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, 2018

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 every Interactive Data File required to be submitted 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, 2019, registrant had only one class of common stock of which there were 31,150,232 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, 2018

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	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	50
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 6.	Exhibits	53

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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,
	2018		2017
Net sales:
Products	$	182,253	$	131,743
Services		123,006		116,648
		305,259		248,391
Costs and expenses:
Products		125,485		91,573
Services		92,785		86,217
Selling, general and administrative expenses		62,986		61,680
Research and development		12,012		11,977
Amortization of purchased intangibles		10,565		7,351
Restructuring costs		1,992		1,495
		305,825		260,293
Operating loss		(566)		(11,902)
Other income (expenses):
Interest and dividend income		1,234		482
Interest expense		(4,032)		(2,674)
Other income (expense), net		(4,753)		(78)
Loss from continuing operations before income taxes		(8,117)		(14,172)
Income tax (benefit) provision		2,497		(2,737)
Loss from continuing operations		(10,614)		(11,435)
Net income from discontinued operations		—		1,649
Net loss		(10,614)		(9,786)
Less noncontrolling interest in loss of VIE		(4,027)		—
Net loss attributable to Cubic	$	(6,587)	$	(9,786)
Amounts attributable to Cubic:
Net loss from continuing operations	$	(6,587)	$	(11,435)
Net income from discontinued operations		—		1,649
Net loss attributable to Cubic	$	(6,587)	$	(9,786)
Net income (loss) per share:
Basic
Continuing operations attributable to Cubic	$	(0.23)	$	(0.42)
Discontinued operations	$	—	$	0.06
Basic earnings per share attributable to Cubic	$	(0.23)	$	(0.36)
Diluted
Continuing operations attributable to Cubic	$	(0.23)	$	(0.42)
Discontinued operations	$	—	$	0.06
Diluted earnings per share attributable to Cubic	$	(0.23)	$	(0.36)
Weighted average shares used in per share calculations:
Basic		28,492		27,207
Diluted		28,492		27,207

See accompanying notes.

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CUBIC CORPORATION

CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)

	Three Months Ended
	December 31,
	2018		2017
Net loss	$	(10,614)	$	(9,786)
Other comprehensive income (loss):
Foreign currency translation		(3,318)		(192)
Change in unrealized gains/losses from cash flow hedges:
Change in fair value of cash flow hedges, net of tax		1,343		28
Adjustment for net gains/losses realized and included in net income, net of tax		(24)		503
Total change in unrealized gains/losses realized from cash flow hedges, net of tax		1,319		531
Total other comprehensive income (loss)		(1,999)		339
Total comprehensive loss		(12,613)		(9,447)
Noncontrolling interest in comprehensive loss of consolidated VIE, net of tax		(4,027)		—
Comprehensive loss attributable to Cubic, net of tax	$	(8,586)	$	(9,447)

See accompanying notes.

4

CUBIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	December 31,		September 30,
	2018		2018
ASSETS
Current assets:
Cash and cash equivalents	$	75,174	$	111,834
Cash in consolidated VIE		421		374
Restricted cash		17,889		17,400
Restricted cash in consolidated VIE		10,000		10,000
Accounts receivable:
Long-term contracts		119,943		393,691
Allowance for doubtful accounts		(1,652)		(1,324)
		118,291		392,367
Contract assets		320,277		—
Recoverable income taxes		1,321		91
Inventories		92,201		84,199
Assets held for sale		8,177		8,177
Other current assets		40,924		43,705
Total current assets		684,675		668,147
Long-term contracts receivables		—		6,134
Long-term contracts financing receivables		44,936		—
Long-term contracts financing receivables in consolidated VIE		52,996		—
Long-term capitalized contract costs		—		84,924
Long-term capitalized contract costs in consolidated VIE		—		1,258
Property, plant and equipment, net		125,298		117,546
Deferred income taxes		4,687		4,713
Goodwill		484,329		333,626
Purchased intangibles, net		137,201		73,533
Other assets		13,871		14,192
Other assets in consolidated VIE		962		810
Total assets	$	1,548,955	$	1,304,883
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	64,500	$	—
Trade accounts payable		109,094		125,414
Trade accounts payable in consolidated VIE		205		165
Contract liability		69,713		—
Customer advances		—		75,941
Accrued compensation and other current liabilities		82,323		118,233
Income taxes payable		6,771		8,586
Total current liabilities		332,606		328,339
Long-term debt		199,801		199,793
Long-term debt in consolidated VIE		15,357		9,056
Other long-term liabilities		43,838		43,486
Other long-term liabilities in consolidated VIE		6,146		13
Shareholders’ equity:
Common stock		260,141		45,008
Retained earnings		815,083		801,834
Accumulated other comprehensive loss		(112,642)		(110,643)
Treasury stock at cost		(36,078)		(36,078)
Shareholders’ equity related to Cubic		926,504		700,121
Noncontrolling interest in consolidated VIE		24,703		24,075
Total shareholders’ equity		951,207		724,196
Total liabilities and shareholders’ equity	$	1,548,955	$	1,304,883

See accompanying notes.

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CUBIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended
	December 31,
	2018		2017
Operating Activities:
Net loss	$	(10,614)	$	(9,786)
Net income from discontinued operations		—		(1,649)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		16,011		12,433
Share-based compensation expense		2,720		1,627
Change in fair value of contingent consideration		429		298
Changes in operating assets and liabilities, net of effects from acquisitions:		(69,713)		(14,437)
NET CASH USED IN CONTINUING OPERATING ACTIVITIES		(61,167)		(11,514)
NET CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS		—		(15,424)
NET CASH USED IN OPERATING ACTIVITIES		(61,167)		(26,938)
Investing Activities:
Acquisition of businesses, net of cash acquired		(247,150)		(4,650)
Purchases of property, plant and equipment		(12,045)		(6,318)
Purchase of non-marketable debt and equity securities		—		(671)
NET CASH USED IN INVESTING ACTIVITIES		(259,195)		(11,639)
Financing Activities:
Proceeds from short-term borrowings		372,000		82,000
Principal payments on short-term borrowings		(307,500)		(49,000)
Proceeds from long-term borrowings in consolidated VIE		5,798		—
Purchase of common stock		(3,419)		(2,256)
Contingent consideration payments related to acquisitions of businesses		(435)		(656)
Proceeds from equity offering, net		215,832		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		282,276		30,088
Effect of exchange rates on cash		1,962		677
NET DECREASE IN CASH AND CASH EQUIVALENTS		(36,124)		(7,812)
Cash and cash equivalents at the beginning of the period		139,608		68,577
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	$	103,484	$	60,765
Supplemental disclosure of non-cash investing and financing activities:
Receivable recognized in connection with the acquisition of Trafficware, net	$	1,588	$	—

See accompanying notes.

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CUBIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

December 31, 2018

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, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2019. 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, 2018.

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.

Through September 30, 2017 our principal lines of business were transportation fare collection systems and services, defense systems, and defense services. On April 18, 2018, we entered into a stock purchase agreement with Nova Global Supply & Services, LLC (Purchaser), an entity affiliated with GC Valiant, LP, under which we agreed to sell our Cubic Global Defense Services (CGD Services) business to the Purchaser. The sale closed on May 31, 2018. As a result of the sale, the operating results and cash flows of CGD Services have been classified as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for all periods presented. Refer to “Note 3 – Acquisitions and Divestitures” for additional information about the sale of CGD Services and the related discontinued operation classification.

Recently Adopted Accounting Pronouncements – Revenue Recognition

Revenue Recognition: Effective October 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606) using the modified retrospective transition method. The adoption of ASC 606 resulted in a change in our significant accounting policy regarding revenue recognition, and resulted in changes in our accounting policies regarding contract estimates, backlog, inventory, contract assets, long-term capitalized contract costs, and contract liabilities as described below.

The cumulative effect of applying the standard was an increase of $24.5 million to shareholders' equity as of October 1, 2018. Our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2018 and our Condensed Consolidated Balance Sheet as of December 31, 2018 are presented under ASC 606, while our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2017 and our Condensed Consolidated Balance Sheet as of September 30, 2018 are presented under the legacy revenue recognition guidance under ASC 605, Revenue Recognition. See Note 2 for disclosure of the impact of the adoption of ASC 606 on our Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Balance Sheet for the quarter ended December 31, 2018, and the effect of changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018.

We generate revenue from the sale of integrated solutions such as mass transit fare collection systems, air and ground combat training systems, and products with command, control, communication, computers, intelligence, surveillance and reconnaissance (C4ISR) capabilities. A significant portion of our revenues are generated from long-term fixed-price contracts with customers that require us to design, develop, manufacture, modify, upgrade, test and integrate complex systems according to the customer’s specifications. We also generate revenue from services we provide, such as the operation and maintenance of fare systems for mass transit customers and the support of specialized military training exercises mainly for international customers. Our contracts are primarily with the U.S. government, state and local

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municipalities, and other international government customers and international local municipal transit agencies. We classify sales as products or services in our Condensed Consolidated Statements of Income (Loss) based on the attributes of the underlying contracts.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily international direct commercial sale contracts, we are required to obtain certain regulatory approvals. In these cases where regulatory approval is required in addition to approval from both parties, we recognize revenue based on the likelihood of obtaining timely regulatory approvals based upon all known facts and circumstances.

To determine the proper revenue recognition method, we evaluate each contractual arrangement to identify all performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of our contracts have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from other promises within the contract and is, therefore, not distinct. These contractual arrangements either require the use of a highly specialized engineering, development and manufacturing process to provide goods according to customer specifications or represent a bundle of contracted goods and services that are integrated and together represent a combined output, which may include the delivery of multiple units. Some of our contracts have multiple performance obligations, primarily (i) related to the provision of multiple goods or services or (ii) due to the contract covering multiple phases of the product lifecycle (for instance: development and engineering, production, maintenance and support). For contracts with more than one performance obligation, we evaluate whether the stated selling prices for the products or services represent their standalone selling prices. In cases where a contract requires a customized good or service, our primary method used to estimate the standalone selling price is the expected cost plus a margin approach. In cases where we sell a standard product or service offering, the standalone selling price is based on an observable standalone selling price. Our contracts with the U.S. government, including contracts under the U.S. Department of Defense’s Foreign Military Sales program (FMS Contracts), are subject to the Federal Acquisition Regulations (FAR) and the price is typically based on estimated or actual costs plus a reasonable profit margin. As a result of these regulations, the standalone selling price of products or services in our contracts with the U.S. government and FMS Contracts are typically equal to the selling price stated in the contract. Therefore, we typically do not need to allocate (or reallocate) the transaction price to multiple performance obligations in our contracts with the U.S. government.

The majority of our sales are from performance obligations satisfied over time. Sales are recognized over time when control is continuously transferred to the customer during the contract or the contracted good does not have alternative use to us. For U.S. government contracts, the continuous transfer of control to the customer is supported by contract clauses that provide for (i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for its convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative uses to us. Our contracts with international governments and local municipal transit agencies contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for products or services that do not have alternative uses to us.

For those contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. For our design and build type contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs, and are generally expensed as incurred for these contracts. For contracts with the U.S. government, general and administrative costs are included in contract costs; however, for purposes of revenue measurement, general and administrative costs are not considered contract costs for any other customers.

We record sales under cost-reimbursement-type contracts as we incur the costs. For cost-reimbursement type contracts with the U.S. government, the FAR provides guidance on the types of costs that we will be reimbursed in establishing the contract price.

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Sales under service contracts are generally recognized as services are performed or value is provided to our customers. We measure the delivery of value to our customers using a number of metrics including ridership, units of work performed, and costs incurred. We determine which metric represents the most meaningful measure of value delivery based on the nature of the underlying service activities required under each individual contract. In certain circumstances we recognize revenue based on the right to bill when such amounts correspond to the value being delivered in a billing cycle. Certain of our transportation systems service contracts contain service level penalties or bonuses, which we recognize in each period incurred or earned. These contract penalties or bonuses are generally incurred or earned on a monthly basis; however, certain contracts may be based on a quarterly or annual evaluation. Sales under service contracts that do not contain measurable units of work performed are recognized on a straight-line basis over the contractual service period, unless evidence suggests that the revenue is earned, or obligations fulfilled, in a different manner. Costs incurred under these service contracts are generally expensed as incurred.

Sales from performance obligations satisfied at a point in time are typically for standard goods and are recognized when the customer obtains control, which is generally upon delivery and acceptance. Costs of sales are recorded in the period in which revenue is recognized.

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. It is common for our long-term contracts to contain bonuses, penalties, transactional variable based fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are incurred or earned upon certain performance metrics, program milestones, transactional based activities and other similar contractual events. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. Typical payment terms under fixed-price contracts with the U.S. government provide that the customer pays either performance-based payments based on the achievement of contract milestones or progress payments based on a percentage of costs we incur. For the majority of our international contracts to deliver complex systems, we typically receive milestone payments that are paid in accordance with the terms of our contract as we perform. For the majority of our service contracts, we generally bill on a monthly basis which corresponds with the satisfaction of our monthly performance obligation under these contracts. We recognize a liability for payments in excess of revenue recognized, which is presented as a contract liability on the balance sheet. The portion of payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer from our failure to adequately complete some or all of the obligations under the contract. Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract. For certain of our multiple-element arrangements, the contract specifies that we will not be paid upon the delivery of certain performance obligations, but rather we will be paid when subsequent performance obligations are satisfied. Generally, in these cases we have determined that a separate financing component exists as a performance obligation under the contract. In these instances, we allocate a portion of the transaction price to this financing component. We determine the value of the embedded financing component by discounting the repayment of the financed amount over the implied repayment term using the effective interest method. This discounting methodology uses an implied interest rate which reflects the credit quality of the customer and represents an interest rate that would be similar to what we would offer the customer in a separate financing transaction. Unpaid principal and interest amounts associated with the financed performance obligation and the value of the embedded financing component are presented as Long-term contracts financing receivables in our consolidated balance sheet. We recognize the allocated transaction price of the financing component as interest income over the implied financing term.

For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets on the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the balance sheet.

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We only include amounts representing contract change orders, claims or other items in the contract value when we believe the rights and obligations become enforceable. Contract modifications routinely occur to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract. Transaction price estimates include additional consideration for submitted contract modifications or claims when we believe there is an enforceable right to the modification or claim, the amount can be reliably estimated, and its realization is reasonably assured. Amounts representing modifications accounted for as part of the existing contract are included in the transaction price and recognized as an adjustment to sales on a cumulative catch-up basis.

In addition, we are subject to audit of incurred costs related to many of our U.S. government contracts. These audits could produce different results than we have estimated for revenue recognized on our cost-based contracts with the U.S. government; however, our experience has been that our costs are acceptable to the government.

Contract Estimates:Use of the cost-to-cost or other similar methods of revenue recognition requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. Revisions or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments may also be required if contract modifications occur. The impact of revisions in profit or loss estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, and in some cases result in liabilities to complete contracts in a loss position. The aggregate impact of net changes in contract estimates are presented in the table below (amounts in thousands).

	Three Months Ended
	December 31,
	2018		2017
Operating income (loss)	$	1,814	$	(929)
Net income (loss) from continuing operations		1,271		(736)
Diluted earnings per share		0.04		(0.03)

Backlog: Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time the option or IDIQ task order is exercised or awarded. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly As of December 31, 2018, our ending backlog was $3.814 billion. We expect to recognize approximately 25% of our December 31, 2018 backlog over the next 12 months and approximately 40% over the next 24 months as revenue, with the remainder recognized thereafter.

Disaggregation of Revenue:  See Note 14 for information regarding our sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Accounts Receivable: Receivables consist of billed amounts due from our customers. Due to the nature of our customers, we generally do not require collateral. We have limited exposure to credit risk as we have historically collected substantially all of our receivables. We generally require minimal allowance for doubtful accounts for our customers, which amounted to $1.7 million and $1.3 million as of December 31, 2018 and September 30, 2018, respectively.

Inventories: We state our inventories at the lower of cost or market. We determine cost using the first-in, first-out (FIFO) method, which approximates current replacement cost. We value our work in process at the actual production and

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engineering costs incurred to date, including applicable overhead. Any inventoried costs in excess of estimated realizable value are immediately charged to cost of sales.

Contract Assets:  Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amounts may not exceed their estimated net realizable value. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts.

Long-term Capitalized Contract Costs: Through September 30, 2018, long-term capitalized contract costs included costs incurred on contracts to develop and manufacture transportation systems for customers for which revenue recognition did not begin until the customers begin operating the systems prior to the adoption of ASC 606. Upon adoption of ASC 606, revenue recognition and cost recognition are no longer deferred in these situations and therefore we no longer have long-term capitalized contract costs.

Contract Liabilities:  Contract liabilities (formerly referred to as customer advances prior to the adoption of ASC 606) include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current liabilities based on our contract operating cycle and calculated on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

Recently Adopted Accounting Pronouncements – Income Taxes

On December 22, 2017 the U.S. government enacted the “Tax Cuts and Jobs Act of 2017” (Tax Act). Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed, in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During fiscal year 2018, we recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period. During the first quarter of fiscal year 2019, we did not adjust provisional amounts recorded in the prior fiscal year and the SAB 118 measurement period subsequently ended on December 22, 2018. Although we no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

Recently Adopted Accounting Pronouncements – Other

In October 2016, the Financial Accounting Standards Board (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.  ASU 2016-16 was effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for entities to disclose the methods and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 was adopted by us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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 cash receipts and cash payments from specific types of transactions 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. ASU 2016-15 was

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effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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. ASU 2016-18 was adopted by us beginning October 1, 2018. The application of this accounting standard update did not impact financial results, but resulted in a retrospective change in the presentation of restricted cash, including the inclusion of $27.4 million and $11.8 million of restricted cash on hand at September 30, 2018 and December 31, 2017, respectively, within the beginning and ending amounts of cash and cash equivalents in our Statements of Cash Flows. In addition, changes in the total of cash, cash equivalents and restricted cash are now reflected in our Statements of Cash Flows for all periods presented.

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 requires an entity to evaluate if substantially all of the fair value of the gross assets transferred is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 was adopted by us on October 1, 2018 and did not have any immediate impact on our consolidated financial statements. However, adoption of ASU 2017-01 could impact the accounting for future acquisitions or disposals of assets and activities because the accounting for a business combination differs significantly from that of an asset acquisition.

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. We adopted ASU 2017-07 beginning October 1, 2018 and it did not have any significant impact on our consolidated financial statements. The components of net periodic benefit cost, other than the service cost component, are included in other income (expense) in our condensed consolidated statements of income (loss).

Recent Accounting Pronouncements – Not Yet Adopted

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 and we have determined we will not adopt the new guidance early.

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. Adoption of ASU 2017-04 will have no immediate impact on our consolidated financial statements and would only have the potential to impact the amount of any goodwill impairment recorded after the adoption of the ASU. We are currently evaluating whether to adopt the guidance early.

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In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. The amendments in this ASU are effective for us in our annual period beginning October 1, 2019 and interim periods within that year, 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance modifies the disclosure requirements on fair value measurements. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020 and interim periods within that annual period. Early adoption is permitted for any removed or modified disclosures. 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 2018, the FASB issued ASU 2018-14, Defined Benefit Plan - Disclosure Framework (Topic 715), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020. 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 — New Accounting Standards Implemented

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expands the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for us beginning on October 1, 2018.

As discussed in Note 1, we adopted ASC 606 using the modified retrospective transition method. Results for reporting periods beginning after September 30, 2018 are presented under ASC 606, while prior period comparative information has not been restated and continues to be reported in accordance with ASC 605, the accounting standard in effect for periods ending prior to October 1, 2018. The adoption of ASC 606 primarily impacted certain (i) multiple-element transportation contracts that previously deferred the recognition of all revenue and related costs during the design and build phase, as the collection of payment occurred during the subsequent operate and maintain phase, and (ii) contracts previously covered by contract accounting standards that recognized revenue using the units-of-delivery method. Under ASC 606, we now recognize sales on these contracts over time by using the cost-to-cost method.

Based on contracts in process at September 30, 2018, upon adoption of ASC 606 we recorded a net increase to retained earnings of $24.5 million, which includes the acceleration of net sales of approximately $114.9 million and the related cost of sales. The adjustment to retained earnings primarily relates to multiple element transportation contracts that previously required the deferral of revenue and costs during the design and build phase, as the collection of all customer payments occurs during the subsequent operate and maintain phase. Under ASC 606, deferral of such revenue and costs is not required. In addition, the adjustment to retained earnings is attributed to contracts previously accounted for under the units-of-delivery method, which are now recognized under ASC 606 earlier in the performance period as costs are incurred, as opposed to when the units are delivered under ASC 605. In accordance with the modified retrospective

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transition provisions of ASC 606, we will not recognize any of the accelerated net sales and related cost of sales through October 1, 2018 in our Condensed Consolidated Statements of Income (Loss) for any historical or future period.

We made certain presentation changes to our Consolidated Balance Sheet on October 1, 2018 to comply with ASC 606. The component of accounts receivable as reported under ASC 605, which included unbilled contract receivables, has been reclassified as contract assets under ASC 606, after certain adjustments described below. The adoption of ASC 606 resulted in an increase in unbilled contract receivables (referred to as contract assets under ASC 606) primarily from converting contracts previously applying the units-of-delivery method to the cost-to-cost method with a corresponding reduction in inventoried contract costs. Additionally, the adoption of ASC 606 resulted in an increase in unbilled receivables from converting multiple element transportation contracts that previously deferred all revenue and costs during the design and build phase, with a corresponding reduction in long-term capitalized contract costs. Advance payments and deferred revenue, previously primarily classified in customer advances, are now presented as contract liabilities.

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The table below presents the cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018 due to the adoption of ASC 606 (in thousands):

			Adjustments		October 1, 2018
	September 30,		Due to		As Adjusted
	2018		ASC 606		Under ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	111,834	$	—	$	111,834
Cash in consolidated VIE		374		—		374
Restricted cash		17,400		—		17,400
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		392,367		(236,743)		155,624
Contract assets		—		272,210		272,210
Recoverable income taxes		91		—		91
Inventories		84,199		(22,511)		61,688
Assets held for sale		8,177		—		8,177
Other current assets		43,705		—		43,705
Total current assets		668,147		12,956		681,103
Long-term contracts receivables		6,134		(6,134)		—
Long-term contracts financing receivables		—		56,228		56,228
Long-term contracts financing receivables in consolidated VIE		—		38,990		38,990
Long-term capitalized contract costs		84,924		(84,924)		—
Long-term capitalized contract costs in consolidated VIE		1,258		(1,258)		—
Property, plant and equipment, net		117,546		—		117,546
Deferred income taxes		4,713		389		5,102
Goodwill		333,626		—		333,626
Purchased intangibles, net		73,533		—		73,533
Other assets		14,192		—		14,192
Other noncurrent assets in consolidated VIE		810		—		810
Total assets	$	1,304,883	$	16,247	$	1,321,130
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	—	$	—
Trade accounts payable		125,414		(3,011)		122,403
Trade accounts payable in consolidated VIE		165		—		165
Contract liability		—		70,127		70,127
Customer advances		75,941		(75,941)		—
Accrued compensation and other current liabilities		118,233		583		118,816
Income taxes payable		8,586		—		8,586
Total current liabilities		328,339		(8,242)		320,097
Long-term debt		199,793		—		199,793
Long-term debt in consolidated VIE		9,056		—		9,056
Other long-term liabilities		43,486		—		43,486
Other long-term liabilities in consolidated VIE		13		—		13
Shareholders’ equity:
Common stock		45,008		—		45,008
Retained earnings		801,834		19,834		821,668
Accumulated other comprehensive loss		(110,643)		—		(110,643)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		700,121		19,834		719,955
Noncontrolling interest in VIE		24,075		4,655		28,730
Total shareholders’ equity		724,196		24,489		748,685
Total liabilities and shareholders’ equity	$	1,304,883	$	16,247	$	1,321,130

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The table below presents how the adoption of ASC 606 affected certain line items on our Condensed Consolidated Statements of Income (Loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Net sales:
Products	$	152,562	$	29,691	$	182,253
Services		124,262		(1,256)		123,006
		276,824		28,435		305,259
Costs and expenses:
Products		100,544		24,941		125,485
Services		92,785		—		92,785
Selling, general and administrative expenses		62,823		163		62,986
Research and development		12,012		—		12,012
Amortization of purchased intangibles		10,565		—		10,565
Restructuring costs		1,992		—		1,992
		280,721		25,104		305,825
Operating loss		(3,897)		3,331		(566)
Other income (expenses):
Interest and dividend income		56		1,178		1,234
Interest expense		(4,032)		—		(4,032)
Other income (expense), net		(4,753)		—		(4,753)
Loss from continuing operations before income taxes		(12,626)		4,509		(8,117)
Income tax provision		2,473		24		2,497
Net loss		(15,099)		4,485		(10,614)
Less noncontrolling interest in loss of VIE		(5,981)		1,954		(4,027)
Net loss attributable to Cubic	$	(9,118)	$	2,531	$	(6,587)
Net income (loss) per share:
Basic earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)
Diluted earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)

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The table below quantifies the impact of adopting ASC 606 on segment net sales and operating income (loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Sales:	(in thousands)
Cubic Transportation Systems	$	172,728	$	9,079	$	181,807
Cubic Mission Solutions		45,363		1,030		46,393
Cubic Global Defense		58,733		18,326		77,059
Total sales	$	276,824	$	28,435	$	305,259
Operating income (loss):
Cubic Transportation Systems	$	9,186	$	1,790	$	10,976
Cubic Mission Solutions		(5,191)		251		(4,940)
Cubic Global Defense		1,607		1,290		2,897
Unallocated corporate expenses		(9,499)		—		(9,499)
Total operating income (loss)	$	(3,897)	$	3,331	$	(566)

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The table below presents how the impact of the adoption of ASC 606 affected certain line items on our Condensed Consolidated Balance Sheet at December 31, 2018 (in thousands):

					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	75,174	$	—	$	75,174
Cash in consolidated VIE		421		—		421
Restricted cash		17,889		—		17,889
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		390,855		(272,564)		118,291
Contract assets		—		320,277		320,277
Recoverable income taxes		1,086		235		1,321
Inventories		121,223		(29,022)		92,201
Assets held for sale		8,177		—		8,177
Other current assets		40,924		—		40,924
Total current assets		665,749		18,926		684,675
Long-term contracts receivables		4,064		(4,064)		—
Long-term contracts financing receivables		—		44,936		44,936
Long-term contracts financing receivables in consolidated VIE		—		52,996		52,996
Long-term capitalized contract costs		95,894		(95,894)		—
Long-term capitalized contract costs in consolidated VIE		1,551		(1,551)		—
Property, plant and equipment, net		125,298		—		125,298
Deferred income taxes		4,298		389		4,687
Goodwill		484,329		—		484,329
Purchased intangibles, net		137,201		—		137,201
Other assets		13,871		—		13,871
Other noncurrent assets in consolidated VIE		962		—		962
Total assets	$	1,533,217	$	15,738	$	1,548,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	64,500	$	—	$	64,500
Trade accounts payable		111,310		(2,216)		109,094
Trade accounts payable in consolidated VIE		205		—		205
Contract liability		—		69,713		69,713
Customer advances		80,993		(80,993)		—
Accrued compensation and other current liabilities		82,323		—		82,323
Income taxes payable		6,512		259		6,771
Total current liabilities		345,843		(13,237)		332,606
Long-term debt		199,801		—		199,801
Long-term debt in consolidated VIE		15,357		—		15,357
Other long-term liabilities		43,838		—		43,838
Other long-term liabilities in consolidated VIE		6,146		—		6,146
Shareholders’ equity:
Common stock		260,141		—		260,141
Retained earnings		792,717		22,366		815,083
Accumulated other comprehensive loss		(112,642)		—		(112,642)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		904,138		22,366		926,504
Noncontrolling interest in VIE		18,094		6,609		24,703
Total shareholders’ equity		922,232		28,975		951,207
Total liabilities and shareholders’ equity	$	1,533,217	$	15,738	$	1,548,955

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Note 3 — Acquisitions and Divestitures

Sale of CGD Services

On April 18, 2018, we entered into a stock purchase agreement with the Purchaser, an entity affiliated with GC Valiant, LP, under which we agreed to sell our CGD Services business to the Purchaser. The sale closed on May 31, 2018. In accordance with the terms of the stock purchase agreement, the Purchaser agreed to pay us $135.0 million in cash upon the closing of the transaction, adjusted for the estimated working capital of CGD Services at the date of the sale compared to a working capital target. In the third quarter of fiscal 2018, we received $133.8 million in connection with the sale and at December 31, 2018, we have recorded a receivable from the Purchaser of $3.7 million for the estimated amount due related to the working capital settlement. The working capital settlement has not yet been settled with the Purchaser. 

In addition to the amounts described above, we are eligible to receive an additional cash payment of $3.0 million based on the achievement of pre-determined earn-out conditions related to the award of certain government contracts. No amount has been recorded as a receivable related to the potential achievement of earn-out conditions based upon our assessment of the probability of achievement of the required conditions.

We concluded that the sale of the CGD Services business met all of the required conditions for discontinued operations presentation in the second quarter of fiscal 2018. As such, the CGD Services business financial results are reported within discontinued operations in our condensed consolidated financial statements. The operating results and cash flows of CGD Services have been classified as discontinued operations in the Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Cash Flows for all periods presented.

The operations and cash flows of CGD Services are reflected in our consolidated Statements of Income and Consolidated Statements of Cash Flows as discontinued operations through May 31, 2018, the date of the sale. The following table presents the composition of net income from discontinued operations, net of taxes, for the quarter ended December 31, 2017 (in thousands). No amounts were recognized as income or loss from discontinued operations for the three months ended December 31, 2018:

		Three Months Ended
	December 31, 2017
Net sales	$	92,293
Costs and expenses:
Cost of sales		83,120
Selling, general and administrative expenses		3,667
Amortization of purchased intangibles		608
Other income		(5)
Earnings from discontinued operations before income taxes		4,903
Income tax provision		3,254
Net income from discontinued operations	$	1,649

Under a transition services agreement, we are providing the Purchaser with certain post-closing support primarily consisting of IT and payroll services. We are charging the Purchaser for the post-closing support in amounts that approximate their expected costs, and these support services will be phased out over an approximate ten-month period from the date that the sale closed.

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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Advanced Traffic Solutions Inc.

In October 2018, we acquired all of the outstanding capital stock of Advanced Traffic Solutions Inc. (Trafficware), a provider of intelligent traffic solutions for the transportation industry based in Sugar Land, Texas. Trafficware provides a fully integrated suite of software, Internet of Things devices, and hardware solutions that optimize the flow of motorist and pedestrian traffic. Trafficware is expected to provide synergies from combining its capabilities with our existing Cubic Transportation System (CTS) business.

Trafficware’s sales and results of operations included in our operating results for the quarter ended December 31, 2018 and 2017 were as follows (in millions):

	Three Months Ended
	December 31,
	2018		2017
Sales	$	10.5	$	—
Operating loss		(3.3)		—
Net loss after taxes		(3.3)		—

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

	Three Months Ended
	December 31,
	2018		2017
Amortization	$	4.3	$	—
Acquisition-related expenses		1.4		—

The acquisition-date fair value of consideration is $237.6 million, which is comprised of net cash paid of $239.2 million less a $1.6 million receivable due from the sellers for the difference between the net working capital acquired and the targeted working capital amounts. The acquisition was financed primarily with proceeds from draws on our line of credit.

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

Technology	$	43.3
Customer Relationships		21.9
Backlog		4.8
Trade Name		4.6
Accounts Receivable		10.4
Inventory		9.4
Accounts payable and accrued expenses		(6.5)
Other net assets acquired (liabilities assumed)		(2.0)
Net identifiable assets acquired		85.9
Goodwill		151.7
Net assets acquired	$	237.6

The estimated fair values of assets acquired and liabilities assumed, including purchased intangibles, 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 trade name valuation used the relief from royalty method, the customer relationships valuation used the with-and-without valuation method, and the technology and backlog valuations used the excess earnings method.

The intangible assets are being amortized using straight-line methods based on the expected period of undiscounted cash flows that will be generated by the assets, over an average useful life of seven years from the date of acquisition.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Trafficware with our existing CTS business, and strengthening our capability of developing and integrating products in our CTS portfolio. The goodwill also includes the value of the assembled workforce that became our employees

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following the close of the acquisition. The amount recorded as goodwill is allocated to our CTS segment and 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 Trafficware for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	15.3
2020		11.4
2021		11.4
2022		11.4
2023		6.4
Thereafter		18.8

Shield Aviation, Inc.

In July 2018, we acquired the assets of Shield Aviation (Shield), based in San Diego, California, a provider of autonomous aircraft systems (AAS) for intelligence, surveillance and reconnaissance (ISR) services. The addition of Shield expands our C4ISR portfolio for our CMS segment and will provide our customers with a rapidly deployable, medium AAS that offers unique mission enabling capabilities. We already provide the data link as well as the command and control link for the Shield AAS.

Shield’s sales and results of operations included in our operating results for the three months ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	—	$	—
Operating loss		(0.9)		—
Net loss after taxes		(0.9)		—

Shield’s operating results above included the following amounts for the three months ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		—		—

The acquisition-date fair value of consideration is $12.8 million, which is comprised of estimated fair value of contingent consideration of $5.6 million, extinguishment of secured loans and warrants due from Shield of $5.2 million, cash paid of $1.3 million, plus additional consideration to be paid in the future of $0.7 million. Under the purchase agreement, we will pay the sellers up to $10.0 million of contingent consideration if Shield meets certain sales goals from the date of acquisition through July 31, 2025. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any subsequent changes in fair value are recognized in earnings.

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The acquisition of Shield 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):

Technology	$	6.0
Other net assets acquired		0.3
Net identifiable assets acquired		6.3
Goodwill		6.5
Net assets acquired	$	12.8

The technology asset valuation used the excess earnings approach and is being amortized using the straight-line method over eight years, which is based on the expected period of cash flows that will be generated by the asset.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Shield with our existing Cubic Mission Solutions (CMS) business, and strengthening our capability of developing and integrating products and services in our CMS portfolio. The goodwill also includes the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill is allocated to our CMS segment and is expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Shield for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.8
2020		0.8
2021		0.8
2022		0.8
2023		0.8
Thereafter		2.1

MotionDSP

In October 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. On February 21, 2018, we paid net cash of $4.8 million to purchase the remaining outstanding capital stock of MotionDSP. The addition of MotionDSP enhances the capabilities in real-time video processing of our CMS business and expands our customer base in the public safety and other adjacent markets.

MotionDSP’s sales and results of operations included in our operating results since its consolidation in our financial statements for the quarters ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	0.2	$	—
Operating loss		(0.4)		—
Net loss after taxes		(0.4)		—

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MotionDSP’s operating results above included the following amounts for the quarters ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		0.1		—

The acquisition of MotionDSP 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	$	0.2
Technology		4.5
Trade name		0.1
Accounts payable and accrued expenses		(0.3)
Other noncurrent liabilities		(0.8)
Other net liabilities assumed		(0.9)
Net identifiable assets acquired		2.8
Goodwill		6.7
Net assets acquired	$	9.5

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 trade name valuation used the relief from royalty method, the customer relationships valuation used the with-and-without valuation method, and the technology valuation used the excess earnings method.

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

The goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of MotionDSP with our CMS operating segment, enhancing our capabilities in real-time video processing and computer vision analytics of our CMS 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 in connection with the acquisition of MotionDSP 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 MotionDSP for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.7
2020		0.7
2021		0.7
2022		0.7
2023		0.7
Thereafter		0.8

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Pro forma information

The following unaudited pro forma information presents our consolidated results of operations as if Trafficware, Shield, and MotionDSP had been included in our consolidated results since October 1, 2017 (in millions):

	Three Months Ended
	December 31,
	2018		2017
Net sales	$	307.1	$	261.8
Net loss	$	(6.3)	$	(13.4)

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, 2017, and it does not purport to project our future operating results.

Acquisition of GRIDSMART Subsequent to December 31, 2018

In January 2019, we acquired all of the outstanding capital stock of GRIDSMART Technologies, Inc. (GRIDSMART), a provider of differentiated video tracking to the Intelligent Traffic Systems (ITS) market. Based in Knoxville, Tennessee, GRIDSMART specializes in video detection at the intersection utilizing advanced image processing, computer vision modeling and machine learning along with a single camera solution providing best-in-class data for optimizing the flow of people and traffic through intersections. GRIDSMART is expected to provide synergies from combining its capabilities with our existing CTS business. The purchase price was $87.0 million adjusted for the difference between net working capital acquired and a targeted working capital amount, and was financed primarily with proceeds from draws on our line of credit. Due to the limited time between the acquisition date and the filing of this report and due to the difference in fiscal year dates between GRIDSMART and Cubic, it is not practicable for us to disclose: (i) the allocation of purchase price to assets acquired and liabilities assumed as of the date of close, (ii) the methods of amortization and amortization periods of acquired intangible assets, and (iii) pro forma revenues and earnings of the combined company for the quarter ended December 31, 2018.

Goodwill

Changes in goodwill for the three months ended December 31, 2018 were as follows for each of our reporting units (in thousands):

	Transportation		Cubic Mission		Cubic Global
	Systems		Solutions		Defense		Total
Net balances at September 30, 2018	$	49,786	$	138,127	$	145,713	$	333,626
Acquisitions		151,670		—		—		151,670
Foreign currency exchange rate changes		(798)		(73)		(96)		(967)
Net balances at December 31, 2018	$	200,658	$	138,054	$	145,617	$	484,329

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. Circumstances that might indicate 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.

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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.

Our most recent annual goodwill impairment test was our 2018 annual impairment test completed as of July 1, 2018. The results of our 2018 annual impairment test indicated that the estimated fair value for our CTS reporting unit exceeded its carrying value by over 100% while the estimated fair values of our Cubic Global Defense (CGD) and CMS reporting units each exceeded their carrying values by over 40%. Subsequent to the effective dates of the tests for each of our reporting units, we do not believe that circumstances have occurred that indicate that an impairment for any of our reporting units is more-likely-than-not. As such, no subsequent interim impairment tests have been performed.

Note 4 – Variable Interest Entities

In accordance with ASC 810, Consolidation, we assess our partnerships and joint ventures at inception, and when there are changes in relevant factors, to determine if any meet the qualifications of a variable interest entity (VIE). We consider a partnership or joint venture a VIE if it has any of the following characteristics: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

We perform a qualitative assessment of each VIE to determine if we are its primary beneficiary. We conclude that we are the primary beneficiary and consolidate the VIE if we have both (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We consider the VIE design, the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if we are the primary beneficiary. We also consider all parties that have direct or implicit variable interests when determining whether we are the primary beneficiary. As required by ASC 810, our primary beneficiary assessment is continuously performed.

In March 2018, CTS, a wholly owned subsidiary of Cubic, and John Laing, an unrelated company that specializes in contracting under public-private partnerships (P3), jointly formed Boston AFC 2.0 HoldCo. LLC (HoldCo.). Also in March 2018, HoldCo. created a wholly owned entity, Boston AFC 2.0 OpCo. LLC (OpCo.) which entered into a contract with the Massachusetts Bay Transit Authority (MBTA) for the financing, development, and operation of a next-generation fare payment system in Boston (the MBTA Contract). HoldCo. is 90% owned by John Laing and 10% owned by CTS. Collectively, HoldCo. and OpCo. are referred to as the P3 Venture. Based on our assessment under ASC 810, we have concluded that OpCo. and HoldCo. are VIE’s and that we are the primary beneficiary of OpCo. Consequently, we have consolidated the financial statements of OpCo. within Cubic’s consolidated financial statements. We have concluded that we are not the primary beneficiary of HoldCo., and thus we have not consolidated the financial statements of HoldCo. within Cubic’s consolidated financial statements.

The MBTA Contract consists of a design and build phase of approximately three years and an operate and maintain phase of approximately ten years. The design and build phase is planned to be completed in 2021 and the operate and maintain phase will span from 2021 through 2031. MBTA will make fixed payments of $558.5 million, adjusted for incremental transaction-based fees, inflation, and performance penalties, to OpCo. in connection with the MBTA Contract over the ten-year operate and maintain phase. All of OpCo.’s contractual responsibilities regarding the design and development and the operation and maintenance of the fare system have been subcontracted to CTS by OpCo. CTS will receive fixed payments of $427.6 million, adjusted for incremental transaction-based fees, inflation, and performance penalties, under its subcontract with OpCo.

Upon creation of the P3 Venture, John Laing made a loan to HoldCo. of $24.3 million in the form of a bridge loan that is intended to be converted to equity in the future in accordance with its equity funding responsibilities. Concurrently, HoldCo. made a corresponding equity contribution to OpCo. in the same amount which is included within equity of

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Noncontrolling interest in VIE within Cubic’s consolidated financial statements. Also, upon creation of the P3 Venture, CTS issued a letter of credit for $2.7 million to HoldCo. in accordance with CTS’s equity funding responsibilities. HoldCo. is able to draw on the CTS letter of credit in certain liquidity instances, but no amounts have been drawn on this letter of credit as of December 31, 2018.

Upon creation of the P3 Venture, OpCo. entered into a credit agreement with a group of financial institutions (the OpCo. Credit Agreement) which includes a long-term debt facility and a revolving credit facility. The long-term debt facility allows for draws up to a maximum amount of $212.4 million; draws may only be made during the design and build phase of the MBTA Contract. The long-term debt facility, including interest and fees incurred during the design and build phase, is required to be repaid on a fixed monthly schedule over the operate and maintain phase of the MBTA Contract. The long-term debt facility bears interest at variable rates of LIBOR plus 1.3% and LIBOR plus 1.55% over the design and build and operate and maintain phases of the MBTA Contract, respectively. At December 31, 2018, the outstanding balance on the long-term debt facility was $15.4 million, which is presented net of unamortized deferred financing costs of $8.8 million. The revolving credit facility allows for draws up to a maximum amount of $13.9 million and is only available to be drawn on during the operate and maintain phase of the MBTA Contract. OpCo.’s debt is nonrecourse with respect to Cubic and its subsidiaries. The fair value of the long-term debt facility approximates its carrying value.

The OpCo. Credit Agreement contains a number of covenants which require that OpCo. and Cubic maintain progress on the delivery of the MBTA Contract within a specified timeline and budget and provide regular reporting on such progress. The OpCo. Credit Agreement also contains a number of customary events of default including, but not limited to, the delivery of a customized fare collection system to MBTA by a pre-determined date. Failure to meet such delivery date will result in OpCo., and Cubic via its subcontract with OpCo., to incur penalties due to the lenders.

OpCo. has entered into pay-fixed/receive-variable interest rate swaps with a group of financial institutions to mitigate variable interest rate risk associated with its long-term debt. The interest rate swaps contain forward starting notional principal amounts which align with OpCo.’s expected draws on its long-term debt facility. At December 31, 2018, the outstanding notional principal amounts on open interest rate swaps were $61.9 million. The fair value of OpCo.’s interest rate swaps at December 31, 2018 was $6.1 million and is recorded as a liability in Other long-term liabilities in our Consolidated Balance Sheets. OpCo.’s interest rate swaps were not designated as effective hedges at December 31, 2018 and as such any unrealized gains/losses are included in other income (expense), net.  Unrealized losses as a result of changes in the fair value of OpCo.’s interest rate swaps were $6.1 million for the three months ended December 31, 2018. See Note 13 for a description of the measurement of fair value of derivative financial instruments, including OpCo.’s interest rate swaps.

At December 31, 2018, OpCo. holds a $10.0 million restricted cash balance which is required by the MBTA Contract to allow for the delivery of future change orders and unplanned expansions as directed by MBTA.

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The assets and liabilities of OpCo. that are included in our condensed consolidated balance sheets at December 31, 2018 and September 30, 2018 are as follows:

	December 31,		September 30,
	2018		2018
	(in thousands)
Cash	$	421	$	374
Restricted cash		10,000		10,000
Long-term capitalized contract costs		—		1,258
Long-term contracts financing receivable		52,996		—
Other noncurrent assets		962		810
Total assets	$	64,379	$	12,442
Trade accounts payable	$	205	$	165
Other long-term liabilities		6,146		13
Long-term debt		15,357		9,056
Total liabilities	$	21,708	$	9,234
Total Cubic equity		39		(304)
Noncontrolling interests		24,703		24,348
Total liabilities and owners' equity	$	46,450	$	33,278

The balance sheets of OpCo. at December 31, 2018 and September 30, 2018 exclude $17.9 million of liabilities and $20.8 million of assets, respectively, that are eliminated in consolidation.

The assets of OpCo. are restricted for its use only and are not available for the general operations of Cubic. OpCo.’s debt is non-recourse to Cubic. Cubic’s maximum exposure to loss as a result of its equity interest in the P3 Venture is limited to the $2.7 million outstanding letter of credit, which will be converted to a cash contribution upon completion of the design and build phase of the MBTA Contract.

Prior to the adoption of ASC 606, Cubic and OpCo. were precluded from recognizing revenue on the MBTA Contract because MBTA was not required to make payments to OpCo. until the operate and maintain phase of the contract began. During this time period Cubic and OpCo. were capitalizing costs associated with designing and building the system for MBTA. The total amount of such costs capitalized through September 30, 2018 was $27.8 million, which was classified within long-term capitalized contract costs. Upon the adoption of ASC 606, Cubic and OpCo are now permitted to recognize revenue related to the MBTA contract and therefore costs are now recognized as incurred and are no longer capitalized.

The revenue, operating income, and other income (expense), net of OpCo. that are included in our condensed consolidated statement of income (loss) for the three months ended December 31, 2018 and 2017 are as follows:

	Three Months Ended
	December 31,
	2018		2017
Revenue	$	1,961	$	—
Operating income		1,668		—
Other income (expense), net		(6,133)		—
Interest income		503		—
Interest expense		(512)		—

Note 5 — Net Income (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing the net income (loss) attributable to Cubic 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 from continuing operations attributable to Cubic, diluted EPS is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding

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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 from continuing operations attributable to Cubic, common equivalent shares are not included in the computation of diluted EPS, because to do so would be anti-dilutive.

The weighted-average number of shares outstanding used to compute net loss per common share were as follows (in thousands):

	December 31,
	2018		2017
Weighted average shares - basic		28,492		27,207
Effect of dilutive securities		—		—
Weighted average shares - diluted		28,492		27,207
Number of anti-dilutive securities		990		1,040

Note 6 — Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities (formerly referred to as customer advances prior to the adoption of ASC 606 include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in thousands):

	December 31,		October 1,
	2018		2018
Contract assets	$	320,277	$	272,210
Contract liabilities	$	69,713	$	70,128

Contract assets increased $48.1 million during the three months ended December 31, 2018, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the three months ended December 31, 2018 for which we have not yet billed. There were no significant impairment losses related to our contract assets during the three months ended December 31, 2018 and 2017.

Contract liabilities decreased $0.4 million during the three months ended December 31, 2018, primarily due to payments received in excess of revenue recognized on these performance obligations. During the three months ended December 31, 2018, we recognized $20.7 million of our contract liabilities at October 1, 2018 as revenue. We expect our contract liabilities to be recognized as revenue over the next twelve months.

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Note 7 — Balance Sheet Details

Accounts Receivable

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

	December 31,		September 30,
	2018		2018
Accounts receivable
Billed	$	119,943	$	156,948
Unbilled		—		242,877
Allowance for doubtful accounts		(1,652)		(1,324)
Total accounts receivable		118,291		398,501
Less estimated amounts not currently due		—		(6,134)
Current accounts receivable	$	118,291	$	392,367

Inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2018		2018
Finished products	$	7,716	$	7,099
Work in process and inventoried costs under long-term contracts		49,295		63,169
Materials and purchased parts		35,190		23,710
Customer advances		—		(9,779)
Net inventories	$	92,201	$	84,199

At both December 31, 2018 and September 30, 2018, work in process and inventoried costs under long-term contracts includes approximately $0.9 million in costs incurred outside the scope of work or in advance of a contract award. We believe it is probable that we will recover the costs inventoried at December 31, 2018, plus a profit margin, under contract change orders or awards within the next year.

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 in phases from fiscal 2016 through fiscal 2018. 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.

Excluding businesses that we acquired in fiscal 2019, we completed the planned implementation of our ERP system in the fourth quarter of fiscal 2018. We continue to capitalize costs associated with the development of certain ERP features and upgrades that are not yet ready for their intended use. We capitalized costs related to ERP components in development totaling $0.5 million and $2.5 million for the quarters ended December 31, 2018 and 2017, respectively.

In addition to software costs that were capitalized, during the quarters ended December 31, 2018 and December 31, 2017, we recognized expenses related to the development and implementation of our ERP system of $0.8 million and $6.3 million, respectively, for costs that did not meet the requirements for capitalization. Amounts that were expensed in

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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 $12.0 million and $11.5 million at December 31, 2018 and September 30, 2018, respectively.

We have made 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, 2018 and September 30, 2018 were $5.8 million and $6.4 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).

Note 8 — 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 following table presents assets and liabilities measured and recorded at fair value on our balance sheets on a recurring basis (in thousands):

	December 31, 2018								September 30, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	—	$	—	$	—	$	—	$	9,000	$	—	$	—	$	9,000
Current derivative assets		—		5,036		—		5,036		—		1,803		—		1,803
Noncurrent derivative assets		—		581		—		581		—		314		—		314
Total assets measured at fair value	$	—	$	5,617	$	—	$	5,617	$	9,000	$	2,117	$	—	$	11,117
Liabilities
Current derivative liabilities		—		3,367		—		3,367		—		1,657		—		1,657
Noncurrent derivative liabilities		—		—		—		—		—		75		—		75
Contingent consideration to seller of Deltenna		—		—		1,343		1,343		—		—		1,081		1,081
Contingent consideration to seller of Shield		—		—		5,618		5,618		—		—		5,618		5,618
Contingent consideration to seller of TeraLogics - revenue targets		—		—		—		—		—		—		1,750		1,750
Contingent consideration to seller of H4 Global		—		—		832		832		—		—		665		665
Total liabilities measured at fair value	$	—	$	3,367	$	7,793	$	11,160	$	—	$	1,732	$	9,114	$	10,846

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-

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

At December 31, 2018, we have the following remaining contingent consideration arrangements with the sellers of companies which we acquired:

· Deltenna: Payment of up to $6.9 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022.

· H4 Global: Payment of up to $3.2 million of contingent consideration based upon the value of contracts entered into over the five-year period ending September 30, 2020.

· Shield: Payments of up to $10.0 million of contingent consideration if Shield meets certain sales goals from the date of acquisition through July 31, 2025.

In addition, we have a contingent consideration arrangement with the Purchaser of our CGD Services business under which we are eligible to receive a cash payment of $3.0 million if the Purchaser is awarded certain government contracts in the future.

The fair value of Deltenna contingent consideration was valued using the real option approach. Under this approach, each payment was modeled using long digital options written on the underlying revenue metric. The strike price for each option is the respective revenue as specified in the related agreement, and the spot price is calibrated to the revenue forecast by calculating the present value of the corresponding projected revenues 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 factor used in the December 31, 2018 valuations was 40% for Deltenna. The volatility factor used in the September 30, 2018 valuation was 53% for Deltenna. 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 maximum remaining payout to the sellers of H4 Global is $3.2 million at December 31, 2018, and is based upon the value of contracts entered into over the five-year period ending September 30, 2020. 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 fair value of the Shield contingent consideration was estimated based on Monte Carlo simulations. Under the purchase agreement, we will pay the sellers up to $10.0 million if Shield meets certain sales goals from the date of acquisition through July 31, 2025. The fair value of the contingent consideration was determined based upon a probability distribution of values based on 100,000 iterations. Key inputs for the simulation include projected revenues, assumed discount rates for projected revenue and cash flows, and volatility. The volatility and revenue risk adjustment factors used as of December 31, 2018 were 20% and 14%, respectively, and were determined based on analysis of publicly traded comparable companies. The discount rate used as of December 31, 2018 and September 30, 2018 was based on our expected borrowing rate under our financing arrangements, which was determined to be 5.0% at December 31, 2018 and September 30, 2018. 

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.  

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As of December 31, 2018, the following table summarizes the change in fair value of our Level 3 contingent consideration liabilities (in thousands):

		H4 Global		TeraLogics (Revenue Targets)		Deltenna		Shield		Total
Net balances at September 30, 2018	$	665	$	1,750	$	1,081	$	5,618	$	9,114
Cash paid to seller		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		167		—		262		—		429
Balance as of December 31, 2018	$	832	$	—	$	1,343	$	5,618	$	7,793

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,
	2018		2018
Fair value	$	195.4	$	193.7
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 2019 or 2018 other than assets and liabilities acquired in business acquisitions described in Note 3 and the restricted stock units that were granted in the first quarter of fiscal 2019 that contain performance and market-based vesting criteria described in Note 11.

Note 9 — Financing Arrangements

In December 2018, we completed an underwritten public offering of 3,300,000 shares of our common stock. We granted the underwriters a 30-day option to purchase up to an additional 495,000 shares of common stock. In December 2018, the underwriters exercised their option to purchase the additional 495,000 shares. All shares were offered by us at a price to the public of $60.00 per share. Net proceeds were $215.8 million, after deducting underwriting discounts and commissions and offering expenses of $11.9 million. We used the net proceeds to repay a portion of our outstanding borrowings under our revolving credit agreement which was used to finance the acquisition of Trafficware and general corporate purposes.

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 the company’s 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. The interest rates on all of the term notes described above may be adjusted upwards by up to 0.75% should our leverage ratio exceed certain levels.

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, 2018, the weighted average interest rate on outstanding borrowings under the Revolving Credit Agreement was 3.75%. Debt issuance and modification costs of $2.3 million and $1.3 million were incurred in connection with February 2, 2016 and August 11, 2016 amendments to the Revolving Credit Agreement, respectively. Costs incurred in connection with establishment of and amendments to

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this 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, 2018, our total debt issuance costs have an unamortized balance of $1.7 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2018, there were $64.5 million of borrowings under this agreement and there were letters of credit outstanding totaling $38.4 million, which reduce the available line of credit to $297.1 million. The $38.4 million of letters of credit includes both financial letters of credit and performance guarantees.

We maintain a cash account with a bank in the United Kingdom 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 United Kingdom. The balance in the account as of December 31, 2018 was $17.9 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

As of December 31, 2018, we had letters of credit and bank guarantees outstanding totaling $50.1 million, which includes the $38.4 million of letters of credit on the Revolving Credit Agreement above and $11.7 million of letters of credit issued under other facilities. The total of $50.1 million of letters of credit and bank guarantees includes $42.9 million that guarantees either our performance or customer advances under certain contracts and financial letters of credit of $7.2 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 United Kingdom in the amount of £20.0 million British pounds (equivalent to approximately $25.5 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2018, 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, 2018, these agreements have no restrictions on distributions to shareholders, subject to certain tests in these agreements.

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 $8.7 million at December 31, 2018 and $8.6 million at September 30, 2018.

Note 10 — Pension Plans

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

	Three Months Ended
	December 31,
	2018		2017
Service cost	$	149	$	151
Interest cost		1,910		1,880
Expected return on plan assets		(3,009)		(3,525)
Amortization of actuarial loss		528		692
Administrative expenses		97		110
Net pension cost (benefit)	$	(325)	$	(692)

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Note 11 - Stockholders’ Equity

Long-Term Equity Incentive Plan

In 2013, the Executive Compensation Committee of the Board of Directors (Compensation Committee) approved a long-term equity incentive award program. To date, the Compensation Committee has approved three general categories of grant awards: RSUs with time-based vesting, RSUs with performance-based vesting, and RSUs with performance and market-based vesting. Through December 31, 2018, the Compensation Committee has granted 1,285,560 RSUs with time-based vesting, 1,173,766 RSUs with performance-based vesting, and 219,890 RSUs with performance and market-based vesting under this program.

Each RSU with time-based vesting or performance-based vesting represents a contingent right to receive one share of our common stock. Each RSU with performance and market-based vesting represents a contingent right to receive up to 1.25 shares 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 prior to September 30, 2018, the vesting is contingent upon Cubic meeting one of three types of vesting criteria over the performance period, including 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.

In fiscal 2019, the Compensation Committee granted RSUs with performance and market-based vesting criteria. The performance and market-based RSUs granted to participants vest over three-year performance periods based on Cubic’s achievement of revenue growth targets and earnings growth targets subject to the recipient’s continued service through the end of the respective performance periods. The level at which Cubic performs against scalable targets over the performance periods impact the percentage of the RSUs that will ultimately vest. For these RSUs, Cubic’s relative total stock return (TSR) as compared to the Russell 2000 Index (Index) over the performance period will result in a multiplier for the number of RSUs that will vest. If the our TSR performance exceeds the performance of the Index based on a scale established by the Compensation Committee, the multiplier will result in up to an additional 25% of RSUs vesting at the end of the performance period. If the TSR performance is below the performance of the Index based on a scale established by the Compensation Committee, the multiplier could result in a reduction of up to 25% of these RSUs vesting at the end of the performance period.

The grant date fair value of each RSU with time-based vesting or performance-based vesting is the fair market value of one share of our common stock at the grant date.

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The grant date fair value of each RSU with performance and market-based vesting was calculated using a Monte Carlo simulation valuation method. Under this method, the prices of the Index and our common stock were simulated through the end of the performance period. The correlation matrix between our common stock and the index as well as our stock and the Index’s return volatilities were developed based upon an analysis of historical data. The following table includes the assumptions used for the valuation of the RSUs with performance and market-based vesting that were granted in the first quarter of fiscal 2019:

		RSU's granted during the three
		months ended December 31, 2018
Date of grant		November 21, 2018
Closing average share value (mean)	$	68.56
Performance period begins		October 1, 2018
Performance period ends		September 30, 2021
Risk-free interest rate		2.8%
Expected volatility		34%

As a result of the valuation analysis, the fair value of the RSUs with performance and market-based vesting granted in the first quarter of fiscal 2019 was calculated at $67.40 per RSU.

At December 31, 2018, 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 331,181 RSUs with time-based vesting, 129,907 RSUs with performance-based vesting, and 152,570 RSUs with performance and market-based vesting.

The following table summarizes our RSU activity:

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	366,460	$	52.31
Granted	195,033		64.33
Vested	(128,949)		50.61
Forfeited	(15,391)		50.04
Unvested at December 31, 2018	417,153	$	58.54

	Unvested Restricted Stock Units with Performance Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	635,628	$	50.11
Granted	—		—
Vested	—		—
Forfeited	(295,759)		43.86
Unvested at December 31, 2018	339,869	$	55.54

	Unvested Restricted Stock Units with Performance and Market Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	—	$	—
Granted	219,890		67.40
Vested	—		—
Forfeited	—		—
Unvested at December 31, 2018	219,890	$	67.40

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We recorded non-cash compensation expense related to stock-based awards as follows (in thousands):

	Three Months Ended
	December 31,
	2018		2017
Cost of sales	$	313	$	156
Selling, general and administrative		2,407		1,471
	$	2,720	$	1,627

As of December 31, 2018, there was $52.0 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 $37.5. million. This amount is expected to be recognized over a weighted-average period of 1.6 years.

We 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, 2018. 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 12 – Income Taxes

U.S. Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted the Tax Act. Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During fiscal year 2018, we recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period.

During the first quarter of fiscal year 2019, we did not adjust provisional amounts recorded in the prior fiscal year and the SAB 118 measurement period subsequently ended on December 22, 2018. Although we no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

The Tax Act includes provisions for Global Intangible Low-Tax Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of foreign subsidiaries.Consistent with accounting guidance, we have elected to account for the tax on GILTI as a period cost and thus have not adjusted any net deferred tax assets of our foreign subsidiaries in connection with the Tax Act.

Effective Tax Rate

During interim periods, the Company generally utilizes the estimated annual effective tax rate method which involves the use of forecasted information.  Under this method, the provision is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.  For the three-month period ended December 31, 2018, the Company believes it is more appropriate to use a blend of the discrete effective tax rate method and the estimated annual effective tax rate method to calculate income tax expense for the period.  The Company determined that since small changes in estimated “ordinary” income for U.S. operations would result in significant changes in the worldwide estimated annual effective tax rate, the discrete tax rate method should be utilized to determine a more reliable estimate of U.S. income tax expense for the period.

Income tax expense recognized on pre-tax losses from continuing operations for the three months ended December 31, 2018 resulted in an effective tax rate of negative 31% which differs from the U.S. statutory tax rate of 21% primarily due to the jurisdictional mix of pre-tax income (loss) and U.S. losses for which no tax benefit can be realized due to a

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valuation allowance. The effective tax rate for the three months ended December 31, 2018 differs from the effective tax rate of negative 6% and positive 48% for the three months ended December 31, 2017 and the year ended September 30, 2018, respectively, primarily due to differences in the jurisdictional mix of pre-tax income (loss), partially offset by discrete benefits resulting from the enactment of the Tax Act.

Deferred Tax Balances

As of December 31, 2018, 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, 2018, a total valuation allowance of $79.3 million has been established for U.S. net deferred tax assets, certain foreign operating losses and other foreign assets.

Note 13 — 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 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 noncurrent 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, 2018 and September 30, 2018 (in thousands):

	Notional Principal
	December 31, 2018		September 30, 2018
Instruments designated as accounting hedges:
Foreign currency forwards	$	169,095	$	169,406
Instruments not designated as accounting hedges:
Foreign currency forwards	$	24,824	$	27,909

Included in the amounts not designated as accounting hedges at December 31, 2018 and September 30, 2018 were foreign currency forwards with notional principal amounts of $12.7 million and $14.7 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 were recognized in other income (expense), net for the three months ended December 31, 2018 and 2017 related to these foreign currency forward contracts not designated as accounting hedges.  

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

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periods ended December 31, 2018 and September 30, 2018. 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, 2018 or September 30, 2018.

The table below presents the fair value of our derivative financial instruments that qualify for hedge accounting as well as their classification in the Condensed Consolidated Balance Sheets as of December 31, 2018 and September 30, 2018 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2018		September 30, 2018
Asset derivatives:
Foreign currency forwards	Other current assets	$	5,036	$	1,803
Foreign currency forwards	Other noncurrent assets		582		314
		$	5,618	$	2,117
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	3,367	$	1,657
Foreign currency forwards	Other noncurrent liabilities		—		75
Total		$	3,367	$	1,732

The tables below present gains and losses recognized in other comprehensive income (loss) for the three months ended December 31, 2018 and 2017 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, 2018				December 31, 2017
			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	$	1,779	$	(33)	$	656	$	(774)

The amount of unrealized 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, 2018 and 2017. The amount of estimated unrealized net gains from cash flow hedges which are expected to be reclassified to earnings in the next twelve months is $1.7 million, net of income taxes.

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Note 14 — 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. We evaluate performance and allocate resources based on total segment operating income or loss. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are immaterial and are eliminated in consolidation.

Our reportable segments are business units that offer different products and services. Operating results for each segment are reported separately to senior corporate management to make decisions as to the allocation of corporate resources and to assess performance.

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

	Three Months Ended
	December 31,
	2018		2017
Sales:
Cubic Transportation Systems	$	181.8	$	146.5
Cubic Mission Solutions		46.4		33.1
Cubic Global Defense		77.1		68.8
Total sales	$	305.3	$	248.4
Operating income (loss):
Cubic Transportation Systems	$	11.0	$	9.9
Cubic Mission Solutions		(4.9)		(8.9)
Cubic Global Defense		2.9		1.4
Unallocated corporate expenses		(9.6)		(14.3)
Total operating income (loss)	$	(0.6)	$	(11.9)
Depreciation and amortization:
Cubic Transportation Systems	$	7.7	$	3.3
Cubic Mission Solutions		5.4		5.9
Cubic Global Defense		2.2		2.1
Corporate		0.7		1.1
Total depreciation and amortization	$	16.0	$	12.4

Unallocated corporate costs in the first quarter of 2019 include costs of strategic and IT system resource planning as part of our One Cubic Initiatives, which totaled $1.6 million compared to $8.0 million in the first quarter of last year. As described in Note 3, the operating results of CGD Services have been classified as discontinued operations in the Condensed Consolidated Statements of Income (Loss) for all periods presented.

Disaggregation of Total Net Sales.We disaggregate our sales from contracts with customers by end customer, contract type, deliverable type and revenue recognition method for each of our segments, as we believe these factors affect the nature, amount, timing, and uncertainty of our revenue and cash flows.

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Sales by Geographic Region (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
United States	$	91.3	$	45.5	$	35.7	$	172.5
United Kingdom		50.9		0.4		4.3		55.6
Australia		29.8		0.1		5.6		35.5
Far East/Middle East		4.4		0.4		18.4		23.2
Other		5.4		—		13.1		18.5
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by End Customer. We are the prime customer for the vast majority of our sales. The table below presents total net sales disaggregated by end customer (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
U.S. Federal Government and State and Local Municipalities	$	90.8	$	45.8	$	32.4	$	169.0
Other		91.0		0.6		44.7		136.3
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Contract Type. Substantially all of our contracts are fixed-price type contracts. Sales included in Other contract types represent cost plus and time and material type contracts.

On a fixed-price type contract, we agrees to perform the contractual statement of work for a predetermined sales price. On a cost-plus type contract, we are is paid our allowable incurred costs plus a profit which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels determined by the customer. On a time-and-material type contract, we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. The table below presents total net sales disaggregated by contract type (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Fixed Price	$	178.2	$	45.8	$	71.6	$	295.6
Other		3.6		0.6		5.5		9.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Deliverable Type: The table below presents total net sales disaggregated by the type of deliverable, which is determined by us at the performance obligation level (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Product	$	92.0	$	40.6	$	49.7	$	182.3
Service		89.8		5.8		27.4		123.0
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

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Revenue Recognition Method: The table below presents total net sales disaggregated based on the revenue recognition method applied (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Point in Time	$	16.7	$	34.4	$	0.5	$	51.6
Over Time		165.1		12.0		76.6		253.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Note 15 — Legal Matters

We consider all legal 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.

Note 16 — Subsequent Event

On February 5, 2019, we entered into agreements related to the construction and leasing of two buildings on our existing corporate campus in San Diego. This will allow us to consolidate virtually all of our San Diego operations in a single location and accommodate the expected growth of our business. Under these agreements a legal entity affiliated with the financial institutions involved with the project will own the buildings, and we will lease the buildings for a term of five years upon their completion. At the end of the lease term we will be required to elect to negotiate a new lease term, purchase the property, or arrange for a sale of the property to a third party. Alternatively the financial institutions may elect to keep the building and release us from these requirements.

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3.3 CUBIC CORPORATION

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

December 31, 2018

Cubic Corporation is a technology-driven, market-leading global provider of innovative, mission-critical solutions that reduce congestion and increase operational readiness and effectiveness through increased situational understanding. Cubic designs, integrates and operates systems, products and services focused in the transportation, command, control, communication, computers, intelligence, surveillance and reconnaissance (C4ISR), and training markets. We offer integrated payment and information systems, expeditionary communications, cloud-based computing and intelligence delivery, as well as state-of-the-art training and readiness solutions. We believe that we have significant transportation and defense industry expertise which, combined with our innovative technology capabilities, contributes to our leading market positions and allows us to deepen and further expand each of our business segments in key markets.

Through September 30, 2017 our principal lines of business were transportation systems and services, defense systems, and defense services. On May 31, 2018, we sold the non-Original Equipment Manufacturer (OEM) Cubic Global Defense Services (CGD Services) business. In March 2018, all of the criteria were met for the classification of CGD Services as a discontinued operation. As a result, the operating results, assets, liabilities, and cash flows of CGD Services have been classified as discontinued operations and have been excluded from amounts described below. In addition, we concluded that Cubic Mission Solutions became a separate operating segment and reportable segment beginning on October 1, 2017. As a result, we now operate in three reportable business segments: Cubic Transportation Systems (CTS), Cubic Global Defense Systems (CGD), and Cubic Mission Solutions (CMS). All of our business segments share a common mission of increasing situational awareness to create enhanced value for our customers worldwide through common technologies. Our defense customers benefit from increased readiness and effectiveness, while our transportation customers benefit from enhanced efficiency and reduced congestion.

CTS specializes in the design, development, production, installation, maintenance and operation of automated fare payment, intelligent traffic management and enforcement solutions, real-time information systems, and revenue management infrastructure and technologies for transportation agencies. As part of our turnkey solutions, CTS also provides these customers with a comprehensive suite of business process outsourcing (BPO) services and expertise, such as card and payment media management, central systems and application support, retail network management, customer call centers and financial clearing and settlement support. As transportation authorities seek to optimize their operations by outsourcing bundled systems and services, CTS has transformed itself from a provider of automated fare collection (AFC) systems into a systems integrator and services company focused on the intelligent transportation market. Advanced Traffic Solutions Inc. (Trafficware), which we acquired in October 2018, when combined with our existing transportation capabilities, is expected to enhance our ability to offer compelling solutions to reduce urban congestion using Trafficware’s intelligent, data-rich intersection management technology.

CMS provides networked command, control, communication, computers, intelligence, surveillance and reconnaissance (C4ISR) capabilities for defense, intelligence, security and commercial missions. CMS’ core competencies include protected wide-band communications for command, control and intelligence, surveillance and reconnaissance (C2ISR) systems, expeditionary satellite communication solutions, real time processing, exploitation and dissemination of full motion video, deployable secure tactical cloud computing, communication gateways, and intelligence, surveillance and reconnaissance (ISR) services.

CGD is a leading 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.

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Consolidated Overview

We adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly known as ASC 606), effective October 1, 2018 using the modified retrospective transition method. In accordance with the modified retrospective transition method, the quarter ended December 31, 2018 is presented under ASC 606, while the quarter ended December 31, 2017 is presented under ASC 605, Revenue Recognition, the accounting standard in effect for periods ending prior to October 1, 2018. The cumulative effect of the change in accounting for periods prior to October 1, 2018 was recognized through retained earnings at the date of adoption.

The table below quantifies the impact of adopting ASC 606 on net sales and operating income (loss) for the three months ended December 31, 2018:

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Sales:	(in thousands)
Cubic Transportation Systems	$	172,728	$	9,079	$	181,807
Cubic Mission Solutions		45,363		1,030		46,393
Cubic Global Defense		58,733		18,326		77,059
Total sales	$	276,824	$	28,435	$	305,259
Operating income (loss):
Cubic Transportation Systems	$	9,186	$	1,790	$	10,976
Cubic Mission Solutions		(5,191)		251		(4,940)
Cubic Global Defense		1,607		1,290		2,897
Unallocated corporate expenses		(9,499)		—		(9,499)
Total operating income (loss)	$	(3,897)	$	3,331	$	(566)

Sales for the quarter ended December 31, 2018 increased 23% to $305.3 million from $248.4 million in the first fiscal quarter of last year, which includes the impact of the adoption of the new revenue recognition standard described and quantified above. Sales from CTS, CMS and CGD increased by 24%, 40%, and 12%, respectively. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar had an unfavorable impact on sales of $5.5 million for the first fiscal quarter of 2019 compared to the first fiscal quarter of last year. Businesses we acquired during 2019 and 2018 had sales of $10.7 million for the three-month period ended December 31, 2018, compared to no sales in the three-month period ended December 31, 2017.  See the segment discussions following for further analysis of segment sales.

Our consolidated operating loss was $0.6 million in the first quarter of fiscal 2019 compared to an operating loss of $11.9 million in the first quarter of last year. CTS operating income increased to $11.0 million for the first quarter compared to $9.9 million last year while CGD had operating income of $2.9 million in the first quarter compared to $1.4 million last year. The CMS operating loss for the first quarter decreased to $4.9 million this year compared to $8.9 million last year. Unallocated corporate and other costs for the first quarter of 2019 were $9.6 million compared to $14.3 million in 2018. Unallocated corporate costs included unallocated IT costs which totaled $1.6 million in the first quarter of fiscal 2019 compared to $8.0 million for last year. The reduction in unallocated IT costs is the result of many of our IT projects reaching or approaching finalization in the first quarter of fiscal 2019. The average exchange rates between the prevailing currency in our foreign operations and the U.S. had an unfavorable impact on our quarterly operating results of $0.6 million in the first quarter compared to the same quarter last year. Businesses we acquired during 2019 and 2018 had operating losses totaling $4.6 million for the first quarter of fiscal 2019 and had no operating losses in the first quarter of last year.  See the segment discussions following for further analysis of segment operating income (loss).

Our gross margin percentage on product sales increased to 31% in the first quarter of 2019 from 30% in the first quarter last year.  The increase in product sales gross margins in the first quarter was primarily due to increased shipments by our CMS segment, which generally have higher gross margins than products sold by our other business segments. Our gross margin percentage on service sales was 25% in the first quarter of 2019 compared to 26% in the first quarter of last year. The decrease in gross margins on service sales was primarily driven by a slight decrease in the proportion of service sales provided by our CTS business segment, which generally has higher gross margins than service sales for our other business segments.

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Selling, general and administrative (SG&A) expenses increased in the first quarter of 2019 to $63.0 million compared to $61.7 million in 2018. As a percentage of sales, SG&A expenses were 21% for the quarter ended December 31, 2018, compared to 25% for the quarter ended December 31, 2017. The increase in SG&A expense for the first quarter was primarily due to the SG&A expenses incurred by Trafficware, which was acquired in October 2018. These increases in SG&A were partially offset by the reduction in unallocated corporate costs, including the reduction of unallocated IT costs described above.

Company funded research and development (R&D) expenditures totaled $12.0 million for both the first quarter of fiscal year 2019 and 2018. There was no significant shift in the mix of R&D expenditures between our business segments from the first quarter of fiscal 2018 to the first quarter of 2019. In the first quarter of fiscal 2019 CTS continued to make R&D investments in new transportation product development, including fare collection technologies, real-time passenger information and development of tolling, intelligent transport systems, and analytic technologies. CGD’s R&D expenditures focused on next generation live, virtual, constructive training systems and CMS’ R&D expenditures were driven by the development of new antenna technologies for communications.

Amortization of purchased intangibles for the first quarter of 2019 increased to $10.6 million from $7.4 million in 2018. The increase was driven by $4.3 million of amortization of Trafficware intangible assets in the first quarter of fiscal 2019, partially offset by the reduction of amortization on previously acquired intangible assets that are amortized using accelerated methods for which amortization decreases over time.

Interest expense for the first quarter of fiscal 2019 was $4.0 million, compared to $2.7 million in the first quarter of last year. The increase in interest expense was primarily caused by the increase in our average outstanding debt balances for the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. The average outstanding borrowings under our revolving credit agreement increased in the first quarter of fiscal 2019 primarily to finance the acquisition of Trafficware.

The income tax expense recognized on pre-tax losses from continuing operations for the three months ended December 31, 2018 resulted in an effective tax rate of negative 31%, which differs from the effective tax rates of 48% for the year ended September 30, 2018 and negative 6% for the three months ended December 31, 2017, primarily due to the difference in jurisdictional mix of pre-tax income loss), partially offset by discrete benefits resulting from the enactment of the Tax cuts and Jobs Act of 2017 (the Tax Act). Through December 31, 2018, a total valuation allowance of $79.3 million has been established for U.S. net deferred tax assets, certain foreign operating losses and other foreign assets. The change in the valuation allowance does not have any impact on our consolidated operations or cash flows, nor does such an allowance preclude us from using loss carryforwards or other deferred tax assets in the future.

Our effective tax rate could be affected by, among other factors, the mix of business between U.S. and foreign jurisdictions, fluctuations in the need for a valuation allowance against deferred tax assets, our ability to take advantage of available tax credits and audits of our records by taxing authorities. 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 2019 cannot be made, since relatively small changes in our projected income produce a significant variation in our effective tax rate. 

Our net loss from continuing operations attributable to Cubic in the first quarter of fiscal 2019 was $6.6 million compared to $11.4 million in the first quarter last year. The change in net loss from continuing operations attributable to Cubic from the first quarter of fiscal 2018 to the first quarter of fiscal 2019 was favorably impacted by the reduction in our operating loss described above, partially offset by an increase in income tax as described above. In addition, nonoperating expense in the first quarter of fiscal 2019 included a $6.1 million unrealized loss caused by the change in the fair value of an interest rate swap held by a variable interest entity (VIE) that is consolidated by Cubic. The 90 percent noncontrolling interest in the net loss of the consolidated VIE, which is comprised primarily of the VIE’s loss on its interest rate swap, is added back to our net loss to arrive at net loss attributable to Cubic.

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Cubic Transportation Systems Segment (CTS)

	Three Months Ended
	December 31,
	2018		2017
	(in millions)
Transportation Systems Segment Sales	$	181.8	$	146.5
Transportation Systems Segment Operating Income	$	11.0	$	9.9

CTS sales increased 24% in the first quarter of fiscal year 2019 to $181.8 million compared to $146.5 million last year, including the impact of the adoption of the new revenue recognition standard described above. For the first quarter of fiscal 2019, sales increased in North America, Australia, and United Kingdom as compared to the first quarter of fiscal 2018. Sales were higher in the U.S. primarily due to revenue from system development on the New York New Fare Payment System  and MBTA contracts, and $10.5 million of sales from Trafficware, which we acquired in October 2018. Sales were higher in Australia for the first quarter of 2019 largely due to an increase in development work on a number of customer systems. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in a decrease in sales of $4.8 million for the first quarter of fiscal 2019 compared to the same period last year, primarily due to the strengthening of the U.S. dollar against the British pound and Australian dollar.

CTS operating income increased to $11.0 million compared to an operating income of $9.9 million in the first quarter of last year. For the quarter, operating income was higher from increased volumes of system development work, including work on the New York Fare Payment System and MBTA contracts. These increases were partially offset by an operating loss of $3.3 million from Trafficware for the first quarter of fiscal 2019, which included the impact of $4.3 million of amortization of purchased intangibles and $1.4 million of acquisition-related costs. 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 $0.7 million for the first quarter compared to the first quarter last year.

Cubic Mission Solutions Segment (CMS)

	Three Months Ended
	December 31,
	2018		2017
	(in millions)
Cubic Mission Solutions Segment Sales	$	46.4	$	33.1
Cubic Mission Solutions Segment Operating Loss	$	(4.9)	$	(8.9)

CMS sales increased 40% in the first quarter of fiscal 2019 to $46.4 million compared to $33.1 million last year. The increase in sales for the first quarter was primarily due to increased orders and shipments of expeditionary satellite communications products and command and control, intelligence, surveillance and reconnaissance (C2ISR) products.

The CMS operating loss was $4.9 million in the first quarter of fiscal 2019 compared to $8.9 million last year. For the first quarter of fiscal 2019 compared to the first quarter last year, CMS had increased operating profits from expeditionary satellite communications products and C2ISR products and services due to increased sales. In addition, CMS had a decrease in the amortization expense on purchased intangible assets between the first quarter of fiscal 2018 and the first quarter of fiscal 2019.

Cubic Global Defense Segment (CGD)

	Three Months Ended
	December 31,
	2018		2017
	(in millions)
Cubic Global Defense Segment Sales	$	77.1	$	68.8
Cubic Global Defense Segment Operating Income	$	2.9	$	1.4

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CGD sales increased in the first quarter of fiscal 2019 to $77.1 million compared to $68.8 million last year. Sales increased due to the impact of the adoption of the new revenue recognition standard described and quantified above. Under the new revenue recognition standard, a number of our CGD contracts, most significantly in air combat training and ground live training, for which revenue was historically recorded upon delivery of products to the customer, are now accounted for on the percentage-of-completion cost-to-cost method of revenue recognition. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar resulted in a decrease in sales of $0.7 million for the first quarter of 2019 compared to the same period last year.

CGD operating income was $2.9 million in the first quarter of fiscal 2019 compared to $1.4 million last year. Operating income increased primarily due to the recognition of revenue and margin on the contracts that were impacted by the adoption of the new revenue recognition standard described above. The average exchange rates between the prevailing currency in our foreign operations and the U.S. dollar did not have a significant impact on CGD’s operating income for the first quarter of fiscal 2019. 

Backlog

	December 31,		September 30,
	2018		2018
	(in millions)
Total backlog
Cubic Transportation Systems	$	3,346.6	$	3,544.9
Cubic Mission Solutions		93.3		77.0
Cubic Global Defense		374.4		442.6
Total	$	3,814.3	$	4,064.5

Total backlog decreased by $250.2 million from September 30, 2018 to December 31, 2018. We recorded a net decrease to backlog of $104.5 million on October 1, 2018 upon adoption of ASC 606. Changes in exchange rates between the prevailing currency in our foreign operations and the U.S. dollar as of the end of the quarter decreased backlog by $32.7 million compared to September 30, 2018.

Liquidity and Capital Resources

Operating activities used cash of $61.2 million in the first quarter of fiscal 2019 due to timing of cash flows on CTS design and build contracts, inventory builds for upcoming scheduled deliveries as well as payment of certain scheduled annual expenditures including annual employee bonuses.

Investing activities for the first quarter of fiscal 2019 included $239.2 million of cash paid related to the acquisition of Trafficware in our CTS segment, and $8.0 million of payments of holdback amounts made to the former owners of DTECH. In addition, 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 $1.3 million in the first quarter of fiscal 2019. Of this amount, $0.8 million was recognized as expense and is reflected in cash flows used in operations, while $0.5 million was capitalized and is included in purchases of property, plant and equipment in investing cash flows.

Financing activities for the three-month period ended December 31, 2018 included net short-term borrowings of $64.5 million and $215.8 million of net proceeds from our underwritten public offering of 3,795,000 shares of our common stock at a price to the public of $60.00 per share, which we completed in December 2018.  We used the net proceeds from the offering to repay a portion of our outstanding borrowings under our revolving credit agreement, which was used to finance the acquisition of Trafficware, and the remainder for general corporate purposes. In addition, we also used $3.4 million for the repurchase of common stock in connection with our stock-based compensation plan. 

In March 2018, CTS and John Laing, an unrelated company that specializes in contracting under public-private partnerships (P3), jointly formed Boston AFC 2.0 HoldCo. LLC (HoldCo.). Also in March 2018, HoldCo. created a wholly owned entity, Boston AFC 2.0 OpCo. LLC (OpCo.) which entered into a contract with the Massachusetts Bay

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Transit Authority (MBTA) for the financing, development, and operation of a next-generation fare payment system in Boston (the MBTA Contract). HoldCo. is 90% owned by John Laing and 10% owned by CTS. Collectively, HoldCo. and OpCo. are referred to as the P3 Venture. Based on our assessment under ASC 810, we have concluded that OpCo. and HoldCo. are VIE’s and we are the primary beneficiary of both VIE’s. Consequently, we have consolidated the financial statements of the P3 Venture within Cubic’s consolidated financial statements. As such, the cash flows of the P3 Venture are reflected in Cubic’s Condensed Consolidated Statements of Cash Flows including net proceeds of long-term borrowings of the P3 Venture totaling $5.8 million described below, even though the P3 Venture’s long-term debt is non-recourse to Cubic Corporation.

The MBTA Contract consists of a design and build phase of approximately 3 years and an operate and maintain period of approximately 10 years. The design and build phase is planned to be completed in 2021 and the operate and maintain phase will span from 2021 through 2031. MBTA will make fixed payments of $558.5 million, adjusted for incremental transaction-based fees, inflation, and performance penalties to OpCo. in connection with the MBTA contract over the ten year operate and maintain phase. All of OpCo.’s contractual responsibilities regarding the design and development and the operation and maintenance of the fare system have been subcontracted to CTS by OpCo. CTS will receive fixed payments of $427.6 million, adjusted for incremental transaction-based fees, inflation, and performance penalties, under its subcontract with OpCo.

Upon creation of the P3 Venture, John Laing made a loan to HoldCo. of $24.3 million in the form of an equity bridge loan. The loan carries a 2.5% interest rate and matures at the end of the design and build phase of the MBTA contract. CTS issued a letter of credit for $2.7 million to HoldCo. in accordance with CTS’s equity funding responsibilities. HoldCo. is able to draw on the CTS letter of credit in certain liquidity instances, but no amounts have been drawn on this letter of credit as of December 31, 2018.

Upon creation of the P3 Venture, OpCo. entered into a credit agreement with a group of financial institutions (the P3 Credit Agreement) which includes a long-term debt facility and a revolving credit facility. The long-term debt facility allows for draws up to a maximum amount of $212.4 million through the design and build phase of the MBTA contract. The long-term debt facility, including interest and fees incurred during the design and build phase is required to be repaid on a fixed monthly schedule over the operate and maintain phase of the MBTA Contract.

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 a decrease of $2.0 million to our cash balance as of December 31, 2018 compared to September 30, 2018.

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 in March 2025. In addition, pursuant to the agreement, in July 2015, we issued an additional $25.0 million of senior unsecured notes bearing interest at a rate of 3.70% and maturing in March 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 the company’s leverage ratio exceed a certain level. In February 2016, we revised the note purchase agreement and issued an additional $75.0 million of senior unsecured notes bearing interest at 3.93% and maturing in March 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. The interest rates on all of the term notes described above may be adjusted upwards by up to 0.75% should our leverage ratio exceed certain levels.

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). Debt issuance and modification costs of $2.3 million and $1.3 million were incurred in connection with February 2, 2016 and August 11, 2016 amendments to the Revolving Credit Agreement, respectively. 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, 2018, our total debt issuance costs have an unamortized balance of $1.7 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2018, there were $64.5 million of borrowings under this agreement and there were letters of credit outstanding totaling $38.4 million, which reduce the

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available line of credit to $297.1 million. The $38.4 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.

We maintain a cash account with a bank in the United Kingdom 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 United Kingdom The balance in the account as of December 31, 2018 was $17.9 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

We have entered into a short-term borrowing arrangement in the United Kingdom in the amount of £20.0 million British pounds (equivalent to approximately $25.5 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2018, no amounts were outstanding under this borrowing arrangement.

As of December 31, 2018, virtually all of the of the $103.5 million of our cash and cash equivalents, including restricted cash, was held by our foreign subsidiaries, primarily in the United Kingdom, New Zealand and Australia.

Subsequent to the enactment of the Tax Act, future repatriations of foreign earnings will generally be exempt from U.S. tax. We will continue to monitor our intentions to repatriate foreign earnings and provide applicable deferred taxes and withholding taxes that would be due upon repatriation of the undistributed foreign earnings.

Our financial condition remains strong with working capital of $352.2 million and a current ratio of 2.1 to 1 at December 31, 2018. 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

See “Recent Accounting Pronouncements” in Note 1 of the Condensed Consolidated Financial Statements of this Form 10-Q, which are hereby incorporated by reference.

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

48

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.

Effective October 1, 2018, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which changed the way we recognize revenue for certain contracts. See “Recently Adopted Accounting Pronouncements – Revenue Recognition” within “Note 1 – Basis of Presentation” included in our Notes to Consolidated Financial Statements for changes to our critical accounting policies as a result of adopting ASC 606. Other than changes to our revenue recognition policy as a result of adopting ASC 606 there have been no significant changes to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2018.

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 Form 10-K for the year ended September 30, 2018, 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 effects 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;

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· 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;

· 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, 2018 have not changed materially from those described under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended September 30, 2018.

ITEM 4 - CONTROLS AND PROCEDURES

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2018. 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 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.

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We have implemented changes to our processes, systems and controls with respect to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606). These changes included the development of policies and procedures, training, ongoing contract review requirements, internal management reports, controls related to information systems, and disclosures. There have not been any other significant changes in our internal control over financial reporting during the quarter ended December 31, 2018, that have 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 consider all legal 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, 2018, except as set forth below.

Changes in accounting principles and guidance, or their interpretation, could result in unfavorable accounting charges or effects, including changes to previously filed financial statements, which could cause our stock price to decline.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results.

For example, in May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606). We adopted ASC 606 effective October 1, 2018 using the modified retrospective transition method.  The adoption of ASC 606 resulted in a change in our significant accounting policy regarding revenue recognition, and resulted in changes in our accounting policies regarding contract estimates, backlog, inventory, contract assets, long-term capitalized contract costs, and contract liabilities.  The cumulative effect of applying the standard was an increase of $24.5 million to shareholders’ equity as of October 1, 2018.  However, the adoption of ASC 606 or any other new or revised accounting standard could adversely affect our financial position or operating results in the future or may retroactively adversely affect previously reported results, which could cause our stock price to decline.

For a discussion of the impact that the adoption of ASC 606 has had and is expected to have on our consolidated financial statements and related disclosures, see “Recently Adopted Accounting Pronouncements” in Note 1 of the Condensed Consolidated Financial Statements of this Form 10-Q.

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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 November 14, 2018, 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.
10.2*	Incentive Bonus 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, 2018, 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.

53

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, 2019	/s/ Anshooman Aga
		Anshooman Aga
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)
Date	February 6, 2019	/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

PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE AND
PERFORMANCE 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 performance based restricted stock units (“Performance Restricted Stock Units” or “PRSUs”) with respect to the number of shares of the Company’s Common Stock (the “Shares”) indicated below. Each PRSU is hereby granted in tandem with a corresponding dividend equivalent, as further described in Article II of the Performance Restricted Stock Unit Agreement (the “Dividend Equivalents”).  This award for Performance 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 Performance Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Performance 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 Performance Restricted Stock Unit Agreement.

Participant:	%%FIRST_NAME%-% %%MIDDLE_NAME%-% %%LAST_NAME%-%
Grant Date:	%%OPTION_DATE,'Month DD, YYYY'%-%
Target Number of PRSUs (as adjusted pursuant to Article II and Section 4.2):	%%TOTAL_SHARES_GRANTED,'999,999,999'%-%
Maximum % of PRSUs (as adjusted pursuant to Article II and Section 4.2):	250% of Target
Distribution Schedule:	Subject to the terms of the Performance Restricted Stock Unit Agreement, the PRSUs (and their corresponding Dividend Equivalents) shall be distributable in accordance with Section 1.1 of the Performance Restricted Stock Unit Agreement.
Vesting Schedule:	Subject to the terms of the Performance Restricted Stock Unit Agreement, the PRSUs 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 Performance 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 Performance Restricted Stock Unit Agreement.  Participant has reviewed the Performance 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 Performance 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 Performance 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 Performance 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 Performance 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

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

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EXHIBIT A

TO PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE

PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Performance Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Performance Restricted Stock Unit Award Agreement (this “Agreement”) is attached, the Company has granted to Participant the right to receive the number of PRSUs 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 PERFORMANCE RESTRICTED STOCK UNITS

1.1        Award of Performance 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 PRSUs 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 PRSUs, 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 PRSUs 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 PRSUs 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 PRSUs.  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 PRSUs, any unvested PRSUs 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 PRSUs.

(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 PRSUs within ten (10) days following the date on which such PRSUs 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 PRSUs (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 PRSUs 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 PRSUs 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.

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(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 PRSUs 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 PRSUs 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 PRSUs 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 PRSUs 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 PRSUs 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 PRSUs based on the minimum applicable statutory withholding rates (or such higher rate as may be determined by the Administrator, which higher rate may not exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America), provided, that, such Shares shall be rounded up to the nearest whole Share to the extent rounding up to the nearest whole share does not result in the liability classification of the applicable Award under generally accepted accounting principles in the United States of America).  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 PRSUs 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 PRSUs.  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 PRSUs 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 PRSUs, the Company agrees to pay such excess in cash to Participant as soon as

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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 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 (or such higher rate approved by the Administrator, which rate may not exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America) and, to the extent such Shares were acquired by the Participant from the Company as compensation, the Shares must have been held for the minimum period required by applicable accounting rules to avoid a charge to the Company’s earnings for financial reporting purposes, provided, that, such Shares shall be rounded up to the nearest whole Share to the extent rounding up to the nearest whole share does not result in the liability classification of the applicable Award under generally accepted accounting principles in the United States of America);

(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 PRSUs 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 PRSUs or the Dividend Equivalents, the receipt of the Shares upon settlement of the PRSUs 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 PRSU to which such Dividend Equivalent corresponds, or (b) the delivery to Participant of

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Performance-Based Vesting Version

the shares of Common Stock underlying the PRSU 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 PRSU for any reason, whether due to payment, forfeiture or otherwise.  If any PRSU 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 PRSUs 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 PRSUs 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 PRSUs to which such Dividend Equivalents correspond are settled pursuant to Section 1.1(c).

2.3        Separate Payments.  Dividend Equivalents and any amounts that may become distributable in respect thereof shall be treated separately from the PRSUs 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 PRSUs 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 PRSUs 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

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Performance-Based Vesting Version

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 PRSUs and the Dividend Equivalents awarded hereunder, and any Shares issuable upon vesting of the PRSUs 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 PRSUs 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 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 PRSUs 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 PRSUs 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) PRSUs that have not yet been settled (whether vested or unvested) shall immediately be cancelled; (ii) any Shares issued upon settlement of the PRSUs 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 PRSUs 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 PRSUs on the settlement date multiplied by the number of Shares issued to Participant upon settlement of the PRSUs 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 PRSUs.

(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

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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, 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

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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 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,

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Trapeze Group, IVU Traffic Technologies, Indra Sistemas, Init AG (and U.S. subsidiaries), Econolite Group, , 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.

(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.

Internal

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Performance-Based Vesting Version

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.

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

Internal

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Performance-Based Vesting Version

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 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 PRSUs, 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.

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Performance-Based Vesting Version

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.

Internal

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Performance-Based Vesting Version

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.

(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 PRSUs 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 PRSUs 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 PRSUs 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.

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A-12

EXHIBIT B

TO PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE

VESTING SCHEDULE

1.          Performance-Based Vesting.  The PRSUs shall vest based on the Company’s Average Annual Sales Growth Achievement Percentage (as defined below), Average Annual Adjusted EBITDA Growth Achievement Percentage (as defined below) and the Company's Relative TSR Performance (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, 2021, such number of PRSUs shall vest on the Determination Date (as defined below) as is determined as follows:

(i)          Sales Growth.  Subject to adjustment pursuant to clause (iii) below, such number of PRSUs shall be eligible to vest based on the Company’s calculated Average Annual Sales Growth Achievement Percentage during the Performance Period as is determined by multiplying (i) the Target PRSUs set forth in the Grant Notice, by (ii) 50% weighting, by (iii) the Average Annual Sales Growth Achievement Percentage determined as of the Measurement Date.  The Annual Sales Growth Achievement Percentage shall be determined based on the Annual Sales Growth Factor for each fiscal year during the Performance Period pursuant to the chart set forth below:

Annual Sales Growth Factor	Annual Sales Growth Achievement Percentage
Less than 2.5%	0%
2.5%	50%
5.0%	100%
7.5% or Greater	200%

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

(ii)       Adjusted EBITDA Growth.  Subject to adjustment pursuant to clause (iii) below, such number of PRSUs shall be eligible to vest based on the Company’s calculated Average Annual Adjusted EBITDA Growth Achievement Percentage during the Performance Period as is determined by multiplying (i) the Target PRSUs set forth in the Grant Notice, by (ii) 50% weighting, by (iii) Average Adjusted EBITDA Growth Achievement Percentage determined as of the Measurement Date.  The Annual Adjusted EBITDA Growth Achievement Percentage shall be determined based on the Annual Adjusted EBITDA Growth Factor for each fiscal year during the Performance Period pursuant to the chart set forth below:

Annual Adjusted EBITDA Growth Factor	Annual Adjusted EBITDA Growth Achievement Percentage
Less than 2.75%	0%
2.75%	50%
5.5%	100%
8.25% or Greater	200%

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

(iii)       Relative TSR Performance.  The Company's Relative TSR Performance  will result in a multiplier to the Initial Eligible PRSUs (as defined below) to determine the total number of PRSUs that will vest on the Determination Date, with the total number of PRSUs that shall vest on the Determination Date being determined by multiplying (A) the Initial Eligible PRSUs by (B) the “TSR Multiplier” (determined as follows):

Relative TSR Performance	TSR Multiplier
Company TSR is 2500 basis points or more above the Russell 2000 Index TSR	125%
Company TSR is 1000 basis points above the Russell 2000 Index TSR	110%
Company TSR is 1000 basis points below the Russell 2000 Index TSR	90%
Company TSR is 2500 basis points or more below the Russell 2000 Index TSR	75%

If the Company TSR relative to the Russell 2000 Index TSR for the Performance Period is between two achievement levels, the TSR Multiplier 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, 2021 in order to be eligible for vesting pursuant to this clause (a).

(v)         Maximum PRSUs.  In no event will more than the Maximum PRSUs set forth in the Grant Notice vest pursuant to this Agreement.

(b)         Vesting Upon a Change in Control.  Notwithstanding the foregoing, such number of PRSUs shall vest immediately prior to the consummation of a Change in Control occurring prior to September 30, 2021, as is equal to (i) the Target PRSUs, multiplied by (ii) the greater of (A) 100% or (B) the TSR Multiplier calculated as of the date of the Change in Control in accordance with Section 1(a)(iii) above using the date of the Change in Control as the Measurement Date.  Except as provided in clause (c) below, 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 Prior to Measurement Date.  Notwithstanding the foregoing, in the event Participant experiences a Termination of Service prior to the Measurement Date as a result of his or her Covered Termination or Disability, the PRSUs shall continue to be eligible to vest on the Determination Date pursuant to clause (a) or (b) above, as applicable, based on the Company's performance for the Performance Period, with the exception that the number of PRSUs that

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shall vest pursuant to clause (a) or (b), as applicable (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 Prior to Measurement Date.  Notwithstanding the foregoing, 100% of the Target PRSUs granted shall vest immediately in the event of Participant’s Termination of Service as a result of his or her death prior to the Measurement Date.

2.          Forfeiture.  Any portion of the Award and any PRSUs which do not vest pursuant to Section 1 above (or that are no longer potentially eligible to vest on the Determination Date following the end of any fiscal year during the Performance Period pursuant to Section 1 above due to performance for such fiscal year being less than “target” levels) 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 PRSUs.

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

(a)         “Adjusted EBITDA” means (i) net income (loss) attributable to the Company plus or minus the following amounts to the extent that these items were added or deducted in determining net income (loss): 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 consultants, such as presented in the Company’s 8-K filing with the U.S. Securities and Exchange Commission on November 15, 2018.

(b)         “Annual Sales Growth Factor” means the Company’s Sales for a fiscal year during the Performance Period divided by the Sales for the previous fiscal year, less one. If there is a change in accounting principles affecting the measurement of Sales during one of the years used in the calculation, the Annual Sales Growth Factor shall be determined using a consistent measurement of Sales for the two years used in this calculation.

(c)         “Annual Adjusted EBITDA Growth Factor” means the Company’s Adjusted EBITDA for a fiscal year during the Performance Period divided by the Adjusted EBITDA for the previous fiscal year, less one. If there is a change in accounting principles affecting the measurement of Adjusted EBITDA during one of the years used in the calculation, the Annual Adjusted EBITDA Growth Factor shall be determined using a consistent measurement of Adjusted EBITDA for the two years used in this calculation.

(d)         “Average Annual Adjusted EBITDA Growth Achievement Percentage” means the average of the Annual Adjusted EBITDA Growth Achievement Percentages for each of the three fiscal years in the Performance Period.

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(e)         “Average Annual Sales Growth Achievement Percentage” means the average of the Annual Sales Growth Achievement Percentages for each of the three fiscal years in the Performance Period.

(f)         “Closing Average Period” means the trading days during the thirty (30) days preceding the last day of the Performance Period.

(g)         “Closing Average Russell 2000 Index Value” means (i) if the Measurement Date is September 30, 2021, the average, over the trading days in the Closing Average Period, of the closing value of the Russell 2000 Index or (ii) if the Measurement Date is the date of a Change in Control, the closing value of the Russell 2000 Index on the last trading day prior to the Change in Control.

(h)         “Closing Average Share Value” means (i) if the Measurement Date is September 30, 2021, the average, over the trading days in the Closing Average Period, of the closing price of the Company’s Common Stock, or (ii) if the Measurement Date is the date of a Change in Control, the closing price of the Company’s Common Stock on the last trading day prior to the Change in Control.

(i)          “Company TSR” means the Closing Average Share Value divided by the Opening Average Share Value, less one, expressed as a percentage.  The Company TSR calculation will exclude any dividends paid on the Company's Common Stock, except in the case of any extraordinary, special or non-recurring dividend where an upward adjustment in the amount of such dividend shall be made to the Closing Average Share Value at the end of the Performance Period.

(j)          “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.

(k)         “Covered Termination” means Participant’s Involuntary Termination Without Cause or Constructive Termination.

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(l)          “Determination Date” means the date on which the Committee certifies in writing the Company’s Average Annual Sales Growth Achievement Percentage, Average Annual Adjusted EBITDA Achievement Percentage, and Relative TSR Performance for the Performance Period.  In the event the Measurement Date is September 30, 2021, the Company expects the Determination Date will occur prior to November 30, 2021, but in all events such date shall occur during 2021.  In the event the Measurement Date is the date of a Change in Control, or a Change in Control occurs on or after September 30, 2021 but prior to the occurrence of the Determination Date, the Determination Date will occur immediately prior to the closing of the Change in Control.

(m)        “Initial Eligible PRSUs” shall be determined by adding (i) the  number of PRSUs eligible to vest pursuant to clause (i) based on the Average Annual Sales Growth Achievement Percentage for the Performance Period, and (ii) the number of PRSUs eligible to vest pursuant to clause (ii) based on the Average Annual Adjusted EBITDA Growth Achievement Percentage.

(n)         “Involuntary Termination Without Cause” means 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 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.

(o)         “Measurement Date” means the first to occur of (i) September 30, 2021, or (ii) the date of a Change in Control.

(p)         “Opening Average Period” means the trading days during the thirty (30) days preceding the first day of the Performance Period.

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(q)         “Opening Average Share Value” means the average, over the trading days in the Opening Average Period, of the closing price of the Company’s Common Stock

(r)         “Opening Average Russell 2000 Index Value” means the average, over the trading days in the Opening Average Period, of the closing value of the Russell 2000 Index.

(s)         “Performance Period” means the period beginning on October 1, 2018 and ending on the Measurement Date.

(t)          "Russell 2000 Index" means the Russell 2000 Index, or in the event such index is discontinued or its methodology is significantly changed, a comparable index selected by the Administrator in good faith.

(u)         “Russell 2000 Index TSR” means the Closing Average Russell 2000 Index Value divided by the Opening Average Russell 2000 Index Value, less one, expressed as a percentage.  The Russell 2000 Index TSR calculation will be based on the companies traded on the index as of the applicable dates and is used as of the applicable dates even if companies are added or removed from the index during the Performance Period. The Russell 2000 Index TSR will exclude any dividends paid.

(v)         “Sales” means the revenues from the Company’s sales, determined in accordance with accounting principles generally accepted in the United States.

(w)        "Relative TSR Performance" means the Company's TSR less the Russell 2000 Index TSR, in each case for the Performance Period, expressed in basis points.

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B-6

Notice of Performance Stock Unit of CUBIC CORPORATION

Company Name	Cubic Corporation
Plan	%%EQUITY_PLAN%-%
Participant ID	%%EMPLOYEE_IDENTIFIER%-%
Participant Name	%%FIRST_NAME%-% %%MIDDLE_NAME%-% %%LAST_NAME%-%
Participant Address	%%ADDRESS_LINE_1%-% %%ADDRESS_LINE_2%-% %%ADDRESS_LINE_3%-%
Grant/Award Type	Performance Stock Unit
Share Amount	%%TOTAL_SHARES_GRANTED,’999,999,999’%-%
Grant/Award Price	%%OPTION_PRICE,’$999,999,999.99%-%
Grant/Award Date	%%OPTION_DATE,’Month DD, YYYY’ %-%
Expiration Date	11/06/2028

VESTING SCHEDULE

Vesting Date	No. of Shares	Percent
%%VEST_DATE_PERIOD1,’Month DD, YYYY’%-%	%%SHARES_PERIOD1,'999,999,999'%-%%	100%

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EX-10.2

Exhibit 10.2

CUBIC CORPORATION

MANAGEMENT INCENTIVE BONUS PLAN

This Incentive Bonus Plan (the “Plan”) is intended to provide an additional incentive for management employees of Cubic Corporation and its subsidiaries (collectively, the “Company”), to perform to the best of their abilities, to further the growth, development and financial success of the Company, and to enable the Company to attract and retain highly qualified employees.  The Plan is for the benefit of the Participants (as defined below).

The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) has adopted this amended and restated Plan, effective November 12, 2018.

1.         Participants.  Participation in the Plan shall be limited to such employees of the Company and its subsidiaries whom the Committee from time to time determines shall be eligible to receive a bonus award (a “Bonus”) hereunder (the “Participants”).

2.         Administration.  The Plan shall be administered by the Committee.  The Committee shall have the discretion and authority to administer and interpret the Plan, including the authority to establish bonus programs or guidelines under the Plan (the “Bonus Guidelines”) from time to time containing such terms and conditions as the Committee may determine or deem appropriate in its discretion, including, without limitation, terms and conditions relating to the administration of the Plan and/or the determination and payment of Bonuses hereunder.

The Committee may modify, suspend, terminate or supersede the Bonus Guidelines at any time in its sole discretion.  Any and all Bonus Guidelines adopted by the Committee shall be subject to the terms and conditions of the Plan.  Any disputes under the Plan shall be resolved by the Committee or its designee, whose decision will be final.

3.         Performance Goals.  The Plan is intended to provide incentives for the achievement of approved annual corporate, business unit and/or individual objectives (the “Performance Goals”), as determined by the Committee with respect to each fiscal year during the term of the Plan (each an “Incentive Plan Year”).

(a)        Corporate Performance Goals.  At the beginning of each Incentive Plan Year, the Committee shall select such objective corporate Performance Goals as the Committee may determine in its sole discretion, which may include, without limitation, one or more of the following criteria:  net earnings (either before or after one or more of the following: interest, taxes, depreciation, amortization, and goodwill or other impairment charges, “EBITDA”, or Adjusted EBITDA as the committee may define); gross or net sales or revenue; net income (either before or after taxes); adjusted net income; net operating income, operating earnings; cash flow (including, but not limited to, operating cash flow and free cash flow); return on net or gross assets; return on capital; return on shareholders’ equity; total stockholder return; return on sales; gross or net profit or operating margin; costs; acquisitions or new investments; leverage level; expenses; working capital; earnings per share; adjusted earnings per share; funds from operations per share; price per share of the Company’s common stock; implementation or completion of critical projects;

comparisons with various stock market indices; debt reduction; shareholder equity; operating efficiency; financial ratios; and financing and other capital raising transactions.  Unless otherwise determined by the Committee, it is intended that the corporate objectives be objectively determinable, with the weighting of the various corporate Performance Goals to be approved by the Committee.

(b)        Business Unit Goals.  Each year corporate and business unit management will establish a set of Performance Goals for recommendation to the Committee, applicable to each specific business unit, which may consider, in addition to any of the applicable goals set forth in the Corporate Performance Goals: corporate financial objectives, business unit past experience, the business units current business plan, any specific business emphasis appropriate at the time for the subject business unit for the year under consideration, and future business potential.  A portion of the award may be discretionary, as determined by the Committee.

(c)        Individual Performance Goals.  A portion of each Participant’s Bonus may be determined in the sole discretion of the Committee based on individual performance and the consideration of such other factors as the Committee determines to be appropriate.  If individual Performance Goals are to be established for an Incentive Plan Year, each Participant in the Plan will work with his or her direct manager and/or other appropriate manager to develop a list of key individual Performance Goals.  If appropriate, the Chief Executive Officer of the Company will work with the Committee to develop his individual Performance Goals.

A Performance Goal may be a single goal or a range with a minimum goal up to a maximum goal.  Unless otherwise determined by the Committee, the amount of each Participant’s Bonus shall be based upon a bonus formula determined by the Committee in its sole discretion that ties such Bonus to the attainment of the applicable Performance Goals.  The Committee may in its sole discretion modify or change the bonus formulas and/or Performance Goals at any time and from time to time during or upon completion of an Incentive Plan Year.

4.         Target Bonuses.  Each Participant will be assigned a “Target Bonus Percentage” based on his or her job classification and responsibilities.  If a Participant moves from one Target Bonus Percentage level to another during an Incentive Plan Year, his or her Target Bonus Percentage will be prorated for time spent in positions with different Target Bonus Percentages during the Incentive Plan Year.

A “Target Bonus” for each Participant will be determined by multiplying his or her Target Bonus Percentage by his or her Base Salary (as defined below) for the relevant Incentive Plan Year.  For purposes of this Plan, “Base Salary” shall mean the Participant’s annual nominal salary, including salary paid during holidays and personal time off, even if the effective date of the salary is delayed for administrative reasons. If there is a change in base salary during the year at times other than the beginning of the fiscal year, the "Base Salary" for purposes of determining the Target Bonus shall be prorated for the number of days in the fiscal year before and after the salary change.

The Target Bonus Percentages for each Participant shall be approved by the Committee for each Incentive Plan Year.  A Participant’s maximum Bonus under the Plan shall not exceed 260% of his or her Target Bonus.

Unless and until changed by the Committee, in its sole discretion, the Target Bonus Percentages for the executive officers of the Company for purposes of this Plan shall be as follows:

Position	Target Bonus Percentage (as % of Base Salary)
Chief Executive Officer	100
Chief Financial Officer	80
Other Key Corporate Officers	60
Business Unit Presidents	70
Senior Business Unit Officers	50
Other Key Personnel	20-40

5.         Sliding Scale.  With respect to the corporate and business unit Performance Goals, a sliding scale of award determination will be used so that the incentive earned will decrease from 100% based on performance of less than 100% of the Performance Goal with the opportunity to earn up to 200% of the target award should actual performance exceed 100% of the Performance Goal. The sliding scale will be determined by the Committee each year for each Performance Goal.

The individual component of each Participant’s Bonus will be evaluated separately.  Based on the determination of the Participant’s individual performance, a multiplier will be applied to the Participant’s Bonus as determined based on achievement relative to the corporate and/or business unit Performance Goals.  The multiplier for individual performance will be within the range of 0% to 130%.

6.         Calculation of Bonuses.  The actual Bonus for a Participant will be calculated by the Committee as soon as practicable following the completion of the relevant Incentive Plan year by applying the sliding scale to the Target Bonus for such Participant according to the weightings and methods approved by the Committee for such Incentive Plan Year.  The individual multiplier, if any, will then be multiplied by the resulting Bonus to determine the final Bonus for such Participant.

The incentive awards are based on the actual financial performance achieved by the respective business unit and the total corporation as reflected in the Company's audited financial statements. If there are to be any adjustments to the audited results for the purposes of a Bonus determination, these adjustments will be approved by the Committee or established at the time the Performance Goals are set. Achievement of the financial goals will be calculated after deduction of the Bonus payments related to this Plan for the Plan Year and to any other applicable incentive plans.

The Company may, in its discretion, reduce or eliminate a Bonus otherwise payable to any Participant.  Any such reduction or elimination may be made based on objective or subjective determinations as the Company determines appropriate.

7.         Payment of Bonuses.  The payment of Bonuses under the Plan shall be made in cash between November 1 and December 31 of the calendar year following the Incentive Plan Year to which such Bonuses relate, on such date or dates determined by the Committee and shall be subject to such terms and conditions as may be determined by the Committee in its sole discretion.

Except as otherwise provided in a written employment agreement between a Participant and the Company or as otherwise determined by the Committee, in order to be entitled to receive such Bonus, a Participant must be an active employee of the Company or its subsidiaries or affiliates and in good standing and working on the last day of the Plan Year. However, there will be two exceptions to this provision.  First, should an employee elect full retirement (with the sum of the employee’s age and years of service totaling 85 or more, or at the age of 65), the Bonus will be prorated for the time elapsed during the Incentive Plan Year prior to retirement and that amount paid in accordance with the provisions above, as long as the business unit, subsidiary or total company, achieves its financial goals.  Second, if an employee dies, or becomes totally and permanently disabled, the Bonus will be pro-rated for the time elapsed during the Incentive Plan Year prior to death or disability, and that amount will be paid to his/her estate, or him/her as the case may be, in accordance with the provisions above, as long as the business unit, subsidiary or total company achieves its financial goals.

An employee may be excluded from receiving a Bonus in the event he/she is involuntarily terminated for any reason other than a lay off during the period from the last day of the respective fiscal year and the date that the Bonus would normally be paid.  In addition, an employee may be excluded if the terms and conditions of a separation agreement specifically exclude the receipt of the incentive award.

8.         Amendment, Suspension and Termination of the Plan.  The Committee shall have the authority to amend, suspend or terminate the Plan at any time in its sole discretion.

9.         Miscellaneous.

(a)        The Company shall deduct all federal, state, and local taxes required by law or Company policy from any Bonuses paid hereunder.

(b)        Nothing contained in this Plan shall confer upon any Participant any right to continue in the employ of the Company or shall interfere with or restrict in any way the right of the Company, which is hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause.  Notwithstanding anything to the contrary contained in the Plan, nothing in the Plan shall adversely affect any rights that a Participant may otherwise have under an employment or severance agreement or plan with or maintained by the Company to which such Participant is a party or under which such Participant is a beneficiary.

(c)        The Plan shall be unfunded.  Amounts payable under the Plan are not and will not be transferred into a trust or otherwise set aside.  The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Bonus under the Plan.  Any accounts under the Plan are for bookkeeping purposes only and do not represent a claim against the specific assets of the Company.

(d)        No Bonus granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. All rights with respect to a Bonus granted to a Participant under the Plan shall be available during his or her lifetime only to the Participant.

(e)        Notwithstanding anything in the Plan to the contrary, any and all amounts payable to any Participant under the Plan from time to time may, in the Committee’s sole discretion, be reduced or offset by any amounts then due or owing by such Participant to the Company or any of its affiliates pursuant to or in accordance with any benefit or compensation plan, program, policy or arrangement maintained by the Company or such affiliates.

(f)        Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan.

(g)        The Plan shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of California. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

(h)        Any and all controversies or disputes involving, relating to, or arising out of, or under, this Plan, including but not limited to its construction, interpretation or enforcement, shall be litigated exclusively in the state or federal courts sitting in San Diego County, California.  Each Participant is hereby deemed to irrevocably and unconditionally consent to the personal jurisdiction of the state courts in San Diego County, California with regard to any and all controversies or disputes involving, relating to, or arising out of, or under, the Plan.  Each Participant is further deemed to irrevocably and unconditionally waive any defense or objection of lack of personal jurisdiction over Participant by the state or federal courts sitting in San Diego County, California.

(i)         Bonus payments are not intended to constitute a deferral of compensation subject to Section 409A of the Code and are intended to satisfy the “short-term deferral” exemption under Section 409A of the Code and the Treasury Regulations issued thereunder.  Accordingly, to the extent necessary to cause Bonus payments hereunder to satisfy the “short-term deferral” exemption under Section 409A of the Code and the Treasury Regulations issued thereunder, a Bonus payment shall be made not later than the later of: (i) the fifteenth day of the third month following the Participant’s first taxable year in which the Bonus payment is no longer subject to a substantial risk of forfeiture, or (ii) the fifteenth day of the third month following the Company’s first taxable year in which the Bonus payment is no longer subject to a substantial risk of forfeiture; provided,  however, that if due to administrative reasons Bonuses are not paid within the foregoing time periods, then such Bonuses will be paid as soon as administratively feasible but no later than the last day of the calendar year following the end of the Incentive Plan Year to which such Bonuses relate.

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

Chairman, President and Chief Executive Officer

Date: February 6, 2019

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, 2019

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, 2018, (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

Chairman, President and Chief Executive Officer

Date: February 6, 2019

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, 2018, (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, 2019

XML

Document and Entity Information - shares	3 Months Ended
	Dec. 31, 2018	Jan. 23, 2019
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, 2018
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		31,150,232
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Net sales:
Net sales	$ 305,259	$ 248,391
Costs and expenses:
Selling, general and administrative expenses	62,986	61,680
Research and development	12,012	11,977
Amortization of purchased intangibles	10,565	7,351
Restructuring costs	1,992	1,495
Total costs and expenses	305,825	260,293
Operating loss	(566)	(11,902)
Other income (expenses):
Interest and dividend income	1,234	482
Interest expense	(4,032)	(2,674)
Other income (expense), net	(4,753)	(78)
Loss from continuing operations before income taxes	(8,117)	(14,172)
Income tax (benefit) provision	2,497	(2,737)
Loss from continuing operations	(10,614)	(11,435)
Net income from discontinued operations		1,649
Net loss	(10,614)	(9,786)
Less noncontrolling interest in loss of VIE	(4,027)
Net loss attributable to Cubic	(6,587)	(9,786)
Amounts attributable to Cubic:
Net loss from continuing operations	(6,587)	(11,435)
Net income from discontinued operations		1,649
Net loss attributable to Cubic	$ (6,587)	$ (9,786)
Basic
Continuing operations attributable to Cubic (in dollars per share)	$ (0.23)	$ (0.42)
Discontinued operations (in dollars per share)		0.06
Basic earnings per share attributable to Cubic (in dollars per share)	(0.23)	(0.36)
Diluted
Continuing operations attributable to Cubic (in dollars per share)	(0.23)	(0.42)
Discontinued operations (in dollars per share)		0.06
Diluted earnings per share attributable to Cubic (in dollars per share)	$ (0.23)	$ (0.36)
Weighted average shares used in per share calculations:
Basic (in shares)	28,492	27,207
Diluted (in shares)	28,492	27,207
Products
Net sales:
Net sales	$ 182,253	$ 131,743
Costs and expenses:
Costs	125,485	91,573
Services
Net sales:
Net sales	123,006	116,648
Costs and expenses:
Costs	$ 92,785	$ 86,217

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss	$ (10,614)	$ (9,786)
Other comprehensive income (loss):
Foreign currency translation	(3,318)	(192)
Change in unrealized gains/losses from cash flow hedges:
Change in fair value of cash flow hedges, net of tax	1,343	28
Adjustment for net gains/losses realized and included in net income, net of tax	(24)	503
Total change in unrealized gains/losses realized from cash flow hedges, net of tax	1,319	531
Total other comprehensive income (loss)	(1,999)	339
Total comprehensive loss	(12,613)	(9,447)
Noncontrolling interest in comprehensive loss of consolidated VIE, net of tax	(4,027)
Comprehensive loss attributable to Cubic, net of tax	$ (8,586)	$ (9,447)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Sep. 30, 2018
Current assets:
Restricted cash		$ 27,400
Accounts receivable:
Long-term contracts	$ 119,943	393,691
Allowance for doubtful accounts	(1,652)	(1,324)
Accounts receivable - net	118,291	392,367
Contract assets	320,277
Recoverable income taxes	1,321	91
Inventories	92,201	84,199
Assets held for sale	8,177	8,177
Other current assets	40,924	43,705
Total current assets	684,675	668,147
Long-term contracts receivables		6,134
Long-term contracts financing receivables		6,134
Property, plant and equipment, net	125,298	117,546
Deferred income taxes	4,687	4,713
Goodwill	484,329	333,626
Purchased intangibles, net	137,201	73,533
Other assets	13,871
Total assets	1,548,955	1,304,883
Current liabilities:
Short-term borrowings	64,500
Contract liability	69,713
Customer advances		75,941
Accrued compensation and other current liabilities	82,323	118,233
Income taxes payable	6,771	8,586
Total current liabilities	332,606	328,339
Shareholders' equity:
Common stock	260,141	45,008
Retained earnings	815,083	801,834
Accumulated other comprehensive loss	(112,642)	(110,643)
Treasury stock at cost	(36,078)	(36,078)
Shareholders’ equity related to Cubic	926,504	700,121
Noncontrolling interest in consolidated VIE	24,703	24,075
Total shareholders’ equity	951,207	724,196
Total liabilities and shareholders' equity	1,548,955	1,304,883
Cubic Corporation Excluding VIE
Current assets:
Cash and cash equivalents	75,174	111,834
Restricted cash	17,889	17,400
Accounts receivable:
Long-term contracts financing receivables	44,936
Long-term capitalized contract costs		84,924
Other assets	13,871	14,192
Current liabilities:
Trade accounts payable	109,094	125,414
Long-term debt	199,801	199,793
Other long term liabilities	43,838	43,486
OpCo.
Current assets:
Cash and cash equivalents	421	374
Restricted cash	10,000	10,000
Accounts receivable:
Long-term contracts financing receivables	52,996
Long-term capitalized contract costs		1,258
Other assets	962	810
Current liabilities:
Trade accounts payable	205	165
Long-term debt	15,357	9,056
Other long term liabilities	$ 6,146	$ 13

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Operating Activities:
Net loss	$ (10,614)	$ (9,786)
Net income from discontinued operations		(1,649)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	16,011	12,433
Share-based compensation expense	2,720	1,627
Change in fair value of contingent consideration	429	298
Changes in operating assets and liabilities, net of effects from acquisitions:	(69,713)	(14,437)
NET CASH USED IN CONTINUING OPERATING ACTIVITIES	(61,167)	(11,514)
NET CASH USED IN OPERATING ACTIVITIES FROM DISCONTINUED OPERATIONS		(15,424)
NET CASH USED IN OPERATING ACTIVITIES	(61,167)	(26,938)
Investing Activities:
Acquisition of businesses, net of cash acquired	(247,150)	(4,650)
Purchases of property, plant and equipment	(12,045)	(6,318)
Purchase of non-marketable debt and equity securities		(671)
NET CASH USED IN INVESTING ACTIVITIES	(259,195)	(11,639)
Financing Activities:
Proceeds from short-term borrowings	372,000	82,000
Principal payments on short-term borrowings	(307,500)	(49,000)
Purchase of common stock	(3,419)	(2,256)
Contingent consideration payments related to acquisitions of businesses	(435)	(656)
Proceeds from equity offering, net	215,832
NET CASH PROVIDED BY FINANCING ACTIVITIES	282,276	30,088
Effect of exchange rates on cash	1,962	677
NET DECREASE IN CASH AND CASH EQUIVALENTS	(36,124)	(7,812)
Cash and cash equivalents at the beginning of the period	139,608	68,577
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD	103,484	$ 60,765
Trafficware
Supplemental disclosure of non-cash investing and financing activities:
Receivable recognized in connection with the acquisition of Trafficware, net	1,588
OpCo.
Financing Activities:
Proceeds from long-term borrowings	$ 5,798

XML

Basis for Presentation

3 Months Ended

Dec. 31, 2018

Basis for Presentation

Basis for Presentation

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, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2019. 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, 2018.

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.

Through September 30, 2017 our principal lines of business were transportation fare collection systems and services, defense systems, and defense services. On April 18, 2018, we entered into a stock purchase agreement with Nova Global Supply & Services, LLC (Purchaser), an entity affiliated with GC Valiant, LP, under which we agreed to sell our Cubic Global Defense Services (CGD Services) business to the Purchaser. The sale closed on May 31, 2018. As a result of the sale, the operating results and cash flows of CGD Services have been classified as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for all periods presented. Refer to “Note 3 – Acquisitions and Divestitures” for additional information about the sale of CGD Services and the related discontinued operation classification.

Recently Adopted Accounting Pronouncements – Revenue Recognition

Revenue Recognition: Effective October 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606) using the modified retrospective transition method. The adoption of ASC 606 resulted in a change in our significant accounting policy regarding revenue recognition, and resulted in changes in our accounting policies regarding contract estimates, backlog, inventory, contract assets, long-term capitalized contract costs, and contract liabilities as described below.

The cumulative effect of applying the standard was an increase of $24.5 million to shareholders' equity as of October 1, 2018. Our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2018 and our Condensed Consolidated Balance Sheet as of December 31, 2018 are presented under ASC 606, while our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2017 and our Condensed Consolidated Balance Sheet as of September 30, 2018 are presented under the legacy revenue recognition guidance under ASC 605, Revenue Recognition. See Note 2 for disclosure of the impact of the adoption of ASC 606 on our Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Balance Sheet for the quarter ended December 31, 2018, and the effect of changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018.

We generate revenue from the sale of integrated solutions such as mass transit fare collection systems, air and ground combat training systems, and products with command, control, communication, computers, intelligence, surveillance and reconnaissance (C4ISR) capabilities. A significant portion of our revenues are generated from long-term fixed-price contracts with customers that require us to design, develop, manufacture, modify, upgrade, test and integrate complex systems according to the customer’s specifications. We also generate revenue from services we provide, such as the operation and maintenance of fare systems for mass transit customers and the support of specialized military training exercises mainly for international customers. Our contracts are primarily with the U.S. government, state and local municipalities, and other international government customers and international local municipal transit agencies. We classify sales as products or services in our Condensed Consolidated Statements of Income (Loss) based on the attributes of the underlying contracts.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily international direct commercial sale contracts, we are required to obtain certain regulatory approvals. In these cases where regulatory approval is required in addition to approval from both parties, we recognize revenue based on the likelihood of obtaining timely regulatory approvals based upon all known facts and circumstances.

To determine the proper revenue recognition method, we evaluate each contractual arrangement to identify all performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of our contracts have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from other promises within the contract and is, therefore, not distinct. These contractual arrangements either require the use of a highly specialized engineering, development and manufacturing process to provide goods according to customer specifications or represent a bundle of contracted goods and services that are integrated and together represent a combined output, which may include the delivery of multiple units. Some of our contracts have multiple performance obligations, primarily (i) related to the provision of multiple goods or services or (ii) due to the contract covering multiple phases of the product lifecycle (for instance: development and engineering, production, maintenance and support). For contracts with more than one performance obligation, we evaluate whether the stated selling prices for the products or services represent their standalone selling prices. In cases where a contract requires a customized good or service, our primary method used to estimate the standalone selling price is the expected cost plus a margin approach. In cases where we sell a standard product or service offering, the standalone selling price is based on an observable standalone selling price. Our contracts with the U.S. government, including contracts under the U.S. Department of Defense’s Foreign Military Sales program (FMS Contracts), are subject to the Federal Acquisition Regulations (FAR) and the price is typically based on estimated or actual costs plus a reasonable profit margin. As a result of these regulations, the standalone selling price of products or services in our contracts with the U.S. government and FMS Contracts are typically equal to the selling price stated in the contract. Therefore, we typically do not need to allocate (or reallocate) the transaction price to multiple performance obligations in our contracts with the U.S. government.

The majority of our sales are from performance obligations satisfied over time. Sales are recognized over time when control is continuously transferred to the customer during the contract or the contracted good does not have alternative use to us. For U.S. government contracts, the continuous transfer of control to the customer is supported by contract clauses that provide for (i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for its convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative uses to us. Our contracts with international governments and local municipal transit agencies contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for products or services that do not have alternative uses to us.

For those contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. For our design and build type contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs, and are generally expensed as incurred for these contracts. For contracts with the U.S. government, general and administrative costs are included in contract costs; however, for purposes of revenue measurement, general and administrative costs are not considered contract costs for any other customers.

We record sales under cost-reimbursement-type contracts as we incur the costs. For cost-reimbursement type contracts with the U.S. government, the FAR provides guidance on the types of costs that we will be reimbursed in establishing the contract price.

Sales under service contracts are generally recognized as services are performed or value is provided to our customers. We measure the delivery of value to our customers using a number of metrics including ridership, units of work performed, and costs incurred. We determine which metric represents the most meaningful measure of value delivery based on the nature of the underlying service activities required under each individual contract. In certain circumstances we recognize revenue based on the right to bill when such amounts correspond to the value being delivered in a billing cycle. Certain of our transportation systems service contracts contain service level penalties or bonuses, which we recognize in each period incurred or earned. These contract penalties or bonuses are generally incurred or earned on a monthly basis; however, certain contracts may be based on a quarterly or annual evaluation. Sales under service contracts that do not contain measurable units of work performed are recognized on a straight-line basis over the contractual service period, unless evidence suggests that the revenue is earned, or obligations fulfilled, in a different manner. Costs incurred under these service contracts are generally expensed as incurred.

Sales from performance obligations satisfied at a point in time are typically for standard goods and are recognized when the customer obtains control, which is generally upon delivery and acceptance. Costs of sales are recorded in the period in which revenue is recognized.

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. It is common for our long-term contracts to contain bonuses, penalties, transactional variable based fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are incurred or earned upon certain performance metrics, program milestones, transactional based activities and other similar contractual events. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. Typical payment terms under fixed-price contracts with the U.S. government provide that the customer pays either performance-based payments based on the achievement of contract milestones or progress payments based on a percentage of costs we incur. For the majority of our international contracts to deliver complex systems, we typically receive milestone payments that are paid in accordance with the terms of our contract as we perform. For the majority of our service contracts, we generally bill on a monthly basis which corresponds with the satisfaction of our monthly performance obligation under these contracts. We recognize a liability for payments in excess of revenue recognized, which is presented as a contract liability on the balance sheet. The portion of payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer from our failure to adequately complete some or all of the obligations under the contract. Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract. For certain of our multiple-element arrangements, the contract specifies that we will not be paid upon the delivery of certain performance obligations, but rather we will be paid when subsequent performance obligations are satisfied. Generally, in these cases we have determined that a separate financing component exists as a performance obligation under the contract. In these instances, we allocate a portion of the transaction price to this financing component. We determine the value of the embedded financing component by discounting the repayment of the financed amount over the implied repayment term using the effective interest method. This discounting methodology uses an implied interest rate which reflects the credit quality of the customer and represents an interest rate that would be similar to what we would offer the customer in a separate financing transaction. Unpaid principal and interest amounts associated with the financed performance obligation and the value of the embedded financing component are presented as Long-term contracts financing receivables in our consolidated balance sheet. We recognize the allocated transaction price of the financing component as interest income over the implied financing term.

For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets on the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the balance sheet.

We only include amounts representing contract change orders, claims or other items in the contract value when we believe the rights and obligations become enforceable. Contract modifications routinely occur to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract. Transaction price estimates include additional consideration for submitted contract modifications or claims when we believe there is an enforceable right to the modification or claim, the amount can be reliably estimated, and its realization is reasonably assured. Amounts representing modifications accounted for as part of the existing contract are included in the transaction price and recognized as an adjustment to sales on a cumulative catch-up basis.

In addition, we are subject to audit of incurred costs related to many of our U.S. government contracts. These audits could produce different results than we have estimated for revenue recognized on our cost-based contracts with the U.S. government; however, our experience has been that our costs are acceptable to the government.

Contract Estimates:Use of the cost-to-cost or other similar methods of revenue recognition requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. Revisions or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments may also be required if contract modifications occur. The impact of revisions in profit or loss estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, and in some cases result in liabilities to complete contracts in a loss position. The aggregate impact of net changes in contract estimates are presented in the table below (amounts in thousands).

	Three Months Ended
	December 31,
	2018		2017
Operating income (loss)	$	1,814	$	(929)
Net income (loss) from continuing operations		1,271		(736)
Diluted earnings per share		0.04		(0.03)

Backlog: Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time the option or IDIQ task order is exercised or awarded. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly As of December 31, 2018, our ending backlog was $3.814 billion. We expect to recognize approximately 25% of our December 31, 2018 backlog over the next 12 months and approximately 40% over the next 24 months as revenue, with the remainder recognized thereafter.

Disaggregation of Revenue:  See Note 14 for information regarding our sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Accounts Receivable: Receivables consist of billed amounts due from our customers. Due to the nature of our customers, we generally do not require collateral. We have limited exposure to credit risk as we have historically collected substantially all of our receivables. We generally require minimal allowance for doubtful accounts for our customers, which amounted to $1.7 million and $1.3 million as of December 31, 2018 and September 30, 2018, respectively.

Inventories: We state our inventories at the lower of cost or market. We determine cost using the first-in, first-out (FIFO) method, which approximates current replacement cost. We value our work in process at the actual production and engineering costs incurred to date, including applicable overhead. Any inventoried costs in excess of estimated realizable value are immediately charged to cost of sales.

Contract Assets:  Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amounts may not exceed their estimated net realizable value. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts.

Long-term Capitalized Contract Costs: Through September 30, 2018, long-term capitalized contract costs included costs incurred on contracts to develop and manufacture transportation systems for customers for which revenue recognition did not begin until the customers begin operating the systems prior to the adoption of ASC 606. Upon adoption of ASC 606, revenue recognition and cost recognition are no longer deferred in these situations and therefore we no longer have long-term capitalized contract costs.

Contract Liabilities:  Contract liabilities (formerly referred to as customer advances prior to the adoption of ASC 606) include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current liabilities based on our contract operating cycle and calculated on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

Recently Adopted Accounting Pronouncements – Income Taxes

On December 22, 2017 the U.S. government enacted the “Tax Cuts and Jobs Act of 2017” (Tax Act). Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed, in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During fiscal year 2018, we recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period. During the first quarter of fiscal year 2019, we did not adjust provisional amounts recorded in the prior fiscal year and the SAB 118 measurement period subsequently ended on December 22, 2018. Although we no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

Recently Adopted Accounting Pronouncements – Other

In October 2016, the Financial Accounting Standards Board (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.  ASU 2016-16 was effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for entities to disclose the methods and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 was adopted by us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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 cash receipts and cash payments from specific types of transactions 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. ASU 2016-15 was effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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. ASU 2016-18 was adopted by us beginning October 1, 2018. The application of this accounting standard update did not impact financial results, but resulted in a retrospective change in the presentation of restricted cash, including the inclusion of $27.4 million and $11.8 million of restricted cash on hand at September 30, 2018 and December 31, 2017, respectively, within the beginning and ending amounts of cash and cash equivalents in our Statements of Cash Flows. In addition, changes in the total of cash, cash equivalents and restricted cash are now reflected in our Statements of Cash Flows for all periods presented.

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 requires an entity to evaluate if substantially all of the fair value of the gross assets transferred is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 was adopted by us on October 1, 2018 and did not have any immediate impact on our consolidated financial statements. However, adoption of ASU 2017-01 could impact the accounting for future acquisitions or disposals of assets and activities because the accounting for a business combination differs significantly from that of an asset acquisition.

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. We adopted ASU 2017-07 beginning October 1, 2018 and it did not have any significant impact on our consolidated financial statements. The components of net periodic benefit cost, other than the service cost component, are included in other income (expense) in our condensed consolidated statements of income (loss).

Recent Accounting Pronouncements – Not Yet Adopted

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 and we have determined we will not adopt the new guidance early.

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. Adoption of ASU 2017-04 will have no immediate impact on our consolidated financial statements and would only have the potential to impact the amount of any goodwill impairment recorded after the adoption of the ASU. We are currently evaluating whether to adopt the guidance early.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. The amendments in this ASU are effective for us in our annual period beginning October 1, 2019 and interim periods within that year, 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance modifies the disclosure requirements on fair value measurements. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020 and interim periods within that annual period. Early adoption is permitted for any removed or modified disclosures. 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 2018, the FASB issued ASU 2018-14, Defined Benefit Plan - Disclosure Framework (Topic 715), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020. 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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New Accounting Standards Implemented

3 Months Ended

Dec. 31, 2018

New Accounting Standards Implemented

New Accounting Standards Implemented

Note 2 — New Accounting Standards Implemented

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers and significantly expands the disclosure requirements for revenue arrangements. The new standard, as amended, was effective for us beginning on October 1, 2018.

As discussed in Note 1, we adopted ASC 606 using the modified retrospective transition method. Results for reporting periods beginning after September 30, 2018 are presented under ASC 606, while prior period comparative information has not been restated and continues to be reported in accordance with ASC 605, the accounting standard in effect for periods ending prior to October 1, 2018. The adoption of ASC 606 primarily impacted certain (i) multiple-element transportation contracts that previously deferred the recognition of all revenue and related costs during the design and build phase, as the collection of payment occurred during the subsequent operate and maintain phase, and (ii) contracts previously covered by contract accounting standards that recognized revenue using the units-of-delivery method. Under ASC 606, we now recognize sales on these contracts over time by using the cost-to-cost method.

Based on contracts in process at September 30, 2018, upon adoption of ASC 606 we recorded a net increase to retained earnings of $24.5 million, which includes the acceleration of net sales of approximately $114.9 million and the related cost of sales. The adjustment to retained earnings primarily relates to multiple element transportation contracts that previously required the deferral of revenue and costs during the design and build phase, as the collection of all customer payments occurs during the subsequent operate and maintain phase. Under ASC 606, deferral of such revenue and costs is not required. In addition, the adjustment to retained earnings is attributed to contracts previously accounted for under the units-of-delivery method, which are now recognized under ASC 606 earlier in the performance period as costs are incurred, as opposed to when the units are delivered under ASC 605. In accordance with the modified retrospective transition provisions of ASC 606, we will not recognize any of the accelerated net sales and related cost of sales through October 1, 2018 in our Condensed Consolidated Statements of Income (Loss) for any historical or future period.

We made certain presentation changes to our Consolidated Balance Sheet on October 1, 2018 to comply with ASC 606. The component of accounts receivable as reported under ASC 605, which included unbilled contract receivables, has been reclassified as contract assets under ASC 606, after certain adjustments described below. The adoption of ASC 606 resulted in an increase in unbilled contract receivables (referred to as contract assets under ASC 606) primarily from converting contracts previously applying the units-of-delivery method to the cost-to-cost method with a corresponding reduction in inventoried contract costs. Additionally, the adoption of ASC 606 resulted in an increase in unbilled receivables from converting multiple element transportation contracts that previously deferred all revenue and costs during the design and build phase, with a corresponding reduction in long-term capitalized contract costs. Advance payments and deferred revenue, previously primarily classified in customer advances, are now presented as contract liabilities.

The table below presents the cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018 due to the adoption of ASC 606 (in thousands):

			Adjustments		October 1, 2018
	September 30,		Due to		As Adjusted
	2018		ASC 606		Under ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	111,834	$	—	$	111,834
Cash in consolidated VIE		374		—		374
Restricted cash		17,400		—		17,400
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		392,367		(236,743)		155,624
Contract assets		—		272,210		272,210
Recoverable income taxes		91		—		91
Inventories		84,199		(22,511)		61,688
Assets held for sale		8,177		—		8,177
Other current assets		43,705		—		43,705
Total current assets		668,147		12,956		681,103
Long-term contracts receivables		6,134		(6,134)		—
Long-term contracts financing receivables		—		56,228		56,228
Long-term contracts financing receivables in consolidated VIE		—		38,990		38,990
Long-term capitalized contract costs		84,924		(84,924)		—
Long-term capitalized contract costs in consolidated VIE		1,258		(1,258)		—
Property, plant and equipment, net		117,546		—		117,546
Deferred income taxes		4,713		389		5,102
Goodwill		333,626		—		333,626
Purchased intangibles, net		73,533		—		73,533
Other assets		14,192		—		14,192
Other noncurrent assets in consolidated VIE		810		—		810
Total assets	$	1,304,883	$	16,247	$	1,321,130
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	—	$	—
Trade accounts payable		125,414		(3,011)		122,403
Trade accounts payable in consolidated VIE		165		—		165
Contract liability		—		70,127		70,127
Customer advances		75,941		(75,941)		—
Accrued compensation and other current liabilities		118,233		583		118,816
Income taxes payable		8,586		—		8,586
Total current liabilities		328,339		(8,242)		320,097
Long-term debt		199,793		—		199,793
Long-term debt in consolidated VIE		9,056		—		9,056
Other long-term liabilities		43,486		—		43,486
Other long-term liabilities in consolidated VIE		13		—		13
Shareholders’ equity:
Common stock		45,008		—		45,008
Retained earnings		801,834		19,834		821,668
Accumulated other comprehensive loss		(110,643)		—		(110,643)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		700,121		19,834		719,955
Noncontrolling interest in VIE		24,075		4,655		28,730
Total shareholders’ equity		724,196		24,489		748,685
Total liabilities and shareholders’ equity	$	1,304,883	$	16,247	$	1,321,130

The table below presents how the adoption of ASC 606 affected certain line items on our Condensed Consolidated Statements of Income (Loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Net sales:
Products	$	152,562	$	29,691	$	182,253
Services		124,262		(1,256)		123,006
		276,824		28,435		305,259
Costs and expenses:
Products		100,544		24,941		125,485
Services		92,785		—		92,785
Selling, general and administrative expenses		62,823		163		62,986
Research and development		12,012		—		12,012
Amortization of purchased intangibles		10,565		—		10,565
Restructuring costs		1,992		—		1,992
		280,721		25,104		305,825
Operating loss		(3,897)		3,331		(566)
Other income (expenses):
Interest and dividend income		56		1,178		1,234
Interest expense		(4,032)		—		(4,032)
Other income (expense), net		(4,753)		—		(4,753)
Loss from continuing operations before income taxes		(12,626)		4,509		(8,117)
Income tax provision		2,473		24		2,497
Net loss		(15,099)		4,485		(10,614)
Less noncontrolling interest in loss of VIE		(5,981)		1,954		(4,027)
Net loss attributable to Cubic	$	(9,118)	$	2,531	$	(6,587)
Net income (loss) per share:
Basic earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)
Diluted earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)

The table below quantifies the impact of adopting ASC 606 on segment net sales and operating income (loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Sales:	(in thousands)
Cubic Transportation Systems	$	172,728	$	9,079	$	181,807
Cubic Mission Solutions		45,363		1,030		46,393
Cubic Global Defense		58,733		18,326		77,059
Total sales	$	276,824	$	28,435	$	305,259
Operating income (loss):
Cubic Transportation Systems	$	9,186	$	1,790	$	10,976
Cubic Mission Solutions		(5,191)		251		(4,940)
Cubic Global Defense		1,607		1,290		2,897
Unallocated corporate expenses		(9,499)		—		(9,499)
Total operating income (loss)	$	(3,897)	$	3,331	$	(566)

The table below presents how the impact of the adoption of ASC 606 affected certain line items on our Condensed Consolidated Balance Sheet at December 31, 2018 (in thousands):

					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	75,174	$	—	$	75,174
Cash in consolidated VIE		421		—		421
Restricted cash		17,889		—		17,889
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		390,855		(272,564)		118,291
Contract assets		—		320,277		320,277
Recoverable income taxes		1,086		235		1,321
Inventories		121,223		(29,022)		92,201
Assets held for sale		8,177		—		8,177
Other current assets		40,924		—		40,924
Total current assets		665,749		18,926		684,675
Long-term contracts receivables		4,064		(4,064)		—
Long-term contracts financing receivables		—		44,936		44,936
Long-term contracts financing receivables in consolidated VIE		—		52,996		52,996
Long-term capitalized contract costs		95,894		(95,894)		—
Long-term capitalized contract costs in consolidated VIE		1,551		(1,551)		—
Property, plant and equipment, net		125,298		—		125,298
Deferred income taxes		4,298		389		4,687
Goodwill		484,329		—		484,329
Purchased intangibles, net		137,201		—		137,201
Other assets		13,871		—		13,871
Other noncurrent assets in consolidated VIE		962		—		962
Total assets	$	1,533,217	$	15,738	$	1,548,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	64,500	$	—	$	64,500
Trade accounts payable		111,310		(2,216)		109,094
Trade accounts payable in consolidated VIE		205		—		205
Contract liability		—		69,713		69,713
Customer advances		80,993		(80,993)		—
Accrued compensation and other current liabilities		82,323		—		82,323
Income taxes payable		6,512		259		6,771
Total current liabilities		345,843		(13,237)		332,606
Long-term debt		199,801		—		199,801
Long-term debt in consolidated VIE		15,357		—		15,357
Other long-term liabilities		43,838		—		43,838
Other long-term liabilities in consolidated VIE		6,146		—		6,146
Shareholders’ equity:
Common stock		260,141		—		260,141
Retained earnings		792,717		22,366		815,083
Accumulated other comprehensive loss		(112,642)		—		(112,642)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		904,138		22,366		926,504
Noncontrolling interest in VIE		18,094		6,609		24,703
Total shareholders’ equity		922,232		28,975		951,207
Total liabilities and shareholders’ equity	$	1,533,217	$	15,738	$	1,548,955

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Acquisitions and Divestitures

3 Months Ended

Dec. 31, 2018

Acquisitions and Divestitures

Acquisitions and Divestitures

Note 3 — Acquisitions and Divestitures

Sale of CGD Services

On April 18, 2018, we entered into a stock purchase agreement with the Purchaser, an entity affiliated with GC Valiant, LP, under which we agreed to sell our CGD Services business to the Purchaser. The sale closed on May 31, 2018. In accordance with the terms of the stock purchase agreement, the Purchaser agreed to pay us $135.0 million in cash upon the closing of the transaction, adjusted for the estimated working capital of CGD Services at the date of the sale compared to a working capital target. In the third quarter of fiscal 2018, we received $133.8 million in connection with the sale and at December 31, 2018, we have recorded a receivable from the Purchaser of $3.7 million for the estimated amount due related to the working capital settlement. The working capital settlement has not yet been settled with the Purchaser. 

In addition to the amounts described above, we are eligible to receive an additional cash payment of $3.0 million based on the achievement of pre-determined earn-out conditions related to the award of certain government contracts. No amount has been recorded as a receivable related to the potential achievement of earn-out conditions based upon our assessment of the probability of achievement of the required conditions.

We concluded that the sale of the CGD Services business met all of the required conditions for discontinued operations presentation in the second quarter of fiscal 2018. As such, the CGD Services business financial results are reported within discontinued operations in our condensed consolidated financial statements. The operating results and cash flows of CGD Services have been classified as discontinued operations in the Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Cash Flows for all periods presented.

The operations and cash flows of CGD Services are reflected in our consolidated Statements of Income and Consolidated Statements of Cash Flows as discontinued operations through May 31, 2018, the date of the sale. The following table presents the composition of net income from discontinued operations, net of taxes, for the quarter ended December 31, 2017 (in thousands). No amounts were recognized as income or loss from discontinued operations for the three months ended December 31, 2018:

		Three Months Ended
	December 31, 2017
Net sales	$	92,293
Costs and expenses:
Cost of sales		83,120
Selling, general and administrative expenses		3,667
Amortization of purchased intangibles		608
Other income		(5)
Earnings from discontinued operations before income taxes		4,903
Income tax provision		3,254
Net income from discontinued operations	$	1,649

Under a transition services agreement, we are providing the Purchaser with certain post-closing support primarily consisting of IT and payroll services. We are charging the Purchaser for the post-closing support in amounts that approximate their expected costs, and these support services will be phased out over an approximate ten-month period from the date that the sale closed.

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.

Advanced Traffic Solutions Inc.

In October 2018, we acquired all of the outstanding capital stock of Advanced Traffic Solutions Inc. (Trafficware), a provider of intelligent traffic solutions for the transportation industry based in Sugar Land, Texas. Trafficware provides a fully integrated suite of software, Internet of Things devices, and hardware solutions that optimize the flow of motorist and pedestrian traffic. Trafficware is expected to provide synergies from combining its capabilities with our existing Cubic Transportation System (CTS) business.

Trafficware’s sales and results of operations included in our operating results for the quarter ended December 31, 2018 and 2017 were as follows (in millions):

	Three Months Ended
	December 31,
	2018		2017
Sales	$	10.5	$	—
Operating loss		(3.3)		—
Net loss after taxes		(3.3)		—

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

	Three Months Ended
	December 31,
	2018		2017
Amortization	$	4.3	$	—
Acquisition-related expenses		1.4		—

The acquisition-date fair value of consideration is $237.6 million, which is comprised of net cash paid of $239.2 million less a $1.6 million receivable due from the sellers for the difference between the net working capital acquired and the targeted working capital amounts. The acquisition was financed primarily with proceeds from draws on our line of credit.

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

Technology	$	43.3
Customer Relationships		21.9
Backlog		4.8
Trade Name		4.6
Accounts Receivable		10.4
Inventory		9.4
Accounts payable and accrued expenses		(6.5)
Other net assets acquired (liabilities assumed)		(2.0)
Net identifiable assets acquired		85.9
Goodwill		151.7
Net assets acquired	$	237.6

The estimated fair values of assets acquired and liabilities assumed, including purchased intangibles, 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 trade name valuation used the relief from royalty method, the customer relationships valuation used the with-and-without valuation method, and the technology and backlog valuations used the excess earnings method.

The intangible assets are being amortized using straight-line methods based on the expected period of undiscounted cash flows that will be generated by the assets, over an average useful life of seven years from the date of acquisition.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Trafficware with our existing CTS business, and strengthening our capability of developing and integrating products in our CTS portfolio. The goodwill also includes the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill is allocated to our CTS segment and 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 Trafficware for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	15.3
2020		11.4
2021		11.4
2022		11.4
2023		6.4
Thereafter		18.8

Shield Aviation, Inc.

In July 2018, we acquired the assets of Shield Aviation (Shield), based in San Diego, California, a provider of autonomous aircraft systems (AAS) for intelligence, surveillance and reconnaissance (ISR) services. The addition of Shield expands our C4ISR portfolio for our CMS segment and will provide our customers with a rapidly deployable, medium AAS that offers unique mission enabling capabilities. We already provide the data link as well as the command and control link for the Shield AAS.

Shield’s sales and results of operations included in our operating results for the three months ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	—	$	—
Operating loss		(0.9)		—
Net loss after taxes		(0.9)		—

Shield’s operating results above included the following amounts for the three months ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		—		—

The acquisition-date fair value of consideration is $12.8 million, which is comprised of estimated fair value of contingent consideration of $5.6 million, extinguishment of secured loans and warrants due from Shield of $5.2 million, cash paid of $1.3 million, plus additional consideration to be paid in the future of $0.7 million. Under the purchase agreement, we will pay the sellers up to $10.0 million of contingent consideration if Shield meets certain sales goals from the date of acquisition through July 31, 2025. The contingent consideration liability will be re-measured to fair value at each reporting date until the contingencies are resolved and any subsequent changes in fair value are recognized in earnings.

The acquisition of Shield 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):

Technology	$	6.0
Other net assets acquired		0.3
Net identifiable assets acquired		6.3
Goodwill		6.5
Net assets acquired	$	12.8

The technology asset valuation used the excess earnings approach and is being amortized using the straight-line method over eight years, which is based on the expected period of cash flows that will be generated by the asset.

The goodwill resulting from the acquisition consists primarily of the synergies expected from combining the operations of Shield with our existing Cubic Mission Solutions (CMS) business, and strengthening our capability of developing and integrating products and services in our CMS portfolio. The goodwill also includes the value of the assembled workforce that became our employees following the close of the acquisition. The amount recorded as goodwill is allocated to our CMS segment and is expected to be deductible for tax purposes.

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Shield for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.8
2020		0.8
2021		0.8
2022		0.8
2023		0.8
Thereafter		2.1

MotionDSP

In October 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. On February 21, 2018, we paid net cash of $4.8 million to purchase the remaining outstanding capital stock of MotionDSP. The addition of MotionDSP enhances the capabilities in real-time video processing of our CMS business and expands our customer base in the public safety and other adjacent markets.

MotionDSP’s sales and results of operations included in our operating results since its consolidation in our financial statements for the quarters ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	0.2	$	—
Operating loss		(0.4)		—
Net loss after taxes		(0.4)		—

MotionDSP’s operating results above included the following amounts for the quarters ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		0.1		—

The acquisition of MotionDSP 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	$	0.2
Technology		4.5
Trade name		0.1
Accounts payable and accrued expenses		(0.3)
Other noncurrent liabilities		(0.8)
Other net liabilities assumed		(0.9)
Net identifiable assets acquired		2.8
Goodwill		6.7
Net assets acquired	$	9.5

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 trade name valuation used the relief from royalty method, the customer relationships valuation used the with-and-without valuation method, and the technology valuation used the excess earnings method.

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

The goodwill resulting from the acquisition was deemed to consist primarily of the synergies expected from combining the operations of MotionDSP with our CMS operating segment, enhancing our capabilities in real-time video processing and computer vision analytics of our CMS 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 in connection with the acquisition of MotionDSP 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 MotionDSP for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.7
2020		0.7
2021		0.7
2022		0.7
2023		0.7
Thereafter		0.8

Pro forma information

The following unaudited pro forma information presents our consolidated results of operations as if Trafficware, Shield, and MotionDSP had been included in our consolidated results since October 1, 2017 (in millions):

	Three Months Ended
	December 31,
	2018		2017
Net sales	$	307.1	$	261.8
Net loss	$	(6.3)	$	(13.4)

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, 2017, and it does not purport to project our future operating results.

Acquisition of GRIDSMART Subsequent to December 31, 2018

In January 2019, we acquired all of the outstanding capital stock of GRIDSMART Technologies, Inc. (GRIDSMART), a provider of differentiated video tracking to the Intelligent Traffic Systems (ITS) market. Based in Knoxville, Tennessee, GRIDSMART specializes in video detection at the intersection utilizing advanced image processing, computer vision modeling and machine learning along with a single camera solution providing best-in-class data for optimizing the flow of people and traffic through intersections. GRIDSMART is expected to provide synergies from combining its capabilities with our existing CTS business. The purchase price was $87.0 million adjusted for the difference between net working capital acquired and a targeted working capital amount, and was financed primarily with proceeds from draws on our line of credit. Due to the limited time between the acquisition date and the filing of this report and due to the difference in fiscal year dates between GRIDSMART and Cubic, it is not practicable for us to disclose: (i) the allocation of purchase price to assets acquired and liabilities assumed as of the date of close, (ii) the methods of amortization and amortization periods of acquired intangible assets, and (iii) pro forma revenues and earnings of the combined company for the quarter ended December 31, 2018.

Goodwill

Changes in goodwill for the three months ended December 31, 2018 were as follows for each of our reporting units (in thousands):

	Transportation		Cubic Mission		Cubic Global
	Systems		Solutions		Defense		Total
Net balances at September 30, 2018	$	49,786	$	138,127	$	145,713	$	333,626
Acquisitions		151,670		—		—		151,670
Foreign currency exchange rate changes		(798)		(73)		(96)		(967)
Net balances at December 31, 2018	$	200,658	$	138,054	$	145,617	$	484,329

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. Circumstances that might indicate 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.

Our most recent annual goodwill impairment test was our 2018 annual impairment test completed as of July 1, 2018. The results of our 2018 annual impairment test indicated that the estimated fair value for our CTS reporting unit exceeded its carrying value by over 100% while the estimated fair values of our Cubic Global Defense (CGD) and CMS reporting units each exceeded their carrying values by over 40%. Subsequent to the effective dates of the tests for each of our reporting units, we do not believe that circumstances have occurred that indicate that an impairment for any of our reporting units is more-likely-than-not. As such, no subsequent interim impairment tests have been performed.

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Variable Interest Entities

3 Months Ended

Dec. 31, 2018

Variable Interest Entities

Variable Interest Entities

Note 4 – Variable Interest Entities

In accordance with ASC 810, Consolidation, we assess our partnerships and joint ventures at inception, and when there are changes in relevant factors, to determine if any meet the qualifications of a variable interest entity (VIE). We consider a partnership or joint venture a VIE if it has any of the following characteristics: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

We perform a qualitative assessment of each VIE to determine if we are its primary beneficiary. We conclude that we are the primary beneficiary and consolidate the VIE if we have both (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We consider the VIE design, the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if we are the primary beneficiary. We also consider all parties that have direct or implicit variable interests when determining whether we are the primary beneficiary. As required by ASC 810, our primary beneficiary assessment is continuously performed.

In March 2018, CTS, a wholly owned subsidiary of Cubic, and John Laing, an unrelated company that specializes in contracting under public-private partnerships (P3), jointly formed Boston AFC 2.0 HoldCo. LLC (HoldCo.). Also in March 2018, HoldCo. created a wholly owned entity, Boston AFC 2.0 OpCo. LLC (OpCo.) which entered into a contract with the Massachusetts Bay Transit Authority (MBTA) for the financing, development, and operation of a next-generation fare payment system in Boston (the MBTA Contract). HoldCo. is 90% owned by John Laing and 10% owned by CTS. Collectively, HoldCo. and OpCo. are referred to as the P3 Venture. Based on our assessment under ASC 810, we have concluded that OpCo. and HoldCo. are VIE’s and that we are the primary beneficiary of OpCo. Consequently, we have consolidated the financial statements of OpCo. within Cubic’s consolidated financial statements. We have concluded that we are not the primary beneficiary of HoldCo., and thus we have not consolidated the financial statements of HoldCo. within Cubic’s consolidated financial statements.

The MBTA Contract consists of a design and build phase of approximately three years and an operate and maintain phase of approximately ten years. The design and build phase is planned to be completed in 2021 and the operate and maintain phase will span from 2021 through 2031. MBTA will make fixed payments of $558.5 million, adjusted for incremental transaction-based fees, inflation, and performance penalties, to OpCo. in connection with the MBTA Contract over the ten-year operate and maintain phase. All of OpCo.’s contractual responsibilities regarding the design and development and the operation and maintenance of the fare system have been subcontracted to CTS by OpCo. CTS will receive fixed payments of $427.6 million, adjusted for incremental transaction-based fees, inflation, and performance penalties, under its subcontract with OpCo.

Upon creation of the P3 Venture, John Laing made a loan to HoldCo. of $24.3 million in the form of a bridge loan that is intended to be converted to equity in the future in accordance with its equity funding responsibilities. Concurrently, HoldCo. made a corresponding equity contribution to OpCo. in the same amount which is included within equity of Noncontrolling interest in VIE within Cubic’s consolidated financial statements. Also, upon creation of the P3 Venture, CTS issued a letter of credit for $2.7 million to HoldCo. in accordance with CTS’s equity funding responsibilities. HoldCo. is able to draw on the CTS letter of credit in certain liquidity instances, but no amounts have been drawn on this letter of credit as of December 31, 2018.

Upon creation of the P3 Venture, OpCo. entered into a credit agreement with a group of financial institutions (the OpCo. Credit Agreement) which includes a long-term debt facility and a revolving credit facility. The long-term debt facility allows for draws up to a maximum amount of $212.4 million; draws may only be made during the design and build phase of the MBTA Contract. The long-term debt facility, including interest and fees incurred during the design and build phase, is required to be repaid on a fixed monthly schedule over the operate and maintain phase of the MBTA Contract. The long-term debt facility bears interest at variable rates of LIBOR plus 1.3% and LIBOR plus 1.55% over the design and build and operate and maintain phases of the MBTA Contract, respectively. At December 31, 2018, the outstanding balance on the long-term debt facility was $15.4 million, which is presented net of unamortized deferred financing costs of $8.8 million. The revolving credit facility allows for draws up to a maximum amount of $13.9 million and is only available to be drawn on during the operate and maintain phase of the MBTA Contract. OpCo.’s debt is nonrecourse with respect to Cubic and its subsidiaries. The fair value of the long-term debt facility approximates its carrying value.

The OpCo. Credit Agreement contains a number of covenants which require that OpCo. and Cubic maintain progress on the delivery of the MBTA Contract within a specified timeline and budget and provide regular reporting on such progress. The OpCo. Credit Agreement also contains a number of customary events of default including, but not limited to, the delivery of a customized fare collection system to MBTA by a pre-determined date. Failure to meet such delivery date will result in OpCo., and Cubic via its subcontract with OpCo., to incur penalties due to the lenders.

OpCo. has entered into pay-fixed/receive-variable interest rate swaps with a group of financial institutions to mitigate variable interest rate risk associated with its long-term debt. The interest rate swaps contain forward starting notional principal amounts which align with OpCo.’s expected draws on its long-term debt facility. At December 31, 2018, the outstanding notional principal amounts on open interest rate swaps were $61.9 million. The fair value of OpCo.’s interest rate swaps at December 31, 2018 was $6.1 million and is recorded as a liability in Other long-term liabilities in our Consolidated Balance Sheets. OpCo.’s interest rate swaps were not designated as effective hedges at December 31, 2018 and as such any unrealized gains/losses are included in other income (expense), net.  Unrealized losses as a result of changes in the fair value of OpCo.’s interest rate swaps were $6.1 million for the three months ended December 31, 2018. See Note 13 for a description of the measurement of fair value of derivative financial instruments, including OpCo.’s interest rate swaps.

At December 31, 2018, OpCo. holds a $10.0 million restricted cash balance which is required by the MBTA Contract to allow for the delivery of future change orders and unplanned expansions as directed by MBTA.

The assets and liabilities of OpCo. that are included in our condensed consolidated balance sheets at December 31, 2018 and September 30, 2018 are as follows:

	December 31,		September 30,
	2018		2018
	(in thousands)
Cash	$	421	$	374
Restricted cash		10,000		10,000
Long-term capitalized contract costs		—		1,258
Long-term contracts financing receivable		52,996		—
Other noncurrent assets		962		810
Total assets	$	64,379	$	12,442
Trade accounts payable	$	205	$	165
Other long-term liabilities		6,146		13
Long-term debt		15,357		9,056
Total liabilities	$	21,708	$	9,234
Total Cubic equity		39		(304)
Noncontrolling interests		24,703		24,348
Total liabilities and owners' equity	$	46,450	$	33,278

The balance sheets of OpCo. at December 31, 2018 and September 30, 2018 exclude $17.9 million of liabilities and $20.8 million of assets, respectively, that are eliminated in consolidation.

The assets of OpCo. are restricted for its use only and are not available for the general operations of Cubic. OpCo.’s debt is non-recourse to Cubic. Cubic’s maximum exposure to loss as a result of its equity interest in the P3 Venture is limited to the $2.7 million outstanding letter of credit, which will be converted to a cash contribution upon completion of the design and build phase of the MBTA Contract.

Prior to the adoption of ASC 606, Cubic and OpCo. were precluded from recognizing revenue on the MBTA Contract because MBTA was not required to make payments to OpCo. until the operate and maintain phase of the contract began. During this time period Cubic and OpCo. were capitalizing costs associated with designing and building the system for MBTA. The total amount of such costs capitalized through September 30, 2018 was $27.8 million, which was classified within long-term capitalized contract costs. Upon the adoption of ASC 606, Cubic and OpCo are now permitted to recognize revenue related to the MBTA contract and therefore costs are now recognized as incurred and are no longer capitalized.

The revenue, operating income, and other income (expense), net of OpCo. that are included in our condensed consolidated statement of income (loss) for the three months ended December 31, 2018 and 2017 are as follows:

	Three Months Ended
	December 31,
	2018		2017
Revenue	$	1,961	$	—
Operating income		1,668		—
Other income (expense), net		(6,133)		—
Interest income		503		—
Interest expense		(512)		—

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Net Income (Loss) Per Share

3 Months Ended

Dec. 31, 2018

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Note 5 — Net Income (Loss) Per Share

Basic net income (loss) per share (EPS) is computed by dividing the net income (loss) attributable to Cubic 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 from continuing operations attributable to Cubic, 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 from continuing operations attributable to Cubic, common equivalent shares are not included in the computation of diluted EPS, because to do so would be anti-dilutive.

The weighted-average number of shares outstanding used to compute net loss per common share were as follows (in thousands):

	December 31,
	2018		2017
Weighted average shares - basic		28,492		27,207
Effect of dilutive securities		—		—
Weighted average shares - diluted		28,492		27,207
Number of anti-dilutive securities		990		1,040

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Contract Assets and Liabilities

3 Months Ended

Dec. 31, 2018

Contract Assets and Liabilities

Contract Assets and Liabilities

Note 6 — Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Contract liabilities (formerly referred to as customer advances prior to the adoption of ASC 606 include advance payments and billings in excess of revenue recognized. Contract assets and contract liabilities were as follows (in thousands):

	December 31,		October 1,
	2018		2018
Contract assets	$	320,277	$	272,210
Contract liabilities	$	69,713	$	70,128

Contract assets increased $48.1 million during the three months ended December 31, 2018, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the three months ended December 31, 2018 for which we have not yet billed. There were no significant impairment losses related to our contract assets during the three months ended December 31, 2018 and 2017.

Contract liabilities decreased $0.4 million during the three months ended December 31, 2018, primarily due to payments received in excess of revenue recognized on these performance obligations. During the three months ended December 31, 2018, we recognized $20.7 million of our contract liabilities at October 1, 2018 as revenue. We expect our contract liabilities to be recognized as revenue over the next twelve months.

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Balance Sheet Details

3 Months Ended

Dec. 31, 2018

Balance Sheet Details

Balance Sheet Details

Note 7 — Balance Sheet Details

Accounts Receivable

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

	December 31,		September 30,
	2018		2018
Accounts receivable
Billed	$	119,943	$	156,948
Unbilled		—		242,877
Allowance for doubtful accounts		(1,652)		(1,324)
Total accounts receivable		118,291		398,501
Less estimated amounts not currently due		—		(6,134)
Current accounts receivable	$	118,291	$	392,367

Inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2018		2018
Finished products	$	7,716	$	7,099
Work in process and inventoried costs under long-term contracts		49,295		63,169
Materials and purchased parts		35,190		23,710
Customer advances		—		(9,779)
Net inventories	$	92,201	$	84,199

At both December 31, 2018 and September 30, 2018, work in process and inventoried costs under long-term contracts includes approximately $0.9 million in costs incurred outside the scope of work or in advance of a contract award. We believe it is probable that we will recover the costs inventoried at December 31, 2018, plus a profit margin, under contract change orders or awards within the next year.

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 in phases from fiscal 2016 through fiscal 2018. 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.

Excluding businesses that we acquired in fiscal 2019, we completed the planned implementation of our ERP system in the fourth quarter of fiscal 2018. We continue to capitalize costs associated with the development of certain ERP features and upgrades that are not yet ready for their intended use. We capitalized costs related to ERP components in development totaling $0.5 million and $2.5 million for the quarters ended December 31, 2018 and 2017, respectively.

In addition to software costs that were capitalized, during the quarters ended December 31, 2018 and December 31, 2017, we recognized expenses related to the development and implementation of our ERP system of $0.8 million and $6.3 million, respectively, 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 $12.0 million and $11.5 million at December 31, 2018 and September 30, 2018, respectively.

We have made 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, 2018 and September 30, 2018 were $5.8 million and $6.4 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, 2018

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 8 — 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 following table presents assets and liabilities measured and recorded at fair value on our balance sheets on a recurring basis (in thousands):

	December 31, 2018								September 30, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	—	$	—	$	—	$	—	$	9,000	$	—	$	—	$	9,000
Current derivative assets		—		5,036		—		5,036		—		1,803		—		1,803
Noncurrent derivative assets		—		581		—		581		—		314		—		314
Total assets measured at fair value	$	—	$	5,617	$	—	$	5,617	$	9,000	$	2,117	$	—	$	11,117
Liabilities
Current derivative liabilities		—		3,367		—		3,367		—		1,657		—		1,657
Noncurrent derivative liabilities		—		—		—		—		—		75		—		75
Contingent consideration to seller of Deltenna		—		—		1,343		1,343		—		—		1,081		1,081
Contingent consideration to seller of Shield		—		—		5,618		5,618		—		—		5,618		5,618
Contingent consideration to seller of TeraLogics - revenue targets		—		—		—		—		—		—		1,750		1,750
Contingent consideration to seller of H4 Global		—		—		832		832		—		—		665		665
Total liabilities measured at fair value	$	—	$	3,367	$	7,793	$	11,160	$	—	$	1,732	$	9,114	$	10,846

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

At December 31, 2018, we have the following remaining contingent consideration arrangements with the sellers of companies which we acquired:

· Deltenna: Payment of up to $6.9 million of contingent consideration if Deltenna meets certain sales goals from the date of acquisition through the year ending September 30, 2022.

· H4 Global: Payment of up to $3.2 million of contingent consideration based upon the value of contracts entered into over the five-year period ending September 30, 2020.

· Shield: Payments of up to $10.0 million of contingent consideration if Shield meets certain sales goals from the date of acquisition through July 31, 2025.

In addition, we have a contingent consideration arrangement with the Purchaser of our CGD Services business under which we are eligible to receive a cash payment of $3.0 million if the Purchaser is awarded certain government contracts in the future.

The fair value of Deltenna contingent consideration was valued using the real option approach. Under this approach, each payment was modeled using long digital options written on the underlying revenue metric. The strike price for each option is the respective revenue as specified in the related agreement, and the spot price is calibrated to the revenue forecast by calculating the present value of the corresponding projected revenues 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 factor used in the December 31, 2018 valuations was 40% for Deltenna. The volatility factor used in the September 30, 2018 valuation was 53% for Deltenna. 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 maximum remaining payout to the sellers of H4 Global is $3.2 million at December 31, 2018, and is based upon the value of contracts entered into over the five-year period ending September 30, 2020. 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 fair value of the Shield contingent consideration was estimated based on Monte Carlo simulations. Under the purchase agreement, we will pay the sellers up to $10.0 million if Shield meets certain sales goals from the date of acquisition through July 31, 2025. The fair value of the contingent consideration was determined based upon a probability distribution of values based on 100,000 iterations. Key inputs for the simulation include projected revenues, assumed discount rates for projected revenue and cash flows, and volatility. The volatility and revenue risk adjustment factors used as of December 31, 2018 were 20% and 14%, respectively, and were determined based on analysis of publicly traded comparable companies. The discount rate used as of December 31, 2018 and September 30, 2018 was based on our expected borrowing rate under our financing arrangements, which was determined to be 5.0% at December 31, 2018 and September 30, 2018. 

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, 2018, the following table summarizes the change in fair value of our Level 3 contingent consideration liabilities (in thousands):

		H4 Global		TeraLogics (Revenue Targets)		Deltenna		Shield		Total
Net balances at September 30, 2018	$	665	$	1,750	$	1,081	$	5,618	$	9,114
Cash paid to seller		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		167		—		262		—		429
Balance as of December 31, 2018	$	832	$	—	$	1,343	$	5,618	$	7,793

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,
	2018		2018
Fair value	$	195.4	$	193.7
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 2019 or 2018 other than assets and liabilities acquired in business acquisitions described in Note 3 and the restricted stock units that were granted in the first quarter of fiscal 2019 that contain performance and market-based vesting criteria described in Note 11.

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Financing Arrangements

3 Months Ended

Dec. 31, 2018

Financing Arrangements

Financing Arrangements

Note 9 — Financing Arrangements

In December 2018, we completed an underwritten public offering of 3,300,000 shares of our common stock. We granted the underwriters a 30-day option to purchase up to an additional 495,000 shares of common stock. In December 2018, the underwriters exercised their option to purchase the additional 495,000 shares. All shares were offered by us at a price to the public of $60.00 per share. Net proceeds were $215.8 million, after deducting underwriting discounts and commissions and offering expenses of $11.9 million. We used the net proceeds to repay a portion of our outstanding borrowings under our revolving credit agreement which was used to finance the acquisition of Trafficware and general corporate purposes.

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 the company’s 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. The interest rates on all of the term notes described above may be adjusted upwards by up to 0.75% should our leverage ratio exceed certain levels.

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, 2018, the weighted average interest rate on outstanding borrowings under the Revolving Credit Agreement was 3.75%.  Debt issuance and modification costs of $2.3 million and $1.3 million were incurred in connection with February 2, 2016 and August 11, 2016 amendments to the Revolving Credit Agreement, respectively. Costs incurred in connection with establishment of and amendments to this 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, 2018, our total debt issuance costs have an unamortized balance of $1.7 million. The available line of credit is reduced by any letters of credit issued under the Revolving Credit Agreement. As of December 31, 2018, there were $64.5 million of borrowings under this agreement and there were letters of credit outstanding totaling $38.4 million, which reduce the available line of credit to $297.1 million. The $38.4 million of letters of credit includes both financial letters of credit and performance guarantees.

We maintain a cash account with a bank in the United Kingdom 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 United Kingdom. The balance in the account as of December 31, 2018 was $17.9 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

As of December 31, 2018, we had letters of credit and bank guarantees outstanding totaling $50.1 million, which includes the $38.4 million of letters of credit on the Revolving Credit Agreement above and $11.7 million of letters of credit issued under other facilities. The total of $50.1 million of letters of credit and bank guarantees includes $42.9 million that guarantees either our performance or customer advances under certain contracts and financial letters of credit of $7.2 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 United Kingdom in the amount of £20.0 million British pounds (equivalent to approximately $25.5 million) to help meet the short-term working capital requirements of our subsidiary. At December 31, 2018, 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, 2018, these agreements have no restrictions on distributions to shareholders, subject to certain tests in these agreements.

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 $8.7 million at December 31, 2018 and $8.6 million at September 30, 2018.

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Pension Plans

3 Months Ended

Dec. 31, 2018

Pension Plans

Pension Plans

Note 10 — Pension Plans

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

	Three Months Ended
	December 31,
	2018		2017
Service cost	$	149	$	151
Interest cost		1,910		1,880
Expected return on plan assets		(3,009)		(3,525)
Amortization of actuarial loss		528		692
Administrative expenses		97		110
Net pension cost (benefit)	$	(325)	$	(692)

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Stockholders’ Equity

3 Months Ended

Dec. 31, 2018

Stockholders’ Equity

Stockholders’ Equity

Note 11 - Stockholders’ Equity

Long-Term Equity Incentive Plan

In 2013, the Executive Compensation Committee of the Board of Directors (Compensation Committee) approved a long-term equity incentive award program. To date, the Compensation Committee has approved three general categories of grant awards: RSUs with time-based vesting, RSUs with performance-based vesting, and RSUs with performance and market-based vesting. Through December 31, 2018, the Compensation Committee has granted 1,285,560 RSUs with time-based vesting, 1,173,766 RSUs with performance-based vesting, and 219,890 RSUs with performance and market-based vesting under this program.

Each RSU with time-based vesting or performance-based vesting represents a contingent right to receive one share of our common stock. Each RSU with performance and market-based vesting represents a contingent right to receive up to 1.25 shares 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 prior to September 30, 2018, the vesting is contingent upon Cubic meeting one of three types of vesting criteria over the performance period, including 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.

In fiscal 2019, the Compensation Committee granted RSUs with performance and market-based vesting criteria. The performance and market-based RSUs granted to participants vest over three-year performance periods based on Cubic’s achievement of revenue growth targets and earnings growth targets subject to the recipient’s continued service through the end of the respective performance periods. The level at which Cubic performs against scalable targets over the performance periods impact the percentage of the RSUs that will ultimately vest. For these RSUs, Cubic’s relative total stock return (TSR) as compared to the Russell 2000 Index (Index) over the performance period will result in a multiplier for the number of RSUs that will vest. If the our TSR performance exceeds the performance of the Index based on a scale established by the Compensation Committee, the multiplier will result in up to an additional 25% of RSUs vesting at the end of the performance period. If the TSR performance is below the performance of the Index based on a scale established by the Compensation Committee, the multiplier could result in a reduction of up to 25% of these RSUs vesting at the end of the performance period.

The grant date fair value of each RSU with time-based vesting or performance-based vesting is the fair market value of one share of our common stock at the grant date.

The grant date fair value of each RSU with performance and market-based vesting was calculated using a Monte Carlo simulation valuation method. Under this method, the prices of the Index and our common stock were simulated through the end of the performance period. The correlation matrix between our common stock and the index as well as our stock and the Index’s return volatilities were developed based upon an analysis of historical data. The following table includes the assumptions used for the valuation of the RSUs with performance and market-based vesting that were granted in the first quarter of fiscal 2019:

		RSU's granted during the three
		months ended December 31, 2018
Date of grant		November 21, 2018
Closing average share value (mean)	$	68.56
Performance period begins		October 1, 2018
Performance period ends		September 30, 2021
Risk-free interest rate		2.8%
Expected volatility		34%

As a result of the valuation analysis, the fair value of the RSUs with performance and market-based vesting granted in the first quarter of fiscal 2019 was calculated at $67.40 per RSU.

At December 31, 2018, 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 331,181 RSUs with time-based vesting, 129,907 RSUs with performance-based vesting, and 152,570 RSUs with performance and market-based vesting.

The following table summarizes our RSU activity:

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	366,460	$	52.31
Granted	195,033		64.33
Vested	(128,949)		50.61
Forfeited	(15,391)		50.04
Unvested at December 31, 2018	417,153	$	58.54

	Unvested Restricted Stock Units with Performance Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	635,628	$	50.11
Granted	—		—
Vested	—		—
Forfeited	(295,759)		43.86
Unvested at December 31, 2018	339,869	$	55.54

	Unvested Restricted Stock Units with Performance and Market Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	—	$	—
Granted	219,890		67.40
Vested	—		—
Forfeited	—		—
Unvested at December 31, 2018	219,890	$	67.40

We recorded non-cash compensation expense related to stock-based awards as follows (in thousands):

	Three Months Ended
	December 31,
	2018		2017
Cost of sales	$	313	$	156
Selling, general and administrative		2,407		1,471
	$	2,720	$	1,627

As of December 31, 2018, there was $52.0 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 $37.5. million. This amount is expected to be recognized over a weighted-average period of 1.6 years.

We 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, 2018. 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, 2018

Income Taxes

Income Taxes

Note 12 – Income Taxes

U.S. Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted the Tax Act. Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During fiscal year 2018, we recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period.

During the first quarter of fiscal year 2019, we did not adjust provisional amounts recorded in the prior fiscal year and the SAB 118 measurement period subsequently ended on December 22, 2018. Although we no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

The Tax Act includes provisions for Global Intangible Low-Tax Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of foreign subsidiaries.Consistent with accounting guidance, we have elected to account for the tax on GILTI as a period cost and thus have not adjusted any net deferred tax assets of our foreign subsidiaries in connection with the Tax Act.

Effective Tax Rate

During interim periods, the Company generally utilizes the estimated annual effective tax rate method which involves the use of forecasted information.  Under this method, the provision is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.  For the three-month period ended December 31, 2018, the Company believes it is more appropriate to use a blend of the discrete effective tax rate method and the estimated annual effective tax rate method to calculate income tax expense for the period.  The Company determined that since small changes in estimated “ordinary” income for U.S. operations would result in significant changes in the worldwide estimated annual effective tax rate, the discrete tax rate method should be utilized to determine a more reliable estimate of U.S. income tax expense for the period.

Income tax expense recognized on pre-tax losses from continuing operations for the three months ended December 31, 2018 resulted in an effective tax rate of negative 31% which differs from the U.S. statutory tax rate of 21% primarily due to the jurisdictional mix of pre-tax income (loss) and U.S. losses for which no tax benefit can be realized due to a valuation allowance. The effective tax rate for the three months ended December 31, 2018 differs from the effective tax rate of negative 6% and positive 48% for the three months ended December 31, 2017 and the year ended September 30, 2018, respectively, primarily due to differences in the jurisdictional mix of pre-tax income (loss), partially offset by discrete benefits resulting from the enactment of the Tax Act.

Deferred Tax Balances

As of December 31, 2018, 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, 2018, a total valuation allowance of $79.3 million has been established for U.S. net deferred tax assets, certain foreign operating losses and other foreign assets.

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Derivative Instruments and Hedging Activities

3 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Note 13 — 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 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 noncurrent 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, 2018 and September 30, 2018 (in thousands):

	Notional Principal
	December 31, 2018		September 30, 2018
Instruments designated as accounting hedges:
Foreign currency forwards	$	169,095	$	169,406
Instruments not designated as accounting hedges:
Foreign currency forwards	$	24,824	$	27,909

Included in the amounts not designated as accounting hedges at December 31, 2018 and September 30, 2018 were foreign currency forwards with notional principal amounts of $12.7 million and $14.7 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 were recognized in other income (expense), net for the three months ended December 31, 2018 and 2017 related to these foreign currency forward contracts not designated as accounting hedges.  

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, 2018 and September 30, 2018. 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, 2018 or September 30, 2018.

The table below presents the fair value of our derivative financial instruments that qualify for hedge accounting as well as their classification in the Condensed Consolidated Balance Sheets as of December 31, 2018 and September 30, 2018 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2018		September 30, 2018
Asset derivatives:
Foreign currency forwards	Other current assets	$	5,036	$	1,803
Foreign currency forwards	Other noncurrent assets		582		314
		$	5,618	$	2,117
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	3,367	$	1,657
Foreign currency forwards	Other noncurrent liabilities		—		75
Total		$	3,367	$	1,732

The tables below present gains and losses recognized in other comprehensive income (loss) for the three months ended December 31, 2018 and 2017 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, 2018				December 31, 2017
			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	$	1,779	$	(33)	$	656	$	(774)

The amount of unrealized 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, 2018 and 2017. The amount of estimated unrealized net gains from cash flow hedges which are expected to be reclassified to earnings in the next twelve months is $1.7 million, net of income taxes.

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Segment Information

3 Months Ended

Dec. 31, 2018

Segment Information

Segment Information

Note 14 — 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. We evaluate performance and allocate resources based on total segment operating income or loss. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are immaterial and are eliminated in consolidation.

Our reportable segments are business units that offer different products and services. Operating results for each segment are reported separately to senior corporate management to make decisions as to the allocation of corporate resources and to assess performance.

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

	Three Months Ended
	December 31,
	2018		2017
Sales:
Cubic Transportation Systems	$	181.8	$	146.5
Cubic Mission Solutions		46.4		33.1
Cubic Global Defense		77.1		68.8
Total sales	$	305.3	$	248.4
Operating income (loss):
Cubic Transportation Systems	$	11.0	$	9.9
Cubic Mission Solutions		(4.9)		(8.9)
Cubic Global Defense		2.9		1.4
Unallocated corporate expenses		(9.6)		(14.3)
Total operating income (loss)	$	(0.6)	$	(11.9)
Depreciation and amortization:
Cubic Transportation Systems	$	7.7	$	3.3
Cubic Mission Solutions		5.4		5.9
Cubic Global Defense		2.2		2.1
Corporate		0.7		1.1
Total depreciation and amortization	$	16.0	$	12.4

Unallocated corporate costs in the first quarter of 2019 include costs of strategic and IT system resource planning as part of our One Cubic Initiatives, which totaled $1.6 million compared to $8.0 million in the first quarter of last year. As described in Note 3, the operating results of CGD Services have been classified as discontinued operations in the Condensed Consolidated Statements of Income (Loss) for all periods presented.

Disaggregation of Total Net Sales.We disaggregate our sales from contracts with customers by end customer, contract type, deliverable type and revenue recognition method for each of our segments, as we believe these factors affect the nature, amount, timing, and uncertainty of our revenue and cash flows.

Sales by Geographic Region (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
United States	$	91.3	$	45.5	$	35.7	$	172.5
United Kingdom		50.9		0.4		4.3		55.6
Australia		29.8		0.1		5.6		35.5
Far East/Middle East		4.4		0.4		18.4		23.2
Other		5.4		—		13.1		18.5
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by End Customer. We are the prime customer for the vast majority of our sales. The table below presents total net sales disaggregated by end customer (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
U.S. Federal Government and State and Local Municipalities	$	90.8	$	45.8	$	32.4	$	169.0
Other		91.0		0.6		44.7		136.3
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Contract Type. Substantially all of our contracts are fixed-price type contracts. Sales included in Other contract types represent cost plus and time and material type contracts.

On a fixed-price type contract, we agrees to perform the contractual statement of work for a predetermined sales price. On a cost-plus type contract, we are is paid our allowable incurred costs plus a profit which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels determined by the customer. On a time-and-material type contract, we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. The table below presents total net sales disaggregated by contract type (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Fixed Price	$	178.2	$	45.8	$	71.6	$	295.6
Other		3.6		0.6		5.5		9.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Deliverable Type: The table below presents total net sales disaggregated by the type of deliverable, which is determined by us at the performance obligation level (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Product	$	92.0	$	40.6	$	49.7	$	182.3
Service		89.8		5.8		27.4		123.0
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Revenue Recognition Method: The table below presents total net sales disaggregated based on the revenue recognition method applied (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Point in Time	$	16.7	$	34.4	$	0.5	$	51.6
Over Time		165.1		12.0		76.6		253.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

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Legal Matters

3 Months Ended

Dec. 31, 2018

Legal Matters

Legal Matters

Note 15 — Legal Matters

We consider all legal 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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Subsequent Event

3 Months Ended

Dec. 31, 2018

Subsequent Events

Subsequent Events

Note 16 — Subsequent Event

On February 5, 2019, we entered into agreements related to the construction and leasing of two buildings on our existing corporate campus in San Diego. This will allow us to consolidate virtually all of our San Diego operations in a single location and accommodate the expected growth of our business. Under these agreements a legal entity affiliated with the financial institutions involved with the project will own the buildings, and we will lease the buildings for a term of five years upon their completion. At the end of the lease term we will be required to elect to negotiate a new lease term, purchase the property, or arrange for a sale of the property to a third party. Alternatively the financial institutions may elect to keep the building and release us from these requirements.

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Basis for Presentation (Policies)

3 Months Ended

Dec. 31, 2018

Basis for Presentation

Revenue Recognition

Recently Adopted Accounting Pronouncements – Revenue Recognition

Revenue Recognition: Effective October 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606) using the modified retrospective transition method. The adoption of ASC 606 resulted in a change in our significant accounting policy regarding revenue recognition, and resulted in changes in our accounting policies regarding contract estimates, backlog, inventory, contract assets, long-term capitalized contract costs, and contract liabilities as described below.

The cumulative effect of applying the standard was an increase of $24.5 million to shareholders' equity as of October 1, 2018. Our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2018 and our Condensed Consolidated Balance Sheet as of December 31, 2018 are presented under ASC 606, while our Condensed Consolidated Statements of Income (Loss) for the quarter ended December 31, 2017 and our Condensed Consolidated Balance Sheet as of September 30, 2018 are presented under the legacy revenue recognition guidance under ASC 605, Revenue Recognition. See Note 2 for disclosure of the impact of the adoption of ASC 606 on our Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Balance Sheet for the quarter ended December 31, 2018, and the effect of changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018.

We generate revenue from the sale of integrated solutions such as mass transit fare collection systems, air and ground combat training systems, and products with command, control, communication, computers, intelligence, surveillance and reconnaissance (C4ISR) capabilities. A significant portion of our revenues are generated from long-term fixed-price contracts with customers that require us to design, develop, manufacture, modify, upgrade, test and integrate complex systems according to the customer’s specifications. We also generate revenue from services we provide, such as the operation and maintenance of fare systems for mass transit customers and the support of specialized military training exercises mainly for international customers. Our contracts are primarily with the U.S. government, state and local municipalities, and other international government customers and international local municipal transit agencies. We classify sales as products or services in our Condensed Consolidated Statements of Income (Loss) based on the attributes of the underlying contracts.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily international direct commercial sale contracts, we are required to obtain certain regulatory approvals. In these cases where regulatory approval is required in addition to approval from both parties, we recognize revenue based on the likelihood of obtaining timely regulatory approvals based upon all known facts and circumstances.

To determine the proper revenue recognition method, we evaluate each contractual arrangement to identify all performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of our contracts have a single performance obligation because the promise to transfer the individual good or service is not separately identifiable from other promises within the contract and is, therefore, not distinct. These contractual arrangements either require the use of a highly specialized engineering, development and manufacturing process to provide goods according to customer specifications or represent a bundle of contracted goods and services that are integrated and together represent a combined output, which may include the delivery of multiple units. Some of our contracts have multiple performance obligations, primarily (i) related to the provision of multiple goods or services or (ii) due to the contract covering multiple phases of the product lifecycle (for instance: development and engineering, production, maintenance and support). For contracts with more than one performance obligation, we evaluate whether the stated selling prices for the products or services represent their standalone selling prices. In cases where a contract requires a customized good or service, our primary method used to estimate the standalone selling price is the expected cost plus a margin approach. In cases where we sell a standard product or service offering, the standalone selling price is based on an observable standalone selling price. Our contracts with the U.S. government, including contracts under the U.S. Department of Defense’s Foreign Military Sales program (FMS Contracts), are subject to the Federal Acquisition Regulations (FAR) and the price is typically based on estimated or actual costs plus a reasonable profit margin. As a result of these regulations, the standalone selling price of products or services in our contracts with the U.S. government and FMS Contracts are typically equal to the selling price stated in the contract. Therefore, we typically do not need to allocate (or reallocate) the transaction price to multiple performance obligations in our contracts with the U.S. government.

The majority of our sales are from performance obligations satisfied over time. Sales are recognized over time when control is continuously transferred to the customer during the contract or the contracted good does not have alternative use to us. For U.S. government contracts, the continuous transfer of control to the customer is supported by contract clauses that provide for (i) progress or performance-based payments or (ii) the unilateral right of the customer to terminate the contract for its convenience, in which case we have the right to receive payment for costs incurred plus a reasonable profit for products and services that do not have alternative uses to us. Our contracts with international governments and local municipal transit agencies contain similar termination for convenience clauses, or we have a legally enforceable right to receive payment for costs incurred and a reasonable profit for products or services that do not have alternative uses to us.

For those contracts for which control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. For our design and build type contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contract costs include material, labor and subcontracting costs, as well as an allocation of indirect costs, and are generally expensed as incurred for these contracts. For contracts with the U.S. government, general and administrative costs are included in contract costs; however, for purposes of revenue measurement, general and administrative costs are not considered contract costs for any other customers.

We record sales under cost-reimbursement-type contracts as we incur the costs. For cost-reimbursement type contracts with the U.S. government, the FAR provides guidance on the types of costs that we will be reimbursed in establishing the contract price.

Sales under service contracts are generally recognized as services are performed or value is provided to our customers. We measure the delivery of value to our customers using a number of metrics including ridership, units of work performed, and costs incurred. We determine which metric represents the most meaningful measure of value delivery based on the nature of the underlying service activities required under each individual contract. In certain circumstances we recognize revenue based on the right to bill when such amounts correspond to the value being delivered in a billing cycle. Certain of our transportation systems service contracts contain service level penalties or bonuses, which we recognize in each period incurred or earned. These contract penalties or bonuses are generally incurred or earned on a monthly basis; however, certain contracts may be based on a quarterly or annual evaluation. Sales under service contracts that do not contain measurable units of work performed are recognized on a straight-line basis over the contractual service period, unless evidence suggests that the revenue is earned, or obligations fulfilled, in a different manner. Costs incurred under these service contracts are generally expensed as incurred.

Sales from performance obligations satisfied at a point in time are typically for standard goods and are recognized when the customer obtains control, which is generally upon delivery and acceptance. Costs of sales are recorded in the period in which revenue is recognized.

Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. It is common for our long-term contracts to contain bonuses, penalties, transactional variable based fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are incurred or earned upon certain performance metrics, program milestones, transactional based activities and other similar contractual events. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Billing timetables and payment terms on our contracts vary based on a number of factors, including the contract type. Typical payment terms under fixed-price contracts with the U.S. government provide that the customer pays either performance-based payments based on the achievement of contract milestones or progress payments based on a percentage of costs we incur. For the majority of our international contracts to deliver complex systems, we typically receive milestone payments that are paid in accordance with the terms of our contract as we perform. For the majority of our service contracts, we generally bill on a monthly basis which corresponds with the satisfaction of our monthly performance obligation under these contracts. We recognize a liability for payments in excess of revenue recognized, which is presented as a contract liability on the balance sheet. The portion of payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer from our failure to adequately complete some or all of the obligations under the contract. Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract. For certain of our multiple-element arrangements, the contract specifies that we will not be paid upon the delivery of certain performance obligations, but rather we will be paid when subsequent performance obligations are satisfied. Generally, in these cases we have determined that a separate financing component exists as a performance obligation under the contract. In these instances, we allocate a portion of the transaction price to this financing component. We determine the value of the embedded financing component by discounting the repayment of the financed amount over the implied repayment term using the effective interest method. This discounting methodology uses an implied interest rate which reflects the credit quality of the customer and represents an interest rate that would be similar to what we would offer the customer in a separate financing transaction. Unpaid principal and interest amounts associated with the financed performance obligation and the value of the embedded financing component are presented as Long-term contracts financing receivables in our consolidated balance sheet. We recognize the allocated transaction price of the financing component as interest income over the implied financing term.

For fixed-price and cost-reimbursable contracts, we present revenues recognized in excess of billings as contract assets on the balance sheet. Amounts billed and due from our customers under both contract types are classified as receivables on the balance sheet.

We only include amounts representing contract change orders, claims or other items in the contract value when we believe the rights and obligations become enforceable. Contract modifications routinely occur to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract. Transaction price estimates include additional consideration for submitted contract modifications or claims when we believe there is an enforceable right to the modification or claim, the amount can be reliably estimated, and its realization is reasonably assured. Amounts representing modifications accounted for as part of the existing contract are included in the transaction price and recognized as an adjustment to sales on a cumulative catch-up basis.

In addition, we are subject to audit of incurred costs related to many of our U.S. government contracts. These audits could produce different results than we have estimated for revenue recognized on our cost-based contracts with the U.S. government; however, our experience has been that our costs are acceptable to the government.

Contract Estimates

Contract Estimates:Use of the cost-to-cost or other similar methods of revenue recognition requires us to make reasonably dependable estimates regarding the revenue and cost associated with the design, manufacture and delivery of our products and services. Revisions or adjustments to estimates of the transaction price, estimated costs at completion and estimated profit or loss of a performance obligation are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments may also be required if contract modifications occur. The impact of revisions in profit or loss estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, and in some cases result in liabilities to complete contracts in a loss position. The aggregate impact of net changes in contract estimates are presented in the table below (amounts in thousands).

	Three Months Ended
	December 31,
	2018		2017
Operating income (loss)	$	1,814	$	(929)
Net income (loss) from continuing operations		1,271		(736)
Diluted earnings per share		0.04		(0.03)

Backlog

Backlog: Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. Unexercised contract options and indefinite delivery indefinite quantity (IDIQ) contracts are not included in backlog until the time the option or IDIQ task order is exercised or awarded. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly As of December 31, 2018, our ending backlog was $3.814 billion. We expect to recognize approximately 25% of our December 31, 2018 backlog over the next 12 months and approximately 40% over the next 24 months as revenue, with the remainder recognized thereafter.

Disaggregation of Revenue

Disaggregation of Revenue:  See Note 14 for information regarding our sales by customer type, contract type and geographic region for each of our segments. We believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Accounts Receivable

Accounts Receivable: Receivables consist of billed amounts due from our customers. Due to the nature of our customers, we generally do not require collateral. We have limited exposure to credit risk as we have historically collected substantially all of our receivables. We generally require minimal allowance for doubtful accounts for our customers, which amounted to $1.7 million and $1.3 million as of December 31, 2018 and September 30, 2018, respectively.

Inventories

Inventories: We state our inventories at the lower of cost or market. We determine cost using the first-in, first-out (FIFO) method, which approximates current replacement cost. We value our work in process at the actual production and engineering costs incurred to date, including applicable overhead. Any inventoried costs in excess of estimated realizable value are immediately charged to cost of sales.

Contract Assets

Contract Assets:  Contract assets include unbilled amounts typically resulting from sales under contracts when the percentage-of-completion cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amounts may not exceed their estimated net realizable value. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be billed and collected beyond one year due to the long-cycle nature of many of our contracts.

Long-term capitalized contract costs

Long-term Capitalized Contract Costs: Through September 30, 2018, long-term capitalized contract costs included costs incurred on contracts to develop and manufacture transportation systems for customers for which revenue recognition did not begin until the customers begin operating the systems prior to the adoption of ASC 606. Upon adoption of ASC 606, revenue recognition and cost recognition are no longer deferred in these situations and therefore we no longer have long-term capitalized contract costs.

Contract Liabilities

Contract Liabilities:  Contract liabilities (formerly referred to as customer advances prior to the adoption of ASC 606) include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current liabilities based on our contract operating cycle and calculated on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements – Income Taxes

On December 22, 2017 the U.S. government enacted the “Tax Cuts and Jobs Act of 2017” (Tax Act). Due to the complexity of the Tax Act, the SEC issued guidance in SAB 118 which clarified the accounting for income taxes under ASC 740 if certain information was not yet available, prepared or analyzed, in reasonable detail to complete the accounting for income tax effects of the Tax Act. SAB 118 provided for a measurement period of up to one year after the enactment of the Tax Act, during which time the required analyses and accounting must be completed. During fiscal year 2018, we recorded provisional amounts for the income tax effects of the changes in tax law and tax rates, as reasonable estimates were determined by management during this period. During the first quarter of fiscal year 2019, we did not adjust provisional amounts recorded in the prior fiscal year and the SAB 118 measurement period subsequently ended on December 22, 2018. Although we no longer considers these amounts to be provisional, the determination of the Tax Act’s income tax effects may change following future legislation or further interpretation of the Tax Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

Recently Adopted Accounting Pronouncements – Other

In October 2016, the Financial Accounting Standards Board (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.  ASU 2016-16 was effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for entities to disclose the methods and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost. ASU 2016-01 was adopted by us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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 cash receipts and cash payments from specific types of transactions 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. ASU 2016-15 was effective for us beginning October 1, 2018 and did not have any significant impact on our consolidated financial statements.

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. ASU 2016-18 was adopted by us beginning October 1, 2018. The application of this accounting standard update did not impact financial results, but resulted in a retrospective change in the presentation of restricted cash, including the inclusion of $27.4 million and $11.8 million of restricted cash on hand at September 30, 2018 and December 31, 2017, respectively, within the beginning and ending amounts of cash and cash equivalents in our Statements of Cash Flows. In addition, changes in the total of cash, cash equivalents and restricted cash are now reflected in our Statements of Cash Flows for all periods presented.

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 requires an entity to evaluate if substantially all of the fair value of the gross assets transferred is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 was adopted by us on October 1, 2018 and did not have any immediate impact on our consolidated financial statements. However, adoption of ASU 2017-01 could impact the accounting for future acquisitions or disposals of assets and activities because the accounting for a business combination differs significantly from that of an asset acquisition.

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. We adopted ASU 2017-07 beginning October 1, 2018 and it did not have any significant impact on our consolidated financial statements. The components of net periodic benefit cost, other than the service cost component, are included in other income (expense) in our condensed consolidated statements of income (loss).

Recent Accounting Pronouncements – Not Yet Adopted

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 and we have determined we will not adopt the new guidance early.

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. Adoption of ASU 2017-04 will have no immediate impact on our consolidated financial statements and would only have the potential to impact the amount of any goodwill impairment recorded after the adoption of the ASU. We are currently evaluating whether to adopt the guidance early.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. The amendments in this ASU are effective for us in our annual period beginning October 1, 2019 and interim periods within that year, 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance modifies the disclosure requirements on fair value measurements. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020 and interim periods within that annual period. Early adoption is permitted for any removed or modified disclosures. 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 2018, the FASB issued ASU 2018-14, Defined Benefit Plan - Disclosure Framework (Topic 715), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The amendments in this accounting standard update are effective for us in our annual period beginning October 1, 2020. 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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Basis for Presentation (Tables)

3 Months Ended

Dec. 31, 2018

ASU 2014-09

Schedule of aggregate impact of net changes in contract estimates

The aggregate impact of net changes in contract estimates are presented in the table below (amounts in thousands).

	Three Months Ended
	December 31,
	2018		2017
Operating income (loss)	$	1,814	$	(929)
Net income (loss) from continuing operations		1,271		(736)
Diluted earnings per share		0.04		(0.03)

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New Accounting Standards Implemented (Tables)

3 Months Ended

Dec. 31, 2018

New Accounting Standards Implemented

Schedule of cumulative effect of changes due to adoption of ASC 606

The table below presents the cumulative effect of the changes made to our Condensed Consolidated Balance Sheet as of October 1, 2018 due to the adoption of ASC 606 (in thousands):

			Adjustments		October 1, 2018
	September 30,		Due to		As Adjusted
	2018		ASC 606		Under ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	111,834	$	—	$	111,834
Cash in consolidated VIE		374		—		374
Restricted cash		17,400		—		17,400
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		392,367		(236,743)		155,624
Contract assets		—		272,210		272,210
Recoverable income taxes		91		—		91
Inventories		84,199		(22,511)		61,688
Assets held for sale		8,177		—		8,177
Other current assets		43,705		—		43,705
Total current assets		668,147		12,956		681,103
Long-term contracts receivables		6,134		(6,134)		—
Long-term contracts financing receivables		—		56,228		56,228
Long-term contracts financing receivables in consolidated VIE		—		38,990		38,990
Long-term capitalized contract costs		84,924		(84,924)		—
Long-term capitalized contract costs in consolidated VIE		1,258		(1,258)		—
Property, plant and equipment, net		117,546		—		117,546
Deferred income taxes		4,713		389		5,102
Goodwill		333,626		—		333,626
Purchased intangibles, net		73,533		—		73,533
Other assets		14,192		—		14,192
Other noncurrent assets in consolidated VIE		810		—		810
Total assets	$	1,304,883	$	16,247	$	1,321,130
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	—	$	—
Trade accounts payable		125,414		(3,011)		122,403
Trade accounts payable in consolidated VIE		165		—		165
Contract liability		—		70,127		70,127
Customer advances		75,941		(75,941)		—
Accrued compensation and other current liabilities		118,233		583		118,816
Income taxes payable		8,586		—		8,586
Total current liabilities		328,339		(8,242)		320,097
Long-term debt		199,793		—		199,793
Long-term debt in consolidated VIE		9,056		—		9,056
Other long-term liabilities		43,486		—		43,486
Other long-term liabilities in consolidated VIE		13		—		13
Shareholders’ equity:
Common stock		45,008		—		45,008
Retained earnings		801,834		19,834		821,668
Accumulated other comprehensive loss		(110,643)		—		(110,643)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		700,121		19,834		719,955
Noncontrolling interest in VIE		24,075		4,655		28,730
Total shareholders’ equity		724,196		24,489		748,685
Total liabilities and shareholders’ equity	$	1,304,883	$	16,247	$	1,321,130

The table below presents how the adoption of ASC 606 affected certain line items on our Condensed Consolidated Statements of Income (Loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Net sales:
Products	$	152,562	$	29,691	$	182,253
Services		124,262		(1,256)		123,006
		276,824		28,435		305,259
Costs and expenses:
Products		100,544		24,941		125,485
Services		92,785		—		92,785
Selling, general and administrative expenses		62,823		163		62,986
Research and development		12,012		—		12,012
Amortization of purchased intangibles		10,565		—		10,565
Restructuring costs		1,992		—		1,992
		280,721		25,104		305,825
Operating loss		(3,897)		3,331		(566)
Other income (expenses):
Interest and dividend income		56		1,178		1,234
Interest expense		(4,032)		—		(4,032)
Other income (expense), net		(4,753)		—		(4,753)
Loss from continuing operations before income taxes		(12,626)		4,509		(8,117)
Income tax provision		2,473		24		2,497
Net loss		(15,099)		4,485		(10,614)
Less noncontrolling interest in loss of VIE		(5,981)		1,954		(4,027)
Net loss attributable to Cubic	$	(9,118)	$	2,531	$	(6,587)
Net income (loss) per share:
Basic earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)
Diluted earnings per share attributable to Cubic	$	(0.32)	$	0.09	$	(0.23)

The table below quantifies the impact of adopting ASC 606 on segment net sales and operating income (loss) for the three months ended December 31, 2018 (in thousands):

	Three months ended December 31, 2018
					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
Sales:	(in thousands)
Cubic Transportation Systems	$	172,728	$	9,079	$	181,807
Cubic Mission Solutions		45,363		1,030		46,393
Cubic Global Defense		58,733		18,326		77,059
Total sales	$	276,824	$	28,435	$	305,259
Operating income (loss):
Cubic Transportation Systems	$	9,186	$	1,790	$	10,976
Cubic Mission Solutions		(5,191)		251		(4,940)
Cubic Global Defense		1,607		1,290		2,897
Unallocated corporate expenses		(9,499)		—		(9,499)
Total operating income (loss)	$	(3,897)	$	3,331	$	(566)

The table below presents how the impact of the adoption of ASC 606 affected certain line items on our Condensed Consolidated Balance Sheet at December 31, 2018 (in thousands):

					As Reported
	Under		Effect of		Under
	ASC 605		ASC 606		ASC 606
ASSETS
Current assets:
Cash and cash equivalents	$	75,174	$	—	$	75,174
Cash in consolidated VIE		421		—		421
Restricted cash		17,889		—		17,889
Restricted cash in consolidated VIE		10,000		—		10,000
Accounts receivable, net		390,855		(272,564)		118,291
Contract assets		—		320,277		320,277
Recoverable income taxes		1,086		235		1,321
Inventories		121,223		(29,022)		92,201
Assets held for sale		8,177		—		8,177
Other current assets		40,924		—		40,924
Total current assets		665,749		18,926		684,675
Long-term contracts receivables		4,064		(4,064)		—
Long-term contracts financing receivables		—		44,936		44,936
Long-term contracts financing receivables in consolidated VIE		—		52,996		52,996
Long-term capitalized contract costs		95,894		(95,894)		—
Long-term capitalized contract costs in consolidated VIE		1,551		(1,551)		—
Property, plant and equipment, net		125,298		—		125,298
Deferred income taxes		4,298		389		4,687
Goodwill		484,329		—		484,329
Purchased intangibles, net		137,201		—		137,201
Other assets		13,871		—		13,871
Other noncurrent assets in consolidated VIE		962		—		962
Total assets	$	1,533,217	$	15,738	$	1,548,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	64,500	$	—	$	64,500
Trade accounts payable		111,310		(2,216)		109,094
Trade accounts payable in consolidated VIE		205		—		205
Contract liability		—		69,713		69,713
Customer advances		80,993		(80,993)		—
Accrued compensation and other current liabilities		82,323		—		82,323
Income taxes payable		6,512		259		6,771
Total current liabilities		345,843		(13,237)		332,606
Long-term debt		199,801		—		199,801
Long-term debt in consolidated VIE		15,357		—		15,357
Other long-term liabilities		43,838		—		43,838
Other long-term liabilities in consolidated VIE		6,146		—		6,146
Shareholders’ equity:
Common stock		260,141		—		260,141
Retained earnings		792,717		22,366		815,083
Accumulated other comprehensive loss		(112,642)		—		(112,642)
Treasury stock at cost		(36,078)		—		(36,078)
Shareholders’ equity related to Cubic		904,138		22,366		926,504
Noncontrolling interest in VIE		18,094		6,609		24,703
Total shareholders’ equity		922,232		28,975		951,207
Total liabilities and shareholders’ equity	$	1,533,217	$	15,738	$	1,548,955

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Acquisitions and Divestitures (Tables)

3 Months Ended

Dec. 31, 2018

Acquisitions

Schedule of income (loss) and carrying amounts of assets and liabilities from discontinued operations

		Three Months Ended
	December 31, 2017
Net sales	$	92,293
Costs and expenses:
Cost of sales		83,120
Selling, general and administrative expenses		3,667
Amortization of purchased intangibles		608
Other income		(5)
Earnings from discontinued operations before income taxes		4,903
Income tax provision		3,254
Net income from discontinued operations	$	1,649

Schedule of unaudited pro forma information

The following unaudited pro forma information presents our consolidated results of operations as if Trafficware, Shield, and MotionDSP had been included in our consolidated results since October 1, 2017 (in millions):

	Three Months Ended
	December 31,
	2018		2017
Net sales	$	307.1	$	261.8
Net loss	$	(6.3)	$	(13.4)

Schedule of changes in the carrying amount of goodwill

Changes in goodwill for the three months ended December 31, 2018 were as follows for each of our reporting units (in thousands):

	Transportation		Cubic Mission		Cubic Global
	Systems		Solutions		Defense		Total
Net balances at September 30, 2018	$	49,786	$	138,127	$	145,713	$	333,626
Acquisitions		151,670		—		—		151,670
Foreign currency exchange rate changes		(798)		(73)		(96)		(967)
Net balances at December 31, 2018	$	200,658	$	138,054	$	145,617	$	484,329

Trafficware

Acquisitions

Schedule of Business Combination Operating Results

Trafficware’s sales and results of operations included in our operating results for the quarter ended December 31, 2018 and 2017 were as follows (in millions):

	Three Months Ended
	December 31,
	2018		2017
Sales	$	10.5	$	—
Operating loss		(3.3)		—
Net loss after taxes		(3.3)		—

Schedule of Business Combination components of operating results

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

	Three Months Ended
	December 31,
	2018		2017
Amortization	$	4.3	$	—
Acquisition-related expenses		1.4		—

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):

Technology	$	43.3
Customer Relationships		21.9
Backlog		4.8
Trade Name		4.6
Accounts Receivable		10.4
Inventory		9.4
Accounts payable and accrued expenses		(6.5)
Other net assets acquired (liabilities assumed)		(2.0)
Net identifiable assets acquired		85.9
Goodwill		151.7
Net assets acquired	$	237.6

Schedule of estimated amortization expense related to acquisition

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Trafficware for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	15.3
2020		11.4
2021		11.4
2022		11.4
2023		6.4
Thereafter		18.8

Shield Aviation

Acquisitions

Schedule of Business Combination Operating Results

Shield’s sales and results of operations included in our operating results for the three months ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	—	$	—
Operating loss		(0.9)		—
Net loss after taxes		(0.9)		—

Schedule of Business Combination components of operating results

Shield’s operating results above included the following amounts for the three months ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		—		—

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

The acquisition of Shield 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):

Technology	$	6.0
Other net assets acquired		0.3
Net identifiable assets acquired		6.3
Goodwill		6.5
Net assets acquired	$	12.8

Schedule of estimated amortization expense related to acquisition

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of Shield for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.8
2020		0.8
2021		0.8
2022		0.8
2023		0.8
Thereafter		2.1

MotionDSP

Acquisitions

Schedule of Business Combination Operating Results

MotionDSP’s sales and results of operations included in our operating results since its consolidation in our financial statements for the quarters ended December 31, 2018 and 2017 were as follows (in millions):

	December 31,
	2018		2017
Sales	$	0.2	$	—
Operating loss		(0.4)		—
Net loss after taxes		(0.4)		—

Schedule of Business Combination components of operating results

MotionDSP’s operating results above included the following amounts for the quarters ended December 31, 2018 and 2017 (in millions):

	December 31,
	2018		2017
Amortization	$	0.2	$	—
Acquisition-related expenses		0.1		—

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

The acquisition of MotionDSP 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	$	0.2
Technology		4.5
Trade name		0.1
Accounts payable and accrued expenses		(0.3)
Other noncurrent liabilities		(0.8)
Other net liabilities assumed		(0.9)
Net identifiable assets acquired		2.8
Goodwill		6.7
Net assets acquired	$	9.5

Schedule of estimated amortization expense related to acquisition

The estimated amortization expense related to the intangible assets recorded in connection with our acquisition of MotionDSP for fiscal years 2019 through 2023 and thereafter is as follows (in millions):

Year Ended
September 30,
2019	$	0.7
2020		0.7
2021		0.7
2022		0.7
2023		0.7
Thereafter		0.8

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Variable Interest Entities (Tables)

3 Months Ended

Dec. 31, 2018

Variable Interest Entities

Schedule of summary of the consolidated net assets and liabilities

The assets and liabilities of OpCo. that are included in our condensed consolidated balance sheets at December 31, 2018 and September 30, 2018 are as follows:

	December 31,		September 30,
	2018		2018
	(in thousands)
Cash	$	421	$	374
Restricted cash		10,000		10,000
Long-term capitalized contract costs		—		1,258
Long-term contracts financing receivable		52,996		—
Other noncurrent assets		962		810
Total assets	$	64,379	$	12,442
Trade accounts payable	$	205	$	165
Other long-term liabilities		6,146		13
Long-term debt		15,357		9,056
Total liabilities	$	21,708	$	9,234
Total Cubic equity		39		(304)
Noncontrolling interests		24,703		24,348
Total liabilities and owners' equity	$	46,450	$	33,278

Schedule of revenue, operating profit, and other income/(expense), net

The revenue, operating income, and other income (expense), net of OpCo. that are included in our condensed consolidated statement of income (loss) for the three months ended December 31, 2018 and 2017 are as follows:

	Three Months Ended
	December 31,
	2018		2017
Revenue	$	1,961	$	—
Operating income		1,668		—
Other income (expense), net		(6,133)		—
Interest income		503		—
Interest expense		(512)		—

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Net Income (Loss) Per Share (Tables)

3 Months Ended

Dec. 31, 2018

Net Income (Loss) Per Share

Schedule of computation of basic and diluted EPS

The weighted-average number of shares outstanding used to compute net loss per common share were as follows (in thousands):

	December 31,
	2018		2017
Weighted average shares - basic		28,492		27,207
Effect of dilutive securities		—		—
Weighted average shares - diluted		28,492		27,207
Number of anti-dilutive securities		990		1,040

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Contract Assets and Liabilities (Tables)

3 Months Ended

Dec. 31, 2018

Contract Assets and Liabilities

Schedule of contract assets and liabilities

Contract assets and contract liabilities were as follows (in thousands):

	December 31,		October 1,
	2018		2018
Contract assets	$	320,277	$	272,210
Contract liabilities	$	69,713	$	70,128

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Balance Sheet Details (Tables)

3 Months Ended

Dec. 31, 2018

Balance Sheet Details

Schedule of components of accounts receivable

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

	December 31,		September 30,
	2018		2018
Accounts receivable
Billed	$	119,943	$	156,948
Unbilled		—		242,877
Allowance for doubtful accounts		(1,652)		(1,324)
Total accounts receivable		118,291		398,501
Less estimated amounts not currently due		—		(6,134)
Current accounts receivable	$	118,291	$	392,367

Components of inventories

Inventories consist of the following (in thousands):

	December 31,		September 30,
	2018		2018
Finished products	$	7,716	$	7,099
Work in process and inventoried costs under long-term contracts		49,295		63,169
Materials and purchased parts		35,190		23,710
Customer advances		—		(9,779)
Net inventories	$	92,201	$	84,199

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Dec. 31, 2018

Fair Value of Financial Instruments

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, 2018								September 30, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	—	$	—	$	—	$	—	$	9,000	$	—	$	—	$	9,000
Current derivative assets		—		5,036		—		5,036		—		1,803		—		1,803
Noncurrent derivative assets		—		581		—		581		—		314		—		314
Total assets measured at fair value	$	—	$	5,617	$	—	$	5,617	$	9,000	$	2,117	$	—	$	11,117
Liabilities
Current derivative liabilities		—		3,367		—		3,367		—		1,657		—		1,657
Noncurrent derivative liabilities		—		—		—		—		—		75		—		75
Contingent consideration to seller of Deltenna		—		—		1,343		1,343		—		—		1,081		1,081
Contingent consideration to seller of Shield		—		—		5,618		5,618		—		—		5,618		5,618
Contingent consideration to seller of TeraLogics - revenue targets		—		—		—		—		—		—		1,750		1,750
Contingent consideration to seller of H4 Global		—		—		832		832		—		—		665		665
Total liabilities measured at fair value	$	—	$	3,367	$	7,793	$	11,160	$	—	$	1,732	$	9,114	$	10,846

Summary of change in fair value of contingent consideration liability

As of December 31, 2018, the following table summarizes the change in fair value of our Level 3 contingent consideration liabilities (in thousands):

		H4 Global		TeraLogics (Revenue Targets)		Deltenna		Shield		Total
Net balances at September 30, 2018	$	665	$	1,750	$	1,081	$	5,618	$	9,114
Cash paid to seller		—		(1,750)		—		—		(1,750)
Total remeasurement (gain) loss recognized in earnings		167		—		262		—		429
Balance as of December 31, 2018	$	832	$	—	$	1,343	$	5,618	$	7,793

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,
	2018		2018
Fair value	$	195.4	$	193.7
Carrying value	$	200.0	$	200.0

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Pension Plans (Tables)

3 Months Ended

Dec. 31, 2018

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,
	2018		2017
Service cost	$	149	$	151
Interest cost		1,910		1,880
Expected return on plan assets		(3,009)		(3,525)
Amortization of actuarial loss		528		692
Administrative expenses		97		110
Net pension cost (benefit)	$	(325)	$	(692)

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Stockholders’ Equity (Tables)

3 Months Ended

Dec. 31, 2018

Stockholders’ Equity

Summary of assumptions used for the valuation of the RSUs with performance and market-based vesting that were granted

		RSU's granted during the three
		months ended December 31, 2018
Date of grant		November 21, 2018
Closing average share value (mean)	$	68.56
Performance period begins		October 1, 2018
Performance period ends		September 30, 2021
Risk-free interest rate		2.8%
Expected volatility		34%

Summary of RSU activity

	Unvested Restricted Stock Units
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	366,460	$	52.31
Granted	195,033		64.33
Vested	(128,949)		50.61
Forfeited	(15,391)		50.04
Unvested at December 31, 2018	417,153	$	58.54

	Unvested Restricted Stock Units with Performance Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	635,628	$	50.11
Granted	—		—
Vested	—		—
Forfeited	(295,759)		43.86
Unvested at December 31, 2018	339,869	$	55.54

	Unvested Restricted Stock Units with Performance and Market Based Vesting
		Weighted-Average
	Number of Shares	Grant-Date Fair Value
Unvested at September 30, 2018	—	$	—
Granted	219,890		67.40
Vested	—		—
Forfeited	—		—
Unvested at December 31, 2018	219,890	$	67.40

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

We recorded non-cash compensation expense related to stock-based awards as follows (in thousands):

	Three Months Ended
	December 31,
	2018		2017
Cost of sales	$	313	$	156
Selling, general and administrative		2,407		1,471
	$	2,720	$	1,627

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Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Dec. 31, 2018

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, 2018 and September 30, 2018 (in thousands):

	Notional Principal
	December 31, 2018		September 30, 2018
Instruments designated as accounting hedges:
Foreign currency forwards	$	169,095	$	169,406
Instruments not designated as accounting hedges:
Foreign currency forwards	$	24,824	$	27,909

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 in the Condensed Consolidated Balance Sheets as of December 31, 2018 and September 30, 2018 (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2018		September 30, 2018
Asset derivatives:
Foreign currency forwards	Other current assets	$	5,036	$	1,803
Foreign currency forwards	Other noncurrent assets		582		314
		$	5,618	$	2,117
Liability derivatives:
Foreign currency forwards	Other current liabilities	$	3,367	$	1,657
Foreign currency forwards	Other noncurrent liabilities		—		75
Total		$	3,367	$	1,732

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 income (loss) for the three months ended December 31, 2018 and 2017 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, 2018				December 31, 2017
			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	$	1,779	$	(33)	$	656	$	(774)

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Segment Information (Tables)

3 Months Ended

Dec. 31, 2018

Segment Information

Schedule of business segment financial data

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

	Three Months Ended
	December 31,
	2018		2017
Sales:
Cubic Transportation Systems	$	181.8	$	146.5
Cubic Mission Solutions		46.4		33.1
Cubic Global Defense		77.1		68.8
Total sales	$	305.3	$	248.4
Operating income (loss):
Cubic Transportation Systems	$	11.0	$	9.9
Cubic Mission Solutions		(4.9)		(8.9)
Cubic Global Defense		2.9		1.4
Unallocated corporate expenses		(9.6)		(14.3)
Total operating income (loss)	$	(0.6)	$	(11.9)
Depreciation and amortization:
Cubic Transportation Systems	$	7.7	$	3.3
Cubic Mission Solutions		5.4		5.9
Cubic Global Defense		2.2		2.1
Corporate		0.7		1.1
Total depreciation and amortization	$	16.0	$	12.4

Schedule of Disaggregation of Total Net Sales

Disaggregation of Total Net Sales.We disaggregate our sales from contracts with customers by end customer, contract type, deliverable type and revenue recognition method for each of our segments, as we believe these factors affect the nature, amount, timing, and uncertainty of our revenue and cash flows.

Sales by Geographic Region (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
United States	$	91.3	$	45.5	$	35.7	$	172.5
United Kingdom		50.9		0.4		4.3		55.6
Australia		29.8		0.1		5.6		35.5
Far East/Middle East		4.4		0.4		18.4		23.2
Other		5.4		—		13.1		18.5
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by End Customer. We are the prime customer for the vast majority of our sales. The table below presents total net sales disaggregated by end customer (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
U.S. Federal Government and State and Local Municipalities	$	90.8	$	45.8	$	32.4	$	169.0
Other		91.0		0.6		44.7		136.3
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Contract Type. Substantially all of our contracts are fixed-price type contracts. Sales included in Other contract types represent cost plus and time and material type contracts.

On a fixed-price type contract, we agrees to perform the contractual statement of work for a predetermined sales price. On a cost-plus type contract, we are is paid our allowable incurred costs plus a profit which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels determined by the customer. On a time-and-material type contract, we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. The table below presents total net sales disaggregated by contract type (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Fixed Price	$	178.2	$	45.8	$	71.6	$	295.6
Other		3.6		0.6		5.5		9.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Sales by Deliverable Type: The table below presents total net sales disaggregated by the type of deliverable, which is determined by us at the performance obligation level (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Product	$	92.0	$	40.6	$	49.7	$	182.3
Service		89.8		5.8		27.4		123.0
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

Revenue Recognition Method: The table below presents total net sales disaggregated based on the revenue recognition method applied (in millions):

	Three months ended December 31, 2018
	CTS		CMS		CGD		Total
Point in Time	$	16.7	$	34.4	$	0.5	$	51.6
Over Time		165.1		12.0		76.6		253.7
Total sales	$	181.8	$	46.4	$	77.1	$	305.3

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Basis for Presentation - ASC 606 (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2018
Revenue, Initial Application Period Cumulative Effect Transition
Operating income (loss)	$ (566)	$ (11,902)
Net income (loss) from continuing operations	$ (10,614)	$ (11,435)
Diluted earnings per share attributable to Cubic (in dollars per share)	$ (0.23)	$ (0.36)
ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Cumulative effect of accounting standard adoption			$ 24,500
Operating income (loss)	$ 3,331
Diluted earnings per share attributable to Cubic (in dollars per share)	$ 0.09
ASU 2014-09 | ASC 606 | Change in Estimates
Revenue, Initial Application Period Cumulative Effect Transition
Operating income (loss)	$ 1,814	$ (929)
Net income (loss) from continuing operations	$ 1,271	$ (736)
Diluted earnings per share attributable to Cubic (in dollars per share)	$ 0.04	$ (0.03)

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Basis for Presentation - Backlog (Details) $ in Millions	Dec. 31, 2018 USD ($)
Basis for Presentation
Revenue, Remaining performance obligation	$ 3,814
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining performance obligation (in percent)	25.00%
Contract term	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining performance obligation (in percent)	40.00%
Contract term	24 months

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Basis for Presentation - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Sep. 30, 2018
Basis for Presentation
Allowance for doubtful accounts	$ 1,652	$ 1,324

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Basis for Presentation - Recently Adopted Accounting Pronouncements (Details) - USD ($) $ in Millions	Sep. 30, 2018	Dec. 31, 2017
Basis for Presentation
Restricted cash	$ 27.4	$ 11.8

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New Accounting Standards Implemented (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018	Oct. 01, 2018
Revenue, Initial Application Period Cumulative Effect Transition
Retained earnings	$ 815,083		$ 801,834	$ 821,668
Net sales	305,259	$ 248,391
ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Retained earnings	22,366		19,834
Net sales	$ 28,435		$ 114,900

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New Accounting Standards Implemented - Cumulative effect on Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Oct. 01, 2018	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Restricted cash			$ 27,400	$ 11,800
Accounts receivable - net	$ 118,291	$ 155,624	392,367
Contract assets	320,277	272,210
Recoverable income taxes	1,321	91	91
Inventories	92,201	61,688	84,199
Assets held for sale	8,177	8,177	8,177
Other current assets	40,924	43,705	43,705
Total current assets	684,675	681,103	668,147
Long-term contracts receivables			6,134
Long-term contracts financing receivables			6,134
Property, plant and equipment, net	125,298	117,546	117,546
Deferred income taxes	4,687	5,102	4,713
Goodwill	484,329	333,626	333,626
Purchased intangibles, net	137,201	73,533	73,533
Other assets	13,871
Total assets	1,548,955	1,321,130	1,304,883
Current liabilities:
Short-term borrowings	64,500
Contract liabilities	69,713	70,127
Customer advances			75,941
Accrued compensation and other current liabilities	82,323	118,816	118,233
Income taxes payable	6,771	8,586	8,586
Total current liabilities	332,606	320,097	328,339
Shareholders' equity:
Common stock	260,141	45,008	45,008
Retained earnings	815,083	821,668	801,834
Accumulated other comprehensive loss	(112,642)	(110,643)	(110,643)
Treasury stock at cost	(36,078)	(36,078)	(36,078)
Shareholders’ equity related to Cubic	926,504	719,955	700,121
Noncontrolling interest in consolidated VIE	24,703	28,730	24,075
Total shareholders’ equity	951,207	748,685	724,196
Total liabilities and shareholders' equity	1,548,955	1,321,130	1,304,883
Cubic Corporation Excluding VIE
Current assets:
Cash and cash equivalents	75,174	111,834	111,834
Restricted cash	17,889	17,400	17,400
Long-term contracts financing receivables	44,936	56,228
Long-term capitalized contract costs			84,924
Other assets	13,871	14,192	14,192
Current liabilities:
Trade accounts payable	109,094	122,403	125,414
Long-term debt	199,801	199,793	199,793
Other long term liabilities	43,838	43,486	43,486
OpCo.
Current assets:
Cash and cash equivalents	421	374	374
Restricted cash	10,000	10,000	10,000
Long-term contracts financing receivables	52,996	38,990
Long-term capitalized contract costs			1,258
Other assets	962	810	810
Current liabilities:
Trade accounts payable	205	165	165
Long-term debt	15,357	9,056	9,056
Other long term liabilities	6,146	$ 13	13
ASU 2014-09 | ASC 606
Current assets:
Accounts receivable - net	(272,564)		(236,743)
Contract assets	320,277		272,210
Recoverable income taxes	235
Inventories	(29,022)		(22,511)
Total current assets	18,926		12,956
Long-term contracts receivables	(4,064)		(6,134)
Deferred income taxes	389		389
Total assets	15,738		16,247
Current liabilities:
Contract liabilities	69,713		70,127
Customer advances	(80,993)		(75,941)
Accrued compensation and other current liabilities			583
Income taxes payable	259
Total current liabilities	(13,237)		(8,242)
Shareholders' equity:
Retained earnings	22,366		19,834
Shareholders’ equity related to Cubic	22,366		19,834
Noncontrolling interest in consolidated VIE	6,609		4,655
Total shareholders’ equity	28,975		24,489
Total liabilities and shareholders' equity	15,738		16,247
ASU 2014-09 | Cubic Corporation Excluding VIE | ASC 606
Current assets:
Long-term contracts financing receivables	44,936		56,228
Long-term capitalized contract costs	(95,894)		(84,924)
Current liabilities:
Trade accounts payable	(2,216)		(3,011)
ASU 2014-09 | OpCo. | ASC 606
Current assets:
Long-term contracts financing receivables	52,996		38,990
Long-term capitalized contract costs	$ (1,551)		$ (1,258)

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New Accounting Standards Implemented - Effect on Statement of Operations (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Net sales:
Net sales	$ 305,259	$ 248,391
Costs and expenses:
Selling, general and administrative expenses	62,986	61,680
Research and development	12,012	11,977
Amortization of purchased intangibles	10,565	7,351
Restructuring costs	1,992	1,495
Total costs and expenses	305,825	260,293
Operating loss	(566)	(11,902)
Other income (expenses):
Interest and dividend income	1,234	482
Interest expense	(4,032)	(2,674)
Other income (expense), net	(4,753)	(78)
Loss from continuing operations before income taxes	(8,117)	(14,172)
Income tax (benefit) provision	2,497	(2,737)
Net loss	(10,614)	(9,786)
Less noncontrolling interest in loss of VIE	(4,027)
Net loss attributable to Cubic	$ (6,587)	$ (9,786)
Basic
Basic earnings per share attributable to Cubic (in dollars per share)	$ (0.23)	$ (0.36)
Diluted
Diluted earnings per share attributable to Cubic (in dollars per share)	$ (0.23)	$ (0.36)
ASC 605 | ASU 2014-09
Net sales:
Net sales	$ 276,824
Costs and expenses:
Selling, general and administrative expenses	62,823
Research and development	12,012
Amortization of purchased intangibles	10,565
Restructuring costs	1,992
Total costs and expenses	280,721
Operating loss	(3,897)
Other income (expenses):
Interest and dividend income	56
Interest expense	(4,032)
Other income (expense), net	(4,753)
Loss from continuing operations before income taxes	(12,626)
Income tax (benefit) provision	2,473
Net loss	(15,099)
Less noncontrolling interest in loss of VIE	(5,981)
Net loss attributable to Cubic	$ (9,118)
Basic
Basic earnings per share attributable to Cubic (in dollars per share)	$ (0.32)
Diluted
Diluted earnings per share attributable to Cubic (in dollars per share)	$ (0.32)
ASC 606 | ASU 2014-09
Net sales:
Net sales	$ 28,435		$ 114,900
Costs and expenses:
Selling, general and administrative expenses	163
Total costs and expenses	25,104
Operating loss	3,331
Other income (expenses):
Interest and dividend income	1,178
Loss from continuing operations before income taxes	4,509
Income tax (benefit) provision	24
Net loss	4,485
Less noncontrolling interest in loss of VIE	1,954
Net loss attributable to Cubic	$ 2,531
Basic
Basic earnings per share attributable to Cubic (in dollars per share)	$ 0.09
Diluted
Diluted earnings per share attributable to Cubic (in dollars per share)	$ 0.09
Products
Net sales:
Net sales	$ 182,253	$ 131,743
Costs and expenses:
Costs	125,485	91,573
Products | ASC 605 | ASU 2014-09
Net sales:
Net sales	152,562
Costs and expenses:
Costs	100,544
Products | ASC 606 | ASU 2014-09
Net sales:
Net sales	29,691
Costs and expenses:
Costs	24,941
Services
Net sales:
Net sales	123,006	116,648
Costs and expenses:
Costs	92,785	$ 86,217
Services | ASC 605 | ASU 2014-09
Net sales:
Net sales	124,262
Costs and expenses:
Costs	92,785
Services | ASC 606 | ASU 2014-09
Net sales:
Net sales	$ (1,256)

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New Accounting Standards Implemented - Impact on segment net sales and operating income (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	$ 305,259	$ 248,391
Operating income (loss)	(566)	(11,902)
ASU 2014-09 | ