively, in the [Year 3] Form 10-K.

(n)        “Sales” shall mean the revenues from the Company’s sales, determined in accordance with accounting principles generally accepted in the United States. If the Company adopts ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), Sales for fiscal years [Year 1] and [Year 2] will be determined excluding any impacts of adoption of ASU 2014-09. If the Company adopts ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), Sales for fiscal year [Year 3] will be equal to the Sales for fiscal year [Year 3] as reported in the [Year 3] Form 10-K multiplied by the ratio calculated as (i) the fiscal [Year 2] Sales disclosed in the footnotes of the [Year 2] Form 10-K which discloses the amount that Sales would have been absent the adoption of ASU 2014-09 using the cumulative effect method of adoption (modified retrospective method), divided by (ii) the fiscal [Year 2] Sales as reported in the [Year 2] Form 10-K. If the Company adopts ASU 2014-09 using the full retrospective method of adoption, Sales for fiscal [Year 1] will be determined as reported in the fiscal [Year 1] financial statements in the [Year 1] Form 10-K. If the full retrospective method of adoption is used, the amount of Sales for fiscal years [Year 2] and [Year 3] will be equal to the Sales for fiscal years [Year 2] and [Year 3] as reported in the [Year 3] Form 10-K multiplied by the ratio calculated as (i) the sum of the fiscal [Year 1] and fiscal [Year 0] Sales as reported in the [Year 1] Form 10-K divided by (ii) the sum of the fiscal [Year 1] and fiscal [Year 0] Sales as reported in the [Year 2] Form 10-K.

(o)         “Sales Growth Factor” for the Performance Period shall mean (i) the Company’s Actual Cumulative Sales Amount for the Performance Period divided by (ii) the Baseline Cumulative Sales Amount, and the “Sales Growth Factor” shall be calculated to the fourth decimal point.

B-6

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bradley H. Feldmann, certify that:

1)I have reviewed this quarterly report on Form 10-Q of Cubic Corporation;

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bradley H. Feldmann

Bradley H. Feldmann

President and Chief Executive Officer

Date: February 6, 2018

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anshooman Aga, certify that:

1)I have reviewed this quarterly report on Form 10-Q of Cubic Corporation;

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

a

/s/ Anshooman Aga

Anshooman Aga

Executive Vice President and Chief Financial Officer

Date: February 6, 2018

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned, in his capacity as an officer of Cubic Corporation (the “Registrant”) hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The quarterly report of the Registrant on Form 10-Q for the period ended December 31, 2017, (the “Report”), which accompanies this certification, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Bradley H. Feldmann

Bradley H. Feldmann

President and Chief Executive Officer

Date: February 6, 2018

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned, in his capacity as an officer of Cubic Corporation (the “Registrant”) hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The quarterly report of the Registrant on Form 10-Q for the period ended December 31, 2017, (the “Report”), which accompanies this certification, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Anshooman Aga

Anshooman Aga

Executive Vice President and Chief Financial Officer

Date: February 6, 2018

XML

Document and Entity Information - shares	3 Months Ended
	Dec. 31, 2017	Jan. 23, 2018
Document and Entity Information
Entity Registrant Name	CUBIC CORP /DE/
Entity Central Index Key	0000026076
Document Type	10-Q
Document Period End Date	Dec. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		27,222,907
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Net sales:
Products	$ 131,743	$ 144,760
Services	208,941	189,917
Total net sales	340,684	334,677
Costs and expenses:
Products	91,573	104,612
Services	169,337	151,142
Selling, general and administrative expenses	65,347	63,758
Research and development	11,977	9,020
Amortization of purchased intangibles	7,959	9,355
Restructuring costs	1,495	891
Total costs and expenses	347,688	338,778
Operating loss	(7,004)	(4,101)
Other income (expense):
Interest and dividend income	485	247
Interest expense	(2,674)	(3,540)
Other income (expense), net	(76)	(547)
Loss before income taxes	(9,269)	(7,941)
Income tax provision (benefit)	517	(5,073)
Net loss	$ (9,786)	$ (2,868)
Net loss per share:
Basic (in dollars per share)	$ (0.36)	$ (0.11)
Diluted (in dollars per share)	$ (0.36)	$ (0.11)
Weighted average shares used in per share calculations:
Basic (in shares)	27,207	27,086
Diluted (in shares)	27,207	27,086

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss	$ (9,786)	$ (2,868)
Other comprehensive income (loss):
Foreign currency translation	(192)	(20,518)
Change in unrealized gains/losses from cash flow hedges:
Change in fair value of cash flow hedges, net of tax	28	466
Adjustment for net gains/losses realized and included in net income, net of tax	503	(865)
Total change in unrealized gains/losses realized from cash flow hedges, net of tax	531	(399)
Total other comprehensive income (loss)	339	(20,917)
Total comprehensive loss	$ (9,447)	$ (23,785)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2017	Sep. 30, 2017
Current assets:
Cash and cash equivalents	$ 48,995	$ 60,143
Restricted cash	11,770	8,434
Accounts receivable:
Trade and other receivables	12,182	12,378
Long-term contracts	390,916	416,808
Allowance for doubtful accounts	(429)	(436)
Accounts receivable - net	402,669	428,750
Recoverable income taxes	2,156	5,360
Inventories	101,395	87,715
Other current assets	39,137	31,141
Total current assets	606,122	621,543
Long-term contract receivables	17,328	17,457
Long-term capitalized contract costs	54,491	56,471
Property, plant and equipment, net	114,714	113,686
Deferred income taxes	4,647	2,206
Goodwill	416,284	415,912
Purchased intangibles, net	90,713	98,495
Other assets	12,766	10,515
Total assets	1,317,065	1,336,285
Current liabilities:
Short-term borrowings	88,000	55,000
Trade accounts payable	104,707	95,837
Customer advances	54,446	57,477
Accrued compensation and other current liabilities	111,979	158,327
Income taxes payable	8,942	9,838
Total current liabilities	368,074	376,479
Long-term debt	199,769	199,761
Other long-term liabilities	70,099	70,414
Shareholders' equity:
Common stock	36,789	37,850
Retained earnings	784,699	794,485
Accumulated other comprehensive loss	(106,287)	(106,626)
Treasury stock at cost	(36,078)	(36,078)
Total shareholders' equity	679,123	689,631
Total liabilities and shareholders' equity	$ 1,317,065	$ 1,336,285

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Operating Activities:
Net loss	$ (9,786)	$ (2,868)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	13,109	13,444
Share-based compensation expense	1,581	2,314
Change in fair value of contingent consideration	298	(1,314)
Changes in operating assets and liabilities net of effects from acquisitions	(32,140)	(4,478)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(26,938)	7,098
Investing Activities:
Acquisition of businesses, net of cash acquired	(4,650)	(12,924)
Purchases of property, plant and equipment	(6,318)	(6,674)
Purchases of marketable securities		(6,246)
Proceeds from sales or maturities of marketable securities		6,246
Purchase of non-marketable debt and equity securities	(671)
Sale of other assets		1,233
NET CASH USED IN INVESTING ACTIVITIES	(11,639)	(18,365)
Financing Activities:
Proceeds from short-term borrowings	82,000	36,800
Principal payments on short-term borrowings	(49,000)	(35,000)
Principal payments on long-term debt		(107)
Purchase of common stock	(2,256)	(2,334)
Contingent consideration payments related to acquisitions of businesses	(656)	(1,988)
Net change in restricted cash	(3,243)	(4,226)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	26,845	(6,855)
Effect of exchange rates on cash	584	(12,666)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(11,148)	(30,788)
Cash and cash equivalents at the beginning of the period	60,143	197,127
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	$ 48,995	166,339
Vocality
Supplemental disclosure of non-cash investing and financing activities:
Liability incurred to acquire, net		$ 1,093

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Basis for Presentation

3 Months Ended

Dec. 31, 2017

Basis for Presentation

Basis for Presentation

CUBIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

December 31, 2017

Note 1 — Basis for Presentation

Cubic Corporation (“we”, “us”, and “Cubic”) has prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

In our opinion, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results for the interim periods presented. Operating results for the three-month period ended December 31, 2017 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2017.

The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions 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. Actual results could differ from those estimates.

As described in Note 12, we concluded that Cubic Mission Solutions (CMS) became a separate operating segment beginning on October 1, 2017. Applicable prior period amounts have been adjusted retrospectively to reflect the reportable segment change.

Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared with the policies described in our Annual Report on Form 10-K for the year ended September 30, 2017.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees. We adopted the ASU in the first quarter of fiscal 2018. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards to be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity on the balance sheet. The guidance also requires classification of certain share-based payment activities within the statement of cash flows. These changes were applied prospectively but had no significant impact on our financial position, operating results or classification of cash flows.

In May 2015, the FASB issued Accounting Standards Update ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize investments for which the fair values are measured using the net asset value per share practical expedient within the fair value hierarchy. It also limits certain disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. This guidance was adopted retrospectively in fiscal year 2017. The adoption did not have a material impact on our consolidated financial statements.

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). Also in December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Tax Act for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. As described in Note 10 below, at December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance will require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. Adoption of ASU 2014-09 will be required for us beginning in the first quarter of fiscal 2019 and we have determined that we will not adopt ASU 2014-09 earlier than required. ASU 2014-09 allows for two methods of adoption: (a) “full retrospective” adoption, meaning the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning the cumulative effect of applying ASU 2014-09 is recognized as an adjustment to the opening retained earnings balance in the year of adoption. We have not yet determined which method of adoption we will select.

We have assigned a task force within management to lead our implementation efforts and we have engaged outside advisors to assist. We are currently in the process of analyzing the impact of the adoption of the new standard on our various revenue streams. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for our fixed-price development and production contracts will generally be recognized over time as costs are incurred, which is consistent with the revenue recognition model we currently use for the majority of these contracts. For certain of our fixed-price production contracts where we currently recognize revenue as units are delivered, in most cases the accounting for those contracts will change under ASU 2014-09 such that we will recognize revenue as costs are incurred. This change will generally result in an acceleration of revenue as compared with our current revenue recognition method for those contracts. Approximately 22% of our net sales used the units-of-delivery method to recognize revenue in fiscal 2017. We continue to analyze the impact of the new standard on our remaining revenue streams and, as the standard will supersede substantially all existing revenue guidance affecting us under GAAP, we expect that it will impact revenue and cost recognition on a significant number of our contracts across our business segments, in addition to our business processes and our information technology systems. Our process of evaluating the effect of the new standard will continue through fiscal year 2018.

In January 2016, the FASB issued Accounting Standards Update ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for us beginning October 1, 2018 and, with the exception of a specific portion of the amendment, early adoption is not permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for us beginning October 1, 2019 with early adoption permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides clarifying guidance on how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. The adoption of this standard is anticipated to affect our presentation of restricted cash within our statement of cash flows. We are currently evaluating whether to adopt the new guidance early.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance will be effective for us in our fiscal year beginning October 1, 2018 and early adoption is allowed for certain transactions. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit was needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be effective for us in our fiscal year beginning October 1, 2020 with early adoption permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 will be effective for us beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

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Acquisitions

3 Months Ended

Dec. 31, 2017

Acquisitions

Acquisitions

Note 2 — Acquisitions

On October 31, 2017 we paid cash of $4.7 million to purchase 49% of the outstanding capital stock of MotionDSP, a private artificial intelligence software company based in Burlingame, California, which specializes in real-time video enhancement and computer vision analytics. We are accounting for our investment in MotionDSP using the equity method of accounting. As such, we recorded a $4.7 million investment in MotionDSP within other long-term assets on our Condensed Consolidated Balance Sheet. Since October 31, 2017 we have recorded 49% of the net loss of MotionDSP, totaling $0.1 million, in our Condensed Consolidated Statements of Income within non-operating income (expense).

Consolidated Business Acquisitions

Each of the following acquisitions has been treated as a business combination for accounting purposes. The results of operations of each acquired business has been included in our consolidated financial statements since the respective date of each acquisition.

Deltenna Ltd.

In July 2017, we acquired all of the outstanding capital stock of Deltenna Ltd (Deltenna), a wireless infrastructure company specializing in the design and delivery of radio and antenna communication solutions. Deltenna designs and manufactures cutting-edge integrated wireless products including compact LTE base stations, broadband range extenders for areas of poor coverage and rugged antennas. The addition of Deltenna, headquartered in Chippenham, U.K., will enhance tactical communication and training capabilities of our Cubic Global Defense Systems (CGD Systems) businesses by effectively delivering high-capacity data networks within challenging and rigorous environments.

Deltenna’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	December 31,
	2017		2016
Sales	$	—	$	—
Operating loss		(0.1)		—
Net loss after taxes		(0.1)		—

Deltenna’s operating results above included the following amounts for the quarter (in millions):

	December 31,
	2017		2016
Amortization	$	0.1	$	—
Acquisition-related expenses		—		—

The estimated acquisition-date fair value of consideration is $5.3 million, which is comprised of cash paid of $4.0 million plus the estimated fair value of contingent consideration of $1.3 million. Under the purchase agreement, we will pay the sellers up to $7.3 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any changes in fair value are recognized in earnings.

The acquisition of Deltenna was paid for with funds from existing cash resources. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	1.0
Technology		1.1
Other net assets acquired (liabilities assumed)		(0.3)
Net identifiable assets acquired		1.8
Goodwill		3.5
Net assets acquired	$	5.3

The estimated fair values of assets acquired and liabilities assumed, including purchased intangibles as well as the estimated fair value of contingent consideration are preliminary estimates pending the finalization of our valuation analyses. The estimated fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. The customer relationships used the excess earnings approach and the technology asset valuations used the relief from royalty approach.

The intangible assets are being amortized using straight-line methods based on the expected period of cash flows from the assets, over a weighted average useful life of eight years from the date of acquisition.

At the time of the acquisition, the goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of Deltenna with our legacy CGD Systems operating segment, and strengthening our capability of developing and integrating products in our defense portfolio, as well as the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill was reassigned to our legacy CGD Systems segment. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017 distinct from our legacy CGD Systems operating segment. In conjunction with the changes to reporting units, on October 1, 2017 we reassigned goodwill between CGD Systems and CMS based on their relative fair values. The amount recorded as goodwill in connection with the acquisition of Deltenna is not expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Deltenna for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.3
2019		0.3
2020		0.3
2021		0.3
2022		0.3
Thereafter		0.7

Vocality

On November 30, 2016, we acquired all of the outstanding capital stock of Vocality International (Vocality), based in Shackleford, U.K., a provider of embedded technology which unifies communications platforms, enhances voice quality, increases video performance and optimizes data throughput. Vocality contributes to our Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) portfolio of products for our CMS segment and expands our customer base. Vocality also sells its technology in the broadcast, oil and gas, mining, and maritime markets.

Vocality’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	Three Months Ended
	December 31,
	2017		2016
Sales	$	2.2	$	0.1
Operating income (loss)		0.1		(1.1)
Net income (loss) loss after taxes		0.1		(0.9)

Vocality’s operating results above included the following amounts for the quarter (in millions):

	Three Months Ended
	December 31,
	2017		2016
Amortization	$	0.2	$	—
Acquisition-related expenses		0.6		0.8

Prior to our acquisition of Vocality, Vocality had a number of share-based payment awards in place to its employees. Due to the structure of some of these share-based payment awards and the acceleration of vesting of certain of these awards in connection with our acquisition of Vocality, we were required to recognize compensation expense, rather than purchase consideration, for the portion of our purchase price that we paid to the seller that was distributed to the recipients of these awards. Consequently, we recognized $0.4 million of compensation expense within general and administrative expenses during the quarter ended December 31, 2016 related to this matter. This compensation is reflected in Vocality’s acquisition-related expenses and results of operations above for the quarter ended December 31, 2016.

The acquisition date fair value of consideration is $9.6 million, which is comprised of cash paid of $9.7 million plus additional held back consideration to be paid in the future estimated at $0.3 million, less the $0.4 million of cash paid to the seller recorded as compensation expense described above.

The acquisition of Vocality was paid for with funds from existing cash resources. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	2.1
Technology		2.4
Trade name		0.4
Inventory		1.7
Accounts payable and accrued expenses		(0.4)
Other net assets acquired (liabilities assumed)		(0.5)
Net identifiable assets acquired		5.7
Goodwill		3.9
Net assets acquired	$	9.6

The fair values of purchased intangibles were determined using the valuation methodology deemed to be the most appropriate for each type of asset being valued. The customer relationships valuation used the excess earnings approach, and the technology and trade name asset valuations used the relief from royalty approach.

The intangible assets are being amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the assets, over a weighted average useful life of nine years from the date of acquisition.

At the time of the acquisition, the goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of Vocality with our legacy CGD Systems operating segment, and strengthening our capability of developing and integrating products in our defense portfolio, as well as the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill was reassigned to our legacy CGD Systems segment. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017 distinct from our legacy CGD Systems operating segment. In conjunction with the changes to reporting units, on October 1, 2017 we reassigned goodwill between CGD Systems and CMS based on their relative fair values. The amount recorded as goodwill in connection with the acquisition of Vocality is not expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Vocality for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.8
2019		0.7
2020		0.6
2021		0.6
2022		0.5
Thereafter		1.3

Pro forma information

The following unaudited pro forma information presents Cubic Corporation’s consolidated results of operations as if Deltenna and Vocality had been included in our consolidated results since October 1, 2016 (in millions):

	Three Months Ended
	December 31,
	2017		2016
Net sales	$	340.7	$	335.3
Net income (loss)	$	(9.8)	$	(3.3)

The pro forma information includes adjustments to give effect to pro forma events that are directly attributable to the acquisitions and have a continuing impact on operations including the amortization of purchased intangibles and the elimination of interest expense for the repayment of debt. No adjustments were made for transaction expenses, other adjustments that do not reflect ongoing operations or for operating efficiencies or synergies. The pro forma financial information is not necessarily indicative of what the consolidated financial results of our operations would have been had the acquisitions been completed on October 1, 2016, and it does not purport to project our future operating results.

Goodwill

Changes in goodwill for the three months ended December 31, 2017 were as follows (in millions):

			Cubic Global		Cubic		Cubic Global
	Transportation		Defense		Mission		Defense
	Systems		Systems		Solutions		Services		Total
Net balances at September 30, 2017	$	50,870	$	270,692	$	—	$	94,350	$	415,912
Reassignment in the first quarter of 2018		—		(125,321)		125,321		—		—
Foreign currency exchange rate changes		342		16		14		—		372
Net balances at December 31, 2017	$	51,212	$	145,387	$	125,335	$	94,350	$	416,284

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired. Goodwill is not amortized but is subject to an impairment test at a reporting unit level on an annual basis and when circumstances indicate that an impairment is more-likely-than-not. We evaluate our reporting units when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. As described in Note 12, we concluded that CMS became a separate operating segment beginning on October 1, 2017. In conjunction with the changes to reporting units, we reassigned goodwill between CGD Systems and CMS based on their relative fair values.

We estimated the fair value of CGD Systems and CMS based upon market multiples from publicly traded comparable companies in addition to discounted cash flows models for CMS and for a combination of CGD Systems and CMS based on discrete financial forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated based on projected growth rates and financial ratios, influenced by an analysis of historical ratios and by calculating a terminal value at the end of the discrete financial forecasts. The future cash flows were discounted to present value using a discount rate of 13% for our CMS reporting unit and of 11% for the combination of our CGD Systems and CMS reporting units.

Circumstances that might indicate that an impairment is more-likely-than-not include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. The test for goodwill impairment is a two-step process. The first step of the test is performed by comparing the fair value of each reporting unit to its carrying value, including recorded goodwill. If the carrying value of a reporting unit exceeds its fair value, the second step is performed to measure the amount of the impairment, if any, by comparing the implied fair value of goodwill to its carrying value. Any resulting impairment determined would be recorded in the current period.

In connection with our reassignment of goodwill between CGD Systems and our new CMS reporting unit, we performed a goodwill impairment test on the legacy CGD Systems reporting unit immediately before the reassignment of goodwill. This test indicated that there was no impairment of the legacy CGD Systems reporting unit. We also performed a separate goodwill impairment test on the new CGD Systems and CMS reporting units as of October 1, 2017 after goodwill was reassigned in the amounts identified in the table above. The results of this October 1, 2017 impairment test indicated that the estimated fair values for our CGD Systems reporting unit exceeded its carrying value by over 10%, while the estimated fair value of our CMS reporting unit exceeded its carrying values by over 25%.

Our most recent annual goodwill impairment test for our Cubic Global Defense Services (CGD Services) and Cubic Transportation Systems (CTS) reporting units was our 2017 annual impairment test completed as of July 1, 2017. Subsequent to the effective date of that test, we do not believe that circumstances have occurred that indicate that an impairment for these reporting units is more-likely-than-not. As such, no subsequent interim impairment test has been performed. The results of our 2017 annual impairment test indicated that the estimated fair values for our CTS reporting unit exceeded its carrying value by over 100%, while the estimated fair value of our CGD Services reporting unit exceeded its carrying values by over 10%.

Significant management judgment is required in the forecast of future operating results that are used in our impairment analyses. The estimates we used are consistent with the plans and estimates that we use to manage our business. For our CGD Services reporting unit, significant assumptions utilized in our discounted cash flow approach included growth rates for sales and margins at greater levels than we have achieved in the past six years, but at levels that are less than the average annual growth we achieved over the period from fiscal 2000 through fiscal 2010. Assumptions used in our discounted cash flow approach for our CGD Services reporting unit also included growth rates for sales and margins at greater levels than we have achieved in recent years due to our expectation that the U.S. government will reach a budget agreement with increased defense training spending over that of recent years. While our interim assessment of our reporting units did not indicate that impairment was more-likely-than-not for any reporting unit, we believe that there is a heightened risk that a step two impairment test could be required in the future.

Unforeseen negative changes in future business or other market conditions for any of our reporting units including margin compression or loss of business, could cause recorded goodwill to be impaired in the future. Also, changes in estimates and assumptions we make in conducting our goodwill assessment could affect the estimated fair value of our reporting units and could result in a goodwill impairment charge in a future period.

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Net Income (Loss) Per Share

3 Months Ended

Dec. 31, 2017

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Note 3 — Net Income (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period, including vested restricted stock units (RSUs).

In periods with a net income, diluted EPS is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of dilutive restricted stock units. Dilutive restricted stock units are calculated based on the average share price for each fiscal period using the treasury stock method. For RSUs with performance-based vesting, no common equivalent shares are included in the computation of diluted EPS until the related performance criteria have been met. In periods with a net loss, common equivalent shares are not included in the computation of diluted EPS, because to do so would be anti-dilutive. For the three months ended December 31, 2017 and December 31, 2016, the effect of 1.0 million and 1.1 million shares of restricted stock, respectively, were excluded from diluted loss per share that would have been included if we had been in a net income position.

Basic and diluted EPS are computed as follows (amounts in thousands, except per share data).

	Three Months Ended
	December 31,
	2017		2016
Net loss	$	(9,786)	$	(2,868)
Weighted average shares - basic		27,207		27,086
Effect of dilutive securities		—		—
Weighted average shares - diluted		27,207		27,086
Net loss per share, basic	$	(0.36)	$	(0.11)
Effect of dilutive securities		—		—
Net loss per share, diluted	$	(0.36)	$	(0.11)

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Balance Sheet Details

3 Months Ended

Dec. 31, 2017

Balance Sheet Details

Balance Sheet Details

Note 4 — Balance Sheet Details

Accounts Receivable

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

	December 31,		September 30,
	2017		2017
Trade and other receivables	$	12,182	$	12,378
Long-term contracts:
Billed		172,661		195,492
Unbilled		235,583		238,773
Allowance for doubtful accounts		(429)		(436)
Total accounts receivable		419,997		446,207
Less estimated amounts not currently due		(17,328)		(17,457)
Current accounts receivable	$	402,669	$	428,750

The amount classified as not currently due is an estimate of the amount of long-term contract accounts receivable that will not be collected within one year from December 31, 2017 under transportation systems contracts in the U.S. and Australia, and under a CGD Systems contract in Italy based upon the payment terms in the contracts. The non-current balance at September 30, 2017 represented non-current amounts due from these same customers.

Inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2017		2017
Finished products	$	2,942	$	4,369
Work in process and inventoried costs under long-term contracts		101,134		84,131
Materials and purchased parts		9,322		10,163
Customer advances		(12,003)		(10,948)
Net inventories	$	101,395	$	87,715

Pursuant to contract provisions, agencies of the U.S. government and certain other customers have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments, and progress payments. Contract advances, performance-based payments and progress payments received are recorded as an offset against the related inventory balances for contracts that are accounted for on a percentage-of-completion basis using units-of-delivery as the basis to measure progress toward completing the contract. This determination is performed on a contract by contract basis. Any amount of payments received in excess of the cumulative amount of accounts receivable and inventoried costs for a contract is classified as customer advances, which is classified as a liability on the balance sheet.

At December 31, 2017, work in process and inventoried costs under long-term contracts includes approximately $2.4 million in costs incurred outside the scope of work or in advance of a contract award compared to $4.3 million at September 30, 2017. We believe it is probable that we will recover the costs inventoried at December 31, 2017, plus a profit margin, under contract change orders or awards within the next year.

Long-term Capitalized Costs

Long-term capitalized contract costs include costs incurred on certain transportation customer contracts to develop and manufacture systems for customers for which revenue recognition does not begin until the customers begin operating the systems. These capitalized costs are being recognized in cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contracts. Long-term capitalized costs that were recognized as cost of sales totaled $2.3 million and $2.4 million for the quarters ended December 31, 2017 and December 31, 2016, respectively.

Capitalized Software

We capitalize certain costs associated with the development or purchase of internal-use software. The amounts capitalized are included in property, plant and equipment in our Condensed Consolidated Balance Sheets and are amortized on a straight-line basis over the estimated useful life of the software, which ranges from three to seven years. No amortization expense is recorded until the software is ready for its intended use.

As a part of our efforts to upgrade our current information systems, early in fiscal 2015 we purchased new enterprise resource planning (ERP) software and began the process of designing and configuring this software and other software applications to manage our operations. Various components of our ERP system became ready for their intended use and were placed into service on April 1, 2016, October 1, 2016, and October 1, 2017. As each component became ready for its intended use, the component’s costs were transferred into completed software and we began amortizing these costs over their seven-year estimated useful life.

We continue to capitalize costs associated with the development of other ERP components that are not yet ready for their intended use. We capitalized costs related to ERP components in development totaling $2.5 million and $2.0 million for the quarters ended December 31, 2017 and 2016, respectively.

In addition to software costs that were capitalized, we recognized $6.3 million of expenses during the three months ended December 31, 2017 and during the three months ended December 31, 2016 related to the development and implementation of our ERP system for costs that did not meet the requirements for capitalization. Amounts that were expensed in connection with the development and implementation of these systems are classified within selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss).

Deferred Compensation Plan

We have a non-qualified deferred compensation plan offered to a select group of highly compensated employees. The plan provides participants with the opportunity to defer a portion of their compensation in a given plan year. The liabilities associated with the non-qualified deferred compensation plan are included in other long-term liabilities in our Condensed Consolidated Balance Sheets and totaled $12.5 million and $11.4 million at December 31, 2017 and September 30, 2017, respectively.

In fiscal 2015, we began making contributions to a rabbi trust to provide a source of funds for satisfying a portion of these deferred compensation liabilities. The total carrying values of assets set aside to fund deferred compensation liabilities as of December 31, 2017 and September 30, 2017 were $5.7 million and $5.3 million, respectively, which were comprised entirely of life insurance contracts. The carrying value of the life insurance contracts is based on the cash surrender value of the policies. Changes in the carrying value of the deferred compensation liability, and changes in the carrying value of the assets held in the rabbi trust are reflected in our Condensed Consolidated Statements of Income (Loss).

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Fair Value of Financial Instruments

3 Months Ended

Dec. 31, 2017

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 5 — Fair Value of Financial Instruments

The valuation techniques required to determine fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The two types of inputs create the following fair value hierarchy:

· Level 1 - Quoted prices for identical instruments in active markets.

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

· Level 3 - Significant inputs to the valuation model are unobservable.

The fair value of certain of our cash equivalents are based upon quoted prices for identical instruments in active markets. The fair value of our other cash equivalents is based upon a discounted cash flow model and approximate cost. Derivative financial instruments are measured at fair value, the material portions of which are based on active or inactive markets for identical or similar instruments or model-derived valuations whose inputs are observable. Where model-derived valuations are appropriate, we use the applicable credit spread as the discount rate. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.

The fair value of our contingent consideration liabilities to the sellers of businesses that we have acquired are revalued to their fair value each period. Any increase or decrease in the fair value of the contingent consideration liabilities is recorded into selling, general and administrative expense. Changes in the assumed timing and amount of the probability of payment scenarios could impact the fair value.

At December 31, 2017, we have the following remaining contingent consideration arrangements with the sellers of companies which we acquired:

· Deltenna: Payment of up to $7.3 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022.

· GATR: Payment of up to $7.5 million of contingent consideration if GATR meets certain gross profit goals for the 12 month period ended February 28, 2018.

· TeraLogics: Payment of up to $1.8 million if TeraLogics meets certain sales goals in fiscal year 2018; and up to $1.0 million will be paid if specific contract extensions are exercised by TeraLogics customers through fiscal 2018.

· H4 Global: Payment of up to $3.4 million of contingent consideration based upon the value of contracts entered over the five-year period ended September 30, 2020.

The fair value of contingent consideration liabilities that are based upon revenue targets or gross margin targets are based upon a real option approach. The contingent consideration liabilities that are valued using this real option approach include the Deltenna contingent consideration, a portion of the TeraLogics contingent consideration, and the GATR contingent consideration. Under this real option approach, each payment was modeled using long digital options written on the underlying revenue or gross margin metric. The strike price for each option is the respective revenue or gross margin as specified in the related agreement, and the spot price is calibrated to the revenue or gross margin forecast by calculating the present value of the corresponding projected revenues or gross margins using a risk-adjusted discount rate. The volatility for the underlying revenue metrics was based upon analysis of comparable guideline public companies and the volatility factors used in the December 31, 2017 valuations were 43% for Deltenna, 15% for TeraLogics and 15% for GATR. The volatility factor used in the September 30, 2017 valuations were 40% for Deltenna, 15% for TeraLogics and 15% for GATR. The risk-free rate was selected based on the quoted yields for U.S. Treasury securities with terms matching the earn-out payment period.

The fair value of the portion of the TeraLogics contingent consideration that is based on customer execution of contract extensions was estimated using a probability weighted approach. The fair value of the contingent consideration was determined by applying probabilities of achieving the periodic payment to each period’s potential payment, and summing the present value of any estimated future payments.

The fair value of the H4 Global contingent consideration was estimated using a probability weighted approach. Subject to the terms and conditions of the H4 Global Purchase Agreement, contingent consideration will be paid over a five year term that commenced on October 1, 2015 and ends on September 30, 2020. The payments will be calculated based on the award of certain contracts during the specified period. The fair value of the contingent consideration was determined by applying probabilities to different scenarios, and summing the present value of any future payments.

The inputs to each of the contingent consideration fair value models include significant unobservable inputs and therefore represent Level 3 measurements within the fair value hierarchy. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition dates and each subsequent period. Accordingly, changes in the assumptions described above can materially impact the amount of contingent consideration expense we record in any period.

As of December 31, 2017, the following table summarizes the change in fair value of our Level 3 contingent consideration liability (in thousands):

		H4		TeraLogics (Contract Extensions)		TeraLogics (Revenue Targets)		GATR		Deltenna		Total
Balance as of September 30, 2017	$	591	$	800	$	2,450	$	—	$	1,376	$	5,217
Cash paid to seller		—		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		113		100		100		—		(15)		298
Balance as of December 31, 2017	$	704	$	900	$	800	$	—	$	1,361	$	3,765

The following table presents assets and liabilities measured and recorded at fair value on our balance sheets on a recurring basis (in thousands):

	December 31, 2017								September 30, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	5,001	$	—	$	—	$	5,001	$	8,501	$	—	$	—	$	8,501
Current derivative assets		—		2,416		—		2,416		—		2,591		—		2,591
Noncurrent derivative assets		—		443		—		443		—		1,128		—		1,128
Total assets measured at fair value	$	5,001	$	2,859	$	—	$	7,860	$	8,501	$	3,719	$	—	$	12,220
Liabilities
Current derivative liabilities		—		2,601		—		2,601		—		3,456		—		3,456
Noncurrent derivative liabilities		—		443		—		443		—		1,128		—		1,128
Contingent consideration to seller of Deltenna		—		—		1,361		1,361		—		—		1,376		1,376
Contingent consideration to seller of GATR		—		—		—		—		—		—		—		—
Contingent consideration to seller of TeraLogics - contract extensions		—		—		900		900		—		—		800		800
Contingent consideration to seller of TeraLogics - revenue targets		—		—		800		800		—		—		2,450		2,450
Contingent consideration to seller of H4 Global		—		—		704		704		—		—		591		591
Total liabilities measured at fair value	$	—	$	3,044	$	3,765	$	6,809	$	—	$	4,584	$	5,217	$	9,801

We carry certain financial instruments, including accounts receivable, short-term borrowings, accounts payable and accrued liabilities at cost, which we believe approximates fair value because of the short-term maturity of these instruments.

The fair value of long-term debt is calculated by discounting the value of the note based on market interest rates for similar debt instruments, which is a Level 2 technique. The following table presents the estimated fair value and carrying value of our long-term debt (in millions):

	December 31,		September 30,
	2017		2017
Fair value	$	201.1	$	202.1
Carrying value	$	200.0	$	200.0

We did not have any significant non-financial assets or liabilities measured at fair value on a non-recurring basis in the first quarter of fiscal 2018 or 2017 other than assets and liabilities acquired in business acquisitions, and the fair value of our new CMS and CGD Systems reporting units described in Note 2 above.

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Financing Arrangements

3 Months Ended

Dec. 31, 2017

Financing Arrangements

Financing Arrangements

Note 6 — Financing Arrangements

In March 2013, we entered into a note purchase and private shelf agreement pursuant to which we issued $100.0 million of senior unsecured notes, bearing interest at a rate of 3.35% and maturing on March 12, 2025. In addition, pursuant to the agreement, on July 17, 2015, we issued an additional $25.0 million of senior unsecured notes bearing interest at a rate of 3.70% and maturing on March 12, 2025. Interest payments on the notes issued in 2013 and 2015 are due semi-annually and principal payments are due from 2021 through 2025. The agreement pertaining to the aforementioned notes also contained a provision that the coupon rate would increase by a further 0.50% should our leverage ratio exceed a certain level. On February 2, 2016, we revised the note purchase agreement and we issued an additional $75.0 million of senior unsecured notes bearing interest at 3.93% and maturing on March 12, 2026. Interest payments on these notes are due semi-annually and principal payments are due from 2020 through 2026. At the time of the issuance of this last series of notes, certain terms and conditions of the note purchase and private shelf agreement were revised in coordination with the revision and expansion of the revolving credit agreement as discussed below in order to increase our leverage capacity.

We have a committed revolving credit agreement with a group of financial institutions in the amount of $400.0 million which expires in August 2021 (Revolving Credit Agreement). At December 31, 2017, the weighted average interest rate on outstanding borrowings under the Revolving Credit Agreement was 3.42%.  Debt issuance costs incurred in connection with establishment of and amendments to the Revolving Credit Agreement are recorded in other assets on our Condensed Consolidated Balance Sheets, and are being amortized as interest expense using the effective interest method over the stated term of the Revolving Credit Agreement. At December 31, 2017, our total debt issuance costs have an unamortized balance of $2.4 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2017, there were borrowings totaling $88.0 million under this agreement and there were letters of credit outstanding totaling $81.1 million, which reduce the available line of credit to $230.9 million. The $81.1 million of letters of credit includes both financial letters of credit and performance guarantees.

Our Revolving Credit Agreement and note purchase and private shelf agreement each contain a number of customary covenants, including requirements for us to maintain certain interest coverage and leverage ratios and restrictions on our and certain of our subsidiaries’ abilities to, among other things, incur additional debt, create liens, consolidate or merge with any other entity, or transfer or sell substantially all of their assets, in each case subject to certain exceptions and limitations. The occurrence of any event of default under these agreements may result in all of the indebtedness then outstanding becoming immediately due and payable. In May 2017, certain terms and conditions of the Revolving Credit Agreement and note purchase and private shelf agreement were further revised to allow us to maintain a higher level of leverage as of March 31, 2017 and for the remainder of the 2017 fiscal year. The revisions to the agreements do not impact the required leverage ratios in fiscal 2018 and subsequent years. This revision also contains a provision that the coupon rate may increase on all of the term notes discussed above by up to 0.75% should our leverage ratio exceed certain levels. In connection with this revision, we incurred $0.4 million of costs, primarily for amounts charged by our lenders in connection with these modifications. These costs were recorded in May 2017 as a reduction in the carrying value of the related debt liability and which will be amortized into additional interest expense over the life of the related debt.

We maintain a cash account with a bank in the U.K. for which the funds are restricted as to use. The account is required to secure the customer’s interest in cash deposited in the account to fund our activities related to our performance under a fare collection services contract in the U.K. The balance in the account as of December 31, 2017 was $11.8 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

As of December 31, 2017, we had letters of credit and bank guarantees outstanding totaling $93.9 million, which includes the $81.1 million of letters of credit on the Revolving Credit Agreement above and $12.8 million of letters of credit issued under other facilities. The total of $93.9 million of letters of credit and bank guarantees includes $77.2 million that guarantees either our performance or customer advances under certain contracts and financial letters of credit of $16.7 million which primarily guarantee our payment of certain self-insured liabilities. We have never had a drawing on a letter of credit instrument, nor are any anticipated; therefore, we estimate the fair value of these instruments to be zero.

We have entered into a short-term borrowing arrangement in the U.K. in the amount of £20.0 million British Pounds (equivalent to approximately $27.0 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2017, no amounts were outstanding under this borrowing arrangement.

We maintain a short-term borrowing arrangement in New Zealand totaling $0.5 million New Zealand dollars (equivalent to approximately $0.4 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2017, no amounts were outstanding under this borrowing arrangement.

The terms of certain of our lending and credit agreements include provisions that require and/or limit, among other financial ratios and measurements, the permitted levels of debt, coverage of cash interest expense, and under certain circumstances, payments of dividends or other distributions to shareholders. As of December 31, 2017, these agreements restrict such distributions to shareholders to a maximum of $81.0 million in fiscal year 2018.  

Our self-insurance arrangements are limited to certain workers’ compensation plans, automobile liability and product liability claims. Under these arrangements, we self-insure only up to the amount of a specified deductible for each claim. Self-insurance liabilities included in other current liabilities on the balance sheet amounted to $7.6 million for December 31, 2017 and September 30, 2017.

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Pension Plans

3 Months Ended

Dec. 31, 2017

Pension Plans

Pension Plans

Note 7 — Pension Plans

The components of net periodic pension cost (benefit) are as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Service cost	$	151	$	151
Interest cost		1,880		1,759
Expected return on plan assets		(3,525)		(3,199)
Amortization of actuarial loss		692		910
Administrative expenses		110		47
Net pension cost (benefit)	$	(692)	$	(332)

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Stockholders’ Equity

3 Months Ended

Dec. 31, 2017

Stockholders’ Equity

Stockholders’ Equity

Note 8 - Stockholders’ Equity

Long-Term Equity Incentive Plan

In 2013, the Executive Compensation Committee of our Board of Directors (Compensation Committee) approved a long-term equity incentive award program. Through December 31, 2017, the Compensation Committee has granted 1,071,724 RSUs with time-based vesting and 1,172,464 RSUs with performance-based vesting under this program.

Each RSU represents a contingent right to receive one share of our common stock. Dividend equivalent rights accrue with respect to the RSUs when and as dividends are paid on our common stock and vest proportionately with the RSUs to which they relate. Vested shares are delivered to the recipient following each vesting date.

The RSUs granted with time-based vesting generally vest in four equal installments on each of the four October 1 dates following the grant date, subject to the recipient’s continued service through such vesting date.

The performance-based RSUs granted to participants vest over three-year performance periods based on Cubic’s achievement of performance goals established by the Compensation Committee over the performance periods, subject to the recipient’s continued service through the end of the respective performance periods. For the performance-based RSUs granted to date, the vesting will be contingent upon Cubic meeting one of three types of vesting criteria over the performance period. These three categories of vesting criteria consist of revenue growth targets, earnings growth targets, and return on equity targets. The level at which Cubic performs against scalable targets over the performance periods will determine the percentage of the RSUs that will ultimately vest.

Through December 31, 2017, Cubic has granted 2,244,188 RSUs of which 621,394 have vested. The grant date fair value of each RSU is the fair market value of one share of our common stock at the grant date. At December 31, 2017, the total number of unvested RSUs that are ultimately expected to vest, after consideration of expected forfeitures and estimated vesting of performance-based RSUs, is 502,530.

The following table summarizes our RSU activity:

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2017	1,045,187		45.86
Granted	326,281		61.14
Vested	(123,237)		46.54
Forfeited	(212,420)		47.93
Unvested at December 31, 2017	1,035,811	$	50.17

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Stock-Based Compensation

3 Months Ended

Dec. 31, 2017

Stock-Based Compensation

Stock-Based Compensation

Note 9 - Stock-Based Compensation

We recorded non-cash compensation expense related to stock-based awards for the three month periods ended December 31, 2017 and 2016 as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Cost of sales	$	156	$	175
Selling, general and administrative		1,425		2,139
	$	1,581	$	2,314

As of December 31, 2017, there was $48.7 million of unrecognized compensation cost related to unvested RSUs. Based upon the expected forfeitures and the expected vesting of performance based RSUs, the aggregate fair value of RSUs expected to ultimately vest is $26.6 million. This amount is expected to be recognized over a weighted-average period of 1.7 years.

We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods on a cumulative basis in the period the estimated forfeiture rate changes for all stock-based awards when significant events occur. We consider our historical experience with employee turnover as the basis to arrive at our estimated forfeiture rate. The forfeiture rate was estimated to be 12.5% per year as of December 31, 2017. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.

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Income Taxes

3 Months Ended

Dec. 31, 2017

Income Taxes

Income Taxes

Note 10 – Income Taxes

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). The legislation significantly revises the U.S. corporate income tax system by, among other things, reducing the current corporate federal income tax rate to 21% from 35%, adopting a territorial regime and imposing a one-time transitional tax on deemed repatriated earnings of foreign subsidiaries. The rate reduction is effective January 1, 2018 resulting in a U.S. statutory rate for fiscal year 2018 of 24.5% and 21% for subsequent fiscal years. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. 

Based on an initial assessment, a provisional discrete tax benefit of $4.3 million has been recorded in the three months ended December 31, 2017 related to the re-measurement of certain U.S. deferred tax liabilities at the lower enacted corporate tax rate. While other deferred tax assets and liabilities will also be reduced, such reduction is expected to be offset by changes to our U.S. valuation allowance. We are still refining our calculations, in particular the potential utilization of indefinite lived deferred tax liabilities as a source of future taxable income when assessing the realizability of indefinite lived deferred tax assets, which could potentially affect the re-measurement of these balances in a future period. The one-time transition tax is based on post-1986 earnings and profits (E&P) that we previously deferred from US income taxes. At present, we do not anticipate a material impact on the income statement from the one-time transition tax and therefore have recorded a provisional amount of $0 as of December 31, 2017. We have not yet completed our calculation of the total post-1986 E&P of our foreign entities, and as such the calculation is subject to further refinement. 

The impact of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act, regulatory guidance that may be issued, or any updates or changes to estimates we have utilized to calculate the impact. The Securities Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts and additional impacts from the enactment of the Tax Act will be recorded in future periods as they are identified.

Income tax expense recognized on pre-tax losses for the three months ended December 31, 2017 resulted in an effective tax rate of negative 5.6% which differs from the effective tax rate of 391.1% for the year ended September 30, 2017 primarily due to the difference in jurisdictional mix and the overall level of pre-tax income (loss). The effective tax rate for the three months ended December 31, 2017 differs from the U.S. statutory tax rate of 24.5% primarily due to jurisdictional mix of pre-tax income (loss), and U.S. losses for which no tax benefit can be realized due to valuation allowance, offset by discrete tax benefit due from the impact of the Tax Act.

The amount of net unrecognized tax benefits was $6.3 million as of December 31, 2017 and $6.5 million as of September 30, 2017, exclusive of interest and penalties. At December 31, 2017, the amount of net unrecognized tax benefits from permanent tax adjustments that, if recognized, would favorably impact the effective rate was $3.5 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 $3.0 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 December 31, 2017, the years open under the statute of limitations in significant jurisdictions include fiscal years 2013-2017 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.

We evaluated our net deferred income taxes, which included an assessment of the cumulative income or loss over the prior-three year period and future periods, to determine if a valuation allowance is required. After consideration of our recent history of U.S. losses, we recorded a valuation allowance during fiscal year 2015 on net U.S. deferred tax assets, with a corresponding charge to its income tax provision of $35.8 million. As of December 31, 2017, we maintained a valuation allowance against U.S. deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. We will continue to assess the need for a valuation allowance on deferred tax assets by evaluating positive and negative evidence that may exist. Through December 31, 2017, a total valuation allowance of $59.5 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. Until we re-establish 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 Statements of Income (Loss).

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Derivative Instruments and Hedging Activities

3 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Note 11 — Derivative Instruments and Hedging Activities

In order to manage our exposure to fluctuations in interest and foreign currency exchange rates we utilize derivative financial instruments such as forward starting swaps and foreign currency exchange forwards for periods typically up to three years. We do not use any derivative financial instruments for trading or other speculative purposes.

All derivatives are recorded at fair value, however, the classification of gains and losses resulting from changes in the fair values of derivatives are dependent on the intended use of the derivative and its resulting designation. If a derivative is designated as a fair value hedge, then a change in the fair value of the derivative is offset against the change in the fair value of the underlying hedged item and only the ineffective portion of the hedge, if any, is recognized in earnings. If a derivative is designated as a cash flow hedge, then the effective portion of a change in the fair value of the derivative is recognized as a component of accumulated other comprehensive income (loss) until the underlying hedged item is recognized in earnings, or the forecasted transaction is no longer probable of occurring. If a derivative does not qualify as a highly effective hedge, any change in fair value is immediately recognized in earnings. We formally document all hedging relationships for all derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions. We classify the fair value of all derivative contracts as current or non-current assets or liabilities, depending on the realized and unrealized gain or loss position of the hedged contract at the balance sheet date, and the timing of future cash flows. The cash flows from derivatives treated as hedges are classified in the Condensed Consolidated Statements of Cash Flows in the same category as the item being hedged.

The following table shows the notional principal amounts of our outstanding derivative instruments as of December 31, 2017 and September 30, 2017 (in thousands):

	Notional Principal
	December 31, 2017		September 30, 2017
Instruments designated as accounting hedges:
Foreign currency forwards	$	123,575	$	125,486
Instruments not designated as accounting hedges:
Foreign currency forwards	$	43,264	$	35,117

Included in the amounts not designated as accounting hedges above at December 31, 2017 and September 30, 2017 are foreign currency forwards with notional principal amounts of $28.8 million and $18.5 million, respectively, that have been designed to manage exposure to foreign currency exchange risks, and for which the gains or losses of the changes in fair value of the forwards has approximately offset an equal and opposite amount of gains or losses related to the foreign currency exposure. Unrealized losses of $0.3 million and $3.3 million were recognized in other income (expense), net for the three months ended December 31, 2017 and 2016, respectively, related to these forwards.

The notional principal amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of our exposure to credit or market loss. Credit risk represents our gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current interest or currency exchange rates at each respective date. Our exposure to credit loss and market risk will vary over time as a function of interest and currency exchange rates. The amount of credit risk from derivative instruments and hedging activities was not material for the periods ended December 31, 2017 and September 30, 2017. Although the table above reflects the notional principal amounts of our foreign exchange instruments, it does not reflect the gains or losses associated with the exposures and transactions that the foreign exchange instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. We present our derivative assets and derivative liabilities at their gross fair values. We did not have any derivative instruments with credit-risk related contingent features that would require us to post collateral as of December 31, 2017 or September 30, 2017.

The table below presents the fair value of our derivative financial instruments that qualify for hedge accounting as well as their classification on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2017		September 30, 2017
Asset derivatives:
Foreign currency forwards	Other current assets	$	2,416	$	2,591
Foreign currency forwards	Other noncurrent assets		443		1,128
		$	2,859	$	3,719
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	2,601	$	3,456
Foreign currency forwards	Other noncurrent liabilities		443		1,128
Total		$	3,044	$	4,584

The tables below present gains and losses recognized in other comprehensive loss for the three months ended December 31, 2017 and 2016 related to derivative financial instruments designated as cash flow hedges, as well as the amount of gains and losses reclassified into earnings during those periods (in thousands):

	Three Months Ended
	December 31, 2017				December 31, 2016
			Gains (losses)				Gains (losses)
	Gains (losses)		reclassified into				reclassified into
	recognized in		earnings -		Gains (losses)		earnings -
Derivative Type	OCI		Effective Portion		recognized in OCI		Effective Portion
Foreign currency forwards	$	656	$	(774)	$	(614)	$	1,331

The amount of gains and losses from derivative instruments and hedging activities classified as not highly effective did not have a material impact on the results of operations for the three-month periods ended December 31, 2017 and 2016. The amount of estimated unrealized net losses from cash flow hedges which are expected to be reclassified to earnings in the next twelve months is $0.1 million, net of income taxes.

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Segment Information

3 Months Ended

Dec. 31, 2017

Segment Information

Segment Information

Note 12 — Segment Information

We define our operating segments and reportable segments based on the way our chief executive officer, who we have concluded is our chief operating decision maker, manages our operations for purposes of allocating resources and assessing performance and we continually reassess our operating segment and reportable segment designation based upon these criteria. Through September 30, 2017, our company was aligned in three operating segments, which were also our reportable segments: CTS, CGD Systems, and CGD Services.In 2016 we formalized the structure of our CMS business unit within our CGD Systems operating segment. CMS combines and integrates our C4ISR and secure communications operations. Through September 30, 2017, we concluded that CMS was not a separate operating segment based upon factors including the nature of information presented to our chief executive officer and Board of Directors and the consequential level at which certain resource allocations and performance assessments were made. In the first quarter of fiscal 2018, we began providing additional financial information to our chief executive officer and Board of Directors at the CMS level, which allowed greater resource allocation decisions and performance assessments to be made at that level. As such, we concluded that CMS became a separate operating segment beginning on October 1, 2017. Applicable prior period amounts have been adjusted retrospectively to reflect the reportable segment change.

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

	Three Months Ended
	December 31,
	2017		2016
Sales:
Cubic Transportation Systems	$	146.5	$	131.9
Cubic Global Defense Systems		68.8		78.6
Cubic Mission Solutions		33.1		33.9
Cubic Global Defense Services		92.3		90.3
Total sales	$	340.7	$	334.7
Operating income (loss):
Cubic Transportation Systems	$	9.9	$	9.7
Cubic Global Defense Systems		1.4		3.3
Cubic Mission Solutions		(8.9)		(3.8)
Cubic Global Defense Services		2.9		(0.4)
Unallocated corporate expenses		(12.3)		(12.9)
Total operating loss	$	(7.0)	$	(4.1)
Depreciation and amortization:
Cubic Transportation Systems	$	3.2	$	2.4
Cubic Global Defense Systems		1.7		2.0
Cubic Mission Solutions		5.9		6.8
Cubic Global Defense Services		0.7		1.0
Corporate		1.6		1.2
Total depreciation and amortization	$	13.1	$	13.4

Unallocated corporate costs in the first quarter of 2018 include costs of strategic and IT system resource planning as part of our One Cubic Initiatives, which totaled $8.1 million compared to $8.7 million in the first quarter of last year.

Changes in estimates on contracts for which revenue is recognized using the cost-to-cost-percentage-of-completion method increased operating loss by $0.6 million and $6.4 million for the three months ended December 31, 2017 and 2016, respectively. These adjustments increased our net loss by $0.5 million ($0.02 per share) and by $3.9 million ($0.14 per share) for the three months ended December 31, 2017 and 2016, respectively.

As of December 31, 2017 our CMS segment had total loans outstanding of $3.4 million to a private company in the U.S. that develops technologies for unmanned aircraft systems. CMS also obtained warrants in the private company in connection with this debt financing. The note receivable is classified within other current assets and the warrants are classified within non-current other assets on our Condensed Consolidated Balance Sheets. The note receivable is held at amortized cost and the warrants are held at their historical cost. On a quarterly basis we consider whether any portion of the value of the warrants or note receivable may have been impaired. No such impairments were identified during the quarter ended December 31, 2017. However, if the private company that we financed does not successfully develop or commercialize its technologies we could be required to recognize impairments in the future.

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Legal Matters

3 Months Ended

Dec. 31, 2017

Legal Matters

Legal Matters

Note 13 — Legal Matters

We are not a party to any material pending proceedings and we consider all matters to be ordinary proceedings incidental to our business. We believe the outcome of these proceedings will not have a materially adverse effect on our financial position, results of operations, or cash flows.

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Basis for Presentation (Policies)

3 Months Ended

Dec. 31, 2017

Basis for Presentation

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees. We adopted the ASU in the first quarter of fiscal 2018. The updated guidance requires excess tax benefits and deficiencies from share-based payment awards to be recorded in income tax expense in the income statement. Previously, excess tax benefits and deficiencies were recognized in shareholders’ equity on the balance sheet. The guidance also requires classification of certain share-based payment activities within the statement of cash flows. These changes were applied prospectively but had no significant impact on our financial position, operating results or classification of cash flows.

In May 2015, the FASB issued Accounting Standards Update ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize investments for which the fair values are measured using the net asset value per share practical expedient within the fair value hierarchy. It also limits certain disclosures to investments for which the entity has elected to measure the fair value using the practical expedient. This guidance was adopted retrospectively in fiscal year 2017. The adoption did not have a material impact on our consolidated financial statements.

On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act). Also in December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Tax Act for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. As described in Note 10 below, at December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance will require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. Adoption of ASU 2014-09 will be required for us beginning in the first quarter of fiscal 2019 and we have determined that we will not adopt ASU 2014-09 earlier than required. ASU 2014-09 allows for two methods of adoption: (a) “full retrospective” adoption, meaning the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning the cumulative effect of applying ASU 2014-09 is recognized as an adjustment to the opening retained earnings balance in the year of adoption. We have not yet determined which method of adoption we will select.

We have assigned a task force within management to lead our implementation efforts and we have engaged outside advisors to assist. We are currently in the process of analyzing the impact of the adoption of the new standard on our various revenue streams. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for our fixed-price development and production contracts will generally be recognized over time as costs are incurred, which is consistent with the revenue recognition model we currently use for the majority of these contracts. For certain of our fixed-price production contracts where we currently recognize revenue as units are delivered, in most cases the accounting for those contracts will change under ASU 2014-09 such that we will recognize revenue as costs are incurred. This change will generally result in an acceleration of revenue as compared with our current revenue recognition method for those contracts. Approximately 22% of our net sales used the units-of-delivery method to recognize revenue in fiscal 2017. We continue to analyze the impact of the new standard on our remaining revenue streams and, as the standard will supersede substantially all existing revenue guidance affecting us under GAAP, we expect that it will impact revenue and cost recognition on a significant number of our contracts across our business segments, in addition to our business processes and our information technology systems. Our process of evaluating the effect of the new standard will continue through fiscal year 2018.

In January 2016, the FASB issued Accounting Standards Update ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for us beginning October 1, 2018 and, with the exception of a specific portion of the amendment, early adoption is not permitted. We are currently evaluating the impact this guidance will have on our financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for us beginning October 1, 2019 with early adoption permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides clarifying guidance on how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance will be effective for us in our fiscal year beginning October 1, 2018, and early adoption is permitted. The adoption of this standard is anticipated to affect our presentation of restricted cash within our statement of cash flows. We are currently evaluating whether to adopt the new guidance early.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance will be effective for us in our fiscal year beginning October 1, 2018 and early adoption is allowed for certain transactions. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit was needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be effective for us in our fiscal year beginning October 1, 2020 with early adoption permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715):Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 will be effective for us beginning October 1, 2018, and early adoption is permitted. We are currently evaluating the impact of the application of this accounting standard update on our consolidated financial statements as well as whether to adopt the new guidance early.

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Acquisitions (Tables)

3 Months Ended

Dec. 31, 2017

Acquisitions

Schedule of unaudited pro forma information

The following unaudited pro forma information presents Cubic Corporation’s consolidated results of operations as if Deltenna and Vocality had been included in our consolidated results since October 1, 2016 (in millions):

	Three Months Ended
	December 31,
	2017		2016
Net sales	$	340.7	$	335.3
Net income (loss)	$	(9.8)	$	(3.3)

Schedule of changes in the carrying amount of goodwill

Changes in goodwill for the three months ended December 31, 2017 were as follows (in millions):

			Cubic Global		Cubic		Cubic Global
	Transportation		Defense		Mission		Defense
	Systems		Systems		Solutions		Services		Total
Net balances at September 30, 2017	$	50,870	$	270,692	$	—	$	94,350	$	415,912
Reassignment in the first quarter of 2018		—		(125,321)		125,321		—		—
Foreign currency exchange rate changes		342		16		14		—		372
Net balances at December 31, 2017	$	51,212	$	145,387	$	125,335	$	94,350	$	416,284

Deltenna

Acquisitions

Schedule of Business Combination Operating Results

Deltenna’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	December 31,
	2017		2016
Sales	$	—	$	—
Operating loss		(0.1)		—
Net loss after taxes		(0.1)		—

Schedule of Business Combination components of operating results

Deltenna’s operating results above included the following amounts for the quarter (in millions):

	December 31,
	2017		2016
Amortization	$	0.1	$	—
Acquisition-related expenses		—		—

Schedule of estimated fair values of the assets acquired and liabilities assumed at the acquisition date

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	1.0
Technology		1.1
Other net assets acquired (liabilities assumed)		(0.3)
Net identifiable assets acquired		1.8
Goodwill		3.5
Net assets acquired	$	5.3

Schedule of estimated amortization expense related to acquisition

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Deltenna for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.3
2019		0.3
2020		0.3
2021		0.3
2022		0.3
Thereafter		0.7

Vocality

Acquisitions

Schedule of Business Combination Operating Results

Vocality’s sales and results of operations included in our operating results for the quarter ended December 31, 2017 and 2016 were as follows (in millions):

	Three Months Ended
	December 31,
	2017		2016
Sales	$	2.2	$	0.1
Operating income (loss)		0.1		(1.1)
Net income (loss) loss after taxes		0.1		(0.9)

Schedule of Business Combination components of operating results

Vocality’s operating results above included the following amounts for the quarter (in millions):

	Three Months Ended
	December 31,
	2017		2016
Amortization	$	0.2	$	—
Acquisition-related expenses		0.6		0.8

Schedule of estimated fair values of the assets acquired and liabilities assumed at the acquisition date

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):

Customer relationships	$	2.1
Technology		2.4
Trade name		0.4
Inventory		1.7
Accounts payable and accrued expenses		(0.4)
Other net assets acquired (liabilities assumed)		(0.5)
Net identifiable assets acquired		5.7
Goodwill		3.9
Net assets acquired	$	9.6

Schedule of estimated amortization expense related to acquisition

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Vocality for fiscal years 2018 through 2022 and thereafter is as follows (in millions):

Year Ended
September 30,
2018	$	0.8
2019		0.7
2020		0.6
2021		0.6
2022		0.5
Thereafter		1.3

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Net Income (Loss) Per Share (Tables)

3 Months Ended

Dec. 31, 2017

Net Income (Loss) Per Share

Schedule of computation of basic and diluted EPS

Basic and diluted EPS are computed as follows (amounts in thousands, except per share data).

	Three Months Ended
	December 31,
	2017		2016
Net loss	$	(9,786)	$	(2,868)
Weighted average shares - basic		27,207		27,086
Effect of dilutive securities		—		—
Weighted average shares - diluted		27,207		27,086
Net loss per share, basic	$	(0.36)	$	(0.11)
Effect of dilutive securities		—		—
Net loss per share, diluted	$	(0.36)	$	(0.11)

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Balance Sheet Details (Tables)

3 Months Ended

Dec. 31, 2017

Balance Sheet Details

Schedule of components of accounts receivable

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

	December 31,		September 30,
	2017		2017
Trade and other receivables	$	12,182	$	12,378
Long-term contracts:
Billed		172,661		195,492
Unbilled		235,583		238,773
Allowance for doubtful accounts		(429)		(436)
Total accounts receivable		419,997		446,207
Less estimated amounts not currently due		(17,328)		(17,457)
Current accounts receivable	$	402,669	$	428,750

Components of inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2017		2017
Finished products	$	2,942	$	4,369
Work in process and inventoried costs under long-term contracts		101,134		84,131
Materials and purchased parts		9,322		10,163
Customer advances		(12,003)		(10,948)
Net inventories	$	101,395	$	87,715

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Dec. 31, 2017

Fair Value of Financial Instruments

Summary of change in fair value of contingent consideration liability

As of December 31, 2017, the following table summarizes the change in fair value of our Level 3 contingent consideration liability (in thousands):

		H4		TeraLogics (Contract Extensions)		TeraLogics (Revenue Targets)		GATR		Deltenna		Total
Balance as of September 30, 2017	$	591	$	800	$	2,450	$	—	$	1,376	$	5,217
Cash paid to seller		—		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		113		100		100		—		(15)		298
Balance as of December 31, 2017	$	704	$	900	$	800	$	—	$	1,361	$	3,765

Summary of assets and liabilities measured and recorded at fair value on Balance Sheet on a recurring basis

The following table presents assets and liabilities measured and recorded at fair value on our balance sheets on a recurring basis (in thousands):

	December 31, 2017								September 30, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	5,001	$	—	$	—	$	5,001	$	8,501	$	—	$	—	$	8,501
Current derivative assets		—		2,416		—		2,416		—		2,591		—		2,591
Noncurrent derivative assets		—		443		—		443		—		1,128		—		1,128
Total assets measured at fair value	$	5,001	$	2,859	$	—	$	7,860	$	8,501	$	3,719	$	—	$	12,220
Liabilities
Current derivative liabilities		—		2,601		—		2,601		—		3,456		—		3,456
Noncurrent derivative liabilities		—		443		—		443		—		1,128		—		1,128
Contingent consideration to seller of Deltenna		—		—		1,361		1,361		—		—		1,376		1,376
Contingent consideration to seller of GATR		—		—		—		—		—		—		—		—
Contingent consideration to seller of TeraLogics - contract extensions		—		—		900		900		—		—		800		800
Contingent consideration to seller of TeraLogics - revenue targets		—		—		800		800		—		—		2,450		2,450
Contingent consideration to seller of H4 Global		—		—		704		704		—		—		591		591
Total liabilities measured at fair value	$	—	$	3,044	$	3,765	$	6,809	$	—	$	4,584	$	5,217	$	9,801

Schedule of estimated fair value and carrying value of our long-term debt

The following table presents the estimated fair value and carrying value of our long-term debt (in millions):

	December 31,		September 30,
	2017		2017
Fair value	$	201.1	$	202.1
Carrying value	$	200.0	$	200.0

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Pension Plans (Tables)

3 Months Ended

Dec. 31, 2017

Pension Plans

Components of net periodic pension cost (benefit)

The components of net periodic pension cost (benefit) are as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Service cost	$	151	$	151
Interest cost		1,880		1,759
Expected return on plan assets		(3,525)		(3,199)
Amortization of actuarial loss		692		910
Administrative expenses		110		47
Net pension cost (benefit)	$	(692)	$	(332)

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Stockholders’ Equity (Tables)

3 Months Ended

Dec. 31, 2017

Stockholders’ Equity

Summary of RSU activity

The following table summarizes our RSU activity:

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2017	1,045,187		45.86
Granted	326,281		61.14
Vested	(123,237)		46.54
Forfeited	(212,420)		47.93
Unvested at December 31, 2017	1,035,811	$	50.17

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Stock-Based Compensation (Tables)

3 Months Ended

Dec. 31, 2017

Stock-Based Compensation

Schedule of stock-based compensation expense related to stock-based awards

We recorded non-cash compensation expense related to stock-based awards for the three month periods ended December 31, 2017 and 2016 as follows (in thousands):

	Three Months Ended
	December 31,
	2017		2016
Cost of sales	$	156	$	175
Selling, general and administrative		1,425		2,139
	$	1,581	$	2,314

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Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities

Schedule of notional principal amounts of the outstanding derivative instruments

The following table shows the notional principal amounts of our outstanding derivative instruments as of December 31, 2017 and September 30, 2017 (in thousands):

	Notional Principal
	December 31, 2017		September 30, 2017
Instruments designated as accounting hedges:
Foreign currency forwards	$	123,575	$	125,486
Instruments not designated as accounting hedges:
Foreign currency forwards	$	43,264	$	35,117

Schedule of fair value of derivative financial instruments

The table below presents the fair value of our derivative financial instruments that qualify for hedge accounting as well as their classification on the Condensed Consolidated Balance Sheets as of December 31, 2017 and September 30, 2017 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2017		September 30, 2017
Asset derivatives:
Foreign currency forwards	Other current assets	$	2,416	$	2,591
Foreign currency forwards	Other noncurrent assets		443		1,128
		$	2,859	$	3,719
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	2,601	$	3,456
Foreign currency forwards	Other noncurrent liabilities		443		1,128
Total		$	3,044	$	4,584

Schedule of gains and losses recognized in other comprehensive loss on derivative financial instruments designated as cash flow hedges

The tables below present gains and losses recognized in other comprehensive loss for the three months ended December 31, 2017 and 2016 related to derivative financial instruments designated as cash flow hedges, as well as the amount of gains and losses reclassified into earnings during those periods (in thousands):

	Three Months Ended
	December 31, 2017				December 31, 2016
			Gains (losses)				Gains (losses)
	Gains (losses)		reclassified into				reclassified into
	recognized in		earnings -		Gains (losses)		earnings -
Derivative Type	OCI		Effective Portion		recognized in OCI		Effective Portion
Foreign currency forwards	$	656	$	(774)	$	(614)	$	1,331

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Segment Information (Tables)

3 Months Ended

Dec. 31, 2017

Segment Information

Schedule of business segment financial data

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

	Three Months Ended
	December 31,
	2017		2016
Sales:
Cubic Transportation Systems	$	146.5	$	131.9
Cubic Global Defense Systems		68.8		78.6
Cubic Mission Solutions		33.1		33.9
Cubic Global Defense Services		92.3		90.3
Total sales	$	340.7	$	334.7
Operating income (loss):
Cubic Transportation Systems	$	9.9	$	9.7
Cubic Global Defense Systems		1.4		3.3
Cubic Mission Solutions		(8.9)		(3.8)
Cubic Global Defense Services		2.9		(0.4)
Unallocated corporate expenses		(12.3)		(12.9)
Total operating loss	$	(7.0)	$	(4.1)
Depreciation and amortization:
Cubic Transportation Systems	$	3.2	$	2.4
Cubic Global Defense Systems		1.7		2.0
Cubic Mission Solutions		5.9		6.8
Cubic Global Defense Services		0.7		1.0
Corporate		1.6		1.2
Total depreciation and amortization	$	13.1	$	13.4

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Basis for Presentation (Details)	12 Months Ended
	Sep. 30, 2017
Basis for Presentation
Net Sales, Recognized under Units-of-Delivery Method	22.00%

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Acquisitions - MotionDSP (Details) - MotionDSP - USD ($) $ in Millions	2 Months Ended
	Dec. 31, 2017	Oct. 31, 2017
Equity method investment
Purchase price of capital stock		$ 4.7
Percent of outstanding capital stock purchased	49.00%	49.00%
Investment recorded in long-term assets	$ 4.7
Net loss from equity method investment	$ (0.1)

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Acquisitions - Consolidated Business Acquisitions (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Nov. 30, 2016	Jul. 31, 2017	Dec. 31, 2017	Dec. 31, 2016	Sep. 30, 2017
Sales and results of operations
Sales			$ 340,684	$ 334,677
Operating income (Loss)			(7,004)	(4,101)
Net income (loss)			(9,786)	(2,868)
Estimated acquisition-date fair value of consideration
Compensation expense			1,581	2,314
Purchase price allocation
Goodwill			416,284		$ 415,912
Deltenna
Sales and results of operations
Operating income (Loss)			(100)
Net income (loss)			(100)
Amortization			100
Estimated acquisition-date fair value of consideration
Fair value of consideration transferred		$ 5,300
Cash consideration paid		4,000
Contingent consideration		1,300
Purchase price allocation
Other net liabilities assumed		(300)
Net identifiable assets acquired		1,800
Goodwill		3,500
Net assets acquired		$ 5,300
Weighted average useful life of intangible assets		8 years
Estimated amortization expense related to the intangible assets
2018					300
2019					300
2020					300
2021					300
2022					300
Thereafter					700
Deltenna | Maximum
Estimated acquisition-date fair value of consideration
Contingent consideration		$ 7,300	7,300
Deltenna | Customer relationships
Purchase price allocation
Amortizable intangible assets		1,000
Deltenna | Technology
Purchase price allocation
Amortizable intangible assets		$ 1,100
Vocality
Sales and results of operations
Sales			2,200	100
Operating income (Loss)			100	(1,100)
Net income (loss)			100	(900)
Amortization			200
Acquisition-related expenses			600	800
Estimated acquisition-date fair value of consideration
Compensation expense				$ 400
Fair value of consideration transferred	$ 9,600
Cash consideration paid	9,700
Contingent consideration	300
Cash paid related to compensation expenses	400
Purchase price allocation
Inventory	1,700
Accounts payable and accrued expenses	(400)
Other net liabilities assumed	(500)
Net identifiable assets acquired	5,700
Goodwill	3,900
Net assets acquired	$ 9,600
Weighted average useful life of intangible assets	9 years
Estimated amortization expense related to the intangible assets
2018					800
2019					700
2020					600
2021					600
2022					500
Thereafter					$ 1,300
Vocality | Trade names
Purchase price allocation
Indefinite intangible assets	$ 400
Vocality | Customer relationships
Purchase price allocation
Amortizable intangible assets	2,100
Vocality | Technology
Purchase price allocation
Amortizable intangible assets	$ 2,400
GATR | Maximum
Estimated acquisition-date fair value of consideration
Contingent consideration			7,500
TeraLogics | Maximum | Contract extensions
Estimated acquisition-date fair value of consideration
Contingent consideration			$ 1,000

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Acquisitions - Goodwill and Pro forma information (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
	Oct. 01, 2017	Dec. 31, 2017	Dec. 31, 2016	Sep. 30, 2017
Unaudited pro forma information
Net sales		$ 340,700	$ 335,300
Net income attributable to Cubic		(9,800)	(3,300)
Adjustments made for transaction expenses		0	$ 0
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 415,912	415,912
Foreign currency exchange rate changes		372
Balance at the end of the period		$ 416,284		$ 415,912
Discount rate (as a percent)		11.00%
Transportation Systems
Changes in the carrying amount of goodwill
Balance at the beginning of the period	50,870	$ 50,870
Foreign currency exchange rate changes		342
Balance at the end of the period		51,212		$ 50,870
Transportation Systems | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value				100.00%
Defense Systems
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 270,692	270,692
Reassignment in the first quarter of 2018		(125,321)
Foreign currency exchange rate changes		16
Balance at the end of the period		145,387		$ 270,692
Defense Systems | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value				10.00%
Cubic Mission Solutions
Changes in the carrying amount of goodwill
Reassignment in the first quarter of 2018		125,321
Foreign currency exchange rate changes		14
Balance at the end of the period		$ 125,335
Discount rate (as a percent)		13.00%
Cubic Mission Solutions | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value	25.00%
Cubic Global Defense Services
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 94,350	$ 94,350
Balance at the end of the period		$ 94,350		$ 94,350
Cubic Global Defense Services | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value	10.00%

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Net Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Net loss	$ (9,786)	$ (2,868)
Weighted average shares - basic	27,207	27,086
Weighted average shares - diluted	27,207	27,086
Net income (loss) per share, basic (in dollars per share)	$ (0.36)	$ (0.11)
Net income (loss) per share, diluted (in dollars per share)	$ (0.36)	$ (0.11)
RSUs
Anti-dilutive employee share-based awards (in shares)	1,000	1,100

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Balance Sheet Details (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Sep. 30, 2017
Accounts Receivable
Trade and other receivables	$ 12,182		$ 12,378
Long-term contracts:
Billed	172,661		195,492
Unbilled	235,583		238,773
Allowance for doubtful accounts	(429)		(436)
Total accounts receivable	419,997		446,207
Less estimated amounts not currently due	(17,328)		(17,457)
Current accounts receivable	$ 402,669		428,750
Period that receivables will not be collected within to be classified as not currently due	1 year
Inventories
Finished products	$ 2,942		4,369
Work in process and inventoried costs under long-term contracts	101,134		84,131
Materials and purchased parts	9,322		10,163
Customer advances	(12,003)		(10,948)
Net inventories	101,395		87,715
Costs incurred outside the scope of work or in advance of a contract award	2,400		4,300
Long-term Capitalized Costs
Long-term capitalized costs being recognized as cost of sales	2,300	$ 2,400
Capitalized Software
Software development expense	6,300	6,300
Deferred Compensation Plan
Deferred compensation	12,500		11,400
Carrying value of Rabbi trust to fund deferred compensation liabilities	$ 5,700		$ 5,300
Software | Maximum
Capitalized Software
Estimated useful life	P7Y
Software | Minimum
Capitalized Software
Estimated useful life	P3Y
ERP
Capitalized Software
Estimated useful life	P7Y
Addition to capitalized software expenses	$ 2,500	$ 2,000

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Fair Value of Financial Instruments - Contingent Consideration (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
	Oct. 01, 2015	Dec. 31, 2017	Sep. 30, 2017	Jul. 31, 2017
Deltenna
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration				$ 1,300
Volatility earning metrics		43.00%	40.00%
Deltenna | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		$ 7,300		$ 7,300
GATR
Assets and liabilities measured at fair value on a recurring basis
Volatility earning metrics		15.00%	15.00%
GATR | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		$ 7,500
TeraLogics
Assets and liabilities measured at fair value on a recurring basis
Volatility earning metrics		15.00%	15.00%
H4 Global
Assets and liabilities measured at fair value on a recurring basis
Period for contingent consideration contracts	5 years
H4 Global | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		$ 3,400
Revenue Targets | TeraLogics | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		1,800
Contract extensions | TeraLogics | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		1,000
Level 3
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		5,217
Cash paid to seller		(1,750)
Total remeasurement (gain) loss recognized in earnings		298
Balance at the ending period		3,765	$ 5,217
Level 3 | Deltenna
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		1,376
Total remeasurement (gain) loss recognized in earnings		(15)
Balance at the ending period		1,361	1,376
Level 3 | H4 Global
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		591
Total remeasurement (gain) loss recognized in earnings		113
Balance at the ending period		704	591
Level 3 | Revenue Targets | TeraLogics
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		2,450
Cash paid to seller		(1,750)
Total remeasurement (gain) loss recognized in earnings		100
Balance at the ending period		800	2,450
Level 3 | Contract extensions | TeraLogics
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		800
Total remeasurement (gain) loss recognized in earnings		100
Balance at the ending period		$ 900	$ 800

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Fair Value of Financial Instruments - Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Sep. 30, 2017
Level 2
Debt instruments
Fair Value	$ 201,100	$ 202,100
Carrying value	200,000	200,000
Assets and liabilities measured at fair value
Assets
Cash equivalents	5,001	8,501
Current derivative assets	2,416	2,591
Noncurrent derivative assets	443	1,128
Total assets measured at fair value	7,860	12,220
Liabilities
Current derivative liabilities	2,601	3,456
Noncurrent derivative liabilities	443	1,128
Total liabilities measured at fair value	6,809	9,801
Assets and liabilities measured at fair value | Deltenna
Liabilities
Contingent consideration to seller	1,361	1,376
Assets and liabilities measured at fair value | H4 Global
Liabilities
Contingent consideration to seller	704	591
Assets and liabilities measured at fair value | Contract extensions | TeraLogics
Liabilities
Contingent consideration to seller	900	800
Assets and liabilities measured at fair value | Revenue Targets | TeraLogics
Liabilities
Contingent consideration to seller	800	2,450
Assets and liabilities measured at fair value | Level 1
Assets
Cash equivalents	5,001	8,501
Total assets measured at fair value	5,001	8,501
Assets and liabilities measured at fair value | Level 2
Assets
Current derivative assets	2,416	2,591
Noncurrent derivative assets	443	1,128
Total assets measured at fair value	2,859	3,719
Liabilities
Current derivative liabilities	2,601	3,456
Noncurrent derivative liabilities	443	1,128
Total liabilities measured at fair value	3,044	4,584
Assets and liabilities measured at fair value | Level 3
Liabilities
Total liabilities measured at fair value	3,765	5,217
Assets and liabilities measured at fair value | Level 3 | Deltenna
Liabilities
Contingent consideration to seller	1,361	1,376
Assets and liabilities measured at fair value | Level 3 | H4 Global
Liabilities
Contingent consideration to seller	704	591
Assets and liabilities measured at fair value | Level 3 | Contract extensions | TeraLogics
Liabilities
Contingent consideration to seller	900	800
Assets and liabilities measured at fair value | Level 3 | Revenue Targets | TeraLogics
Liabilities
Contingent consideration to seller	$ 800	$ 2,450

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Financing Arrangements - Senior Unsecured Notes (Details) - USD ($) $ in Millions		1 Months Ended	3 Months Ended
	Jul. 17, 2015	May 31, 2017	Dec. 31, 2017	Feb. 02, 2016	Mar. 31, 2013
Financial arrangement
Cost of debt revision		$ 0.4
Senior unsecured notes
Financial arrangement
Coupon rate increase based on leverage ratio (as a percent)			0.75%
Senior unsecured notes | Senior Unsecured Notes Issued March 2013 and Due March 2025
Financial arrangement
Principal amount of debt instrument					$ 100.0
Interest rate (as a percent)					3.35%
Senior unsecured notes | Senior Unsecured Notes Issued July 2015 and Due March 2025
Financial arrangement
Principal amount of debt instrument	$ 25.0
Interest rate (as a percent)	3.70%
Coupon rate increase based on leverage ratio (as a percent)	0.50%
Senior unsecured notes | Senior Unsecured Notes Issued February 2016 and Due March 2026
Financial arrangement
Principal amount of debt instrument				$ 75.0
Interest rate (as a percent)				3.93%

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Financing Arrangements - Revolving Credit Agreement (Details) $ in Thousands, £ in Millions, NZD in Millions	3 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2017 NZD	Dec. 31, 2017 GBP (£)	Dec. 31, 2017 USD ($)	Sep. 30, 2017 USD ($)	Feb. 01, 2016 USD ($)
Financial arrangement
Letters of credit outstanding				$ 93,900
Restricted cash				11,770	$ 8,434
Letters of Credit and bank guarantees outstanding				93,900
Maximum amount of distributions to shareholders as restricted	$ 81,000
Self-insurance liabilities				7,600
Letters of credit primarily for self-insured liabilities
Financial arrangement
Letters of Credit and bank guarantees outstanding				16,700
Fair value of instruments				0
United Kingdom
Financial arrangement
Maximum borrowing capacity under credit agreement			£ 20.0	27,000
Borrowings outstanding				0
United Kingdom | Performance guarantee
Financial arrangement
Restricted cash				11,800
New Zealand
Financial arrangement
Maximum borrowing capacity under credit agreement		NZD 0.5		400
Borrowings outstanding				$ 0
Revolving Credit Agreement
Financial arrangement
Maximum borrowing capacity under credit agreement						$ 400,000
Weighted average interest rate on outstanding borrowings		3.42%	3.42%	3.42%
Unamortized debt issuance costs				$ 2,400
Borrowings outstanding				88,000
Letters of credit outstanding				81,100
Available amount under line of credit				230,900
Revolving Credit Agreement | Letters of credit and bank guarantees
Financial arrangement
Letters of credit outstanding				81,100
Other Credit Facility
Financial arrangement
Letters of credit outstanding				12,800
Letter of credit agreement | Performance guarantee
Financial arrangement
Letters of credit outstanding				$ 77,200

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Pension Plans (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Components of net periodic pension cost (benefit)
Service cost	$ 151	$ 151
Interest cost	1,880	1,759
Expected return on plan assets	(3,525)	(3,199)
Amortization of actuarial loss	692	910
Administrative expenses	110	47
Net pension cost (benefit)	$ (692)	$ (332)

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Stockholders’ Equity - Narrative (Details)	3 Months Ended	63 Months Ended
	Dec. 31, 2017 item shares	Dec. 31, 2017 shares
RSUs
Stockholders' Equity
Number of units awarded (in shares)		2,244,188
Number of shares of common stock that each award holder has the contingent right to receive	1
Vested awards to date	621,394	621,394
Expected awards vested (in shares)	502,530
Time-based RSUs
Stockholders' Equity
Number of units awarded (in shares)		1,071,724
Number of equal installments for vesting of stock awards | item	4
Performance-based RSUs
Stockholders' Equity
Number of units awarded (in shares)		1,172,464
Vesting period	3 years
Number of vesting criteria which have to be satisfied out of total vesting criteria | item	1
Number of vesting criteria | item	3

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Stockholders’ Equity - RSU activity (Details) - RSUs	3 Months Ended
	Dec. 31, 2017 $ / shares shares
Number of Shares
Balance unvested at the beginning of the period (in shares) | shares	1,045,187
Granted (in shares) | shares	326,281
Vested (in shares) | shares	(123,237)
Forfeited (in shares) | shares	(212,420)
Balance unvested at the end of the period (in shares) | shares	1,035,811
Weighted Average Grant-Date Fair Value
Balance unvested at the beginning of the period (in dollars per share) | $ / shares	$ 45.86
Granted (in dollars per share) | $ / shares	61.14
Vested (in dollars per share) | $ / shares	46.54
Forfeited (in dollars per share) | $ / shares	47.93
Balance unvested at the end of the period (in dollars per share) | $ / shares	$ 50.17

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Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Stock-Based Compensation
Non-cash compensation expense related to stock-based awards	$ 1,581	$ 2,314
Estimated forfeiture rate (as a percent)	12.50%
Cost of sales
Stock-Based Compensation
Non-cash compensation expense related to stock-based awards	$ 156	175
Selling, general and administrative
Stock-Based Compensation
Non-cash compensation expense related to stock-based awards	1,425	$ 2,139
RSUs
Stock-Based Compensation
Unrecognized compensation cost related to unvested awards	48,700
Aggregate fair value of awards	$ 26,600
Weighted-average period of recognition	1 year 8 months 12 days

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Income Taxes (Details) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Sep. 30, 2015
U.S. statutory tax rate (as a percent)	24.50%			35.00%
Discrete tax benefit	$ (4,300,000)
Provisional transition tax	$ 0
Effective tax rate (as a percent)	(5.60%)				391.10%
Unrecognized tax benefits, exclusive of interest and penalties	$ 6,300,000			$ 6,300,000	$ 6,500,000
Unrecognized tax benefits from permanent tax adjustments that, if recognized, would affect the effective rate	3,500,000			3,500,000
Estimated unrecognized tax benefits resulting from possible resolution of reviews by domestic and international taxing authorities	3,000,000			3,000,000
Deferred tax asset valuation allowance	$ 59,500,000			$ 59,500,000		$ 35,800,000
Forecast
U.S. statutory tax rate (as a percent)		21.00%	24.50%

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Derivative Instruments and Hedging Activities - Notional principal amounts (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Sep. 30, 2017
Derivative Instruments and Hedging Activities
Term of derivative contract	3 years
Unrealized gain (loss) on derivative	$ 300	$ 3,300
Instruments designated as accounting hedges: | Foreign currency forwards
Derivative Instruments and Hedging Activities
Notional principal outstanding derivative instruments	123,575		$ 125,486
Instruments not designated as accounting hedges: | Foreign currency forwards
Derivative Instruments and Hedging Activities
Notional principal outstanding derivative instruments	43,264		35,117
Notional principal outstanding derivative instruments designed to manage exposure	$ 28,800		$ 18,500

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Derivative Instruments and Hedging Activities - Fair value of derivative financial instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Sep. 30, 2017
Derivative Instruments and Hedging Activities
Asset derivatives	$ 2,859	$ 3,719
Liability derivatives	3,044	4,584
Foreign currency forwards | Other current assets
Derivative Instruments and Hedging Activities
Asset derivatives	2,416	2,591
Foreign currency forwards | Other noncurrent assets
Derivative Instruments and Hedging Activities
Asset derivatives	443	1,128
Foreign currency forwards | Other current liabilities
Derivative Instruments and Hedging Activities
Liability derivatives	2,601	3,456
Foreign currency forwards | Other noncurrent liabilities
Derivative Instruments and Hedging Activities
Liability derivatives	$ 443	$ 1,128

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Derivative Instruments and Hedging Activities - Gains and losses recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Derivative instruments and hedging activities
Estimated unrealized net gains (losses) from cash flow hedges which are expected to be reclassified into earnings in the next twelve months	$ (100)
Foreign currency forwards
Derivative instruments and hedging activities
Gains (losses) recognized in OCI	656	$ (614)
Gains (losses) reclassified into earnings - Effective Portion	$ (774)	$ 1,331

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Segment Information - Business segment financial data (Details) $ in Thousands	3 Months Ended
	Dec. 31, 2017 USD ($) item	Dec. 31, 2016 USD ($)
Revenue recognition
Number of Operating Segments | item	3
Sales	$ 340,684	$ 334,677
Operating income (Loss)	(7,004)	(4,101)
Depreciation and amortization	13,109	13,444
Transportation Systems
Revenue recognition
Sales	146,500	131,900
Operating income (Loss)	9,900	9,700
Depreciation and amortization	3,200	2,400
Defense Systems
Revenue recognition
Sales	68,800	78,600
Operating income (Loss)	1,400	3,300
Depreciation and amortization	1,700	2,000
Cubic Mission Solutions
Revenue recognition
Sales	33,100	33,900
Operating income (Loss)	(8,900)	(3,800)
Depreciation and amortization	5,900	6,800
Cubic Global Defense Services
Revenue recognition
Sales	92,300	90,300
Operating income (Loss)	2,900	(400)
Depreciation and amortization	700	1,000
Corporate and other
Revenue recognition
Depreciation and amortization	1,600	1,200
Unallocated corporate expenses and other
Revenue recognition
Operating income (Loss)	$ (12,300)	$ (12,900)

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Segment Information - Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Revenue recognition
Increase (decrease) in operating income	$ (7,004)	$ (4,101)
Net loss	$ (9,786)	$ (2,868)
Increase (decrease) in net income per common share (in dollars per share)	$ (0.36)	$ (0.11)
Cubic Mission Solutions
Revenue recognition
Increase (decrease) in operating income	$ (8,900)	$ (3,800)
Note receivable	3,400
Unallocated corporate expenses and other
Revenue recognition
Expense related to the development of ERP system	8,100	8,700
Increase (decrease) in operating income	(12,300)	(12,900)
Change in estimated total costs | Adjustment
Revenue recognition
Increase (decrease) in operating income	(600)	(6,400)
Net loss	$ (500)	$ (3,900)
Increase (decrease) in net income per common share (in dollars per share)	$ (0.02)	$ (0.14)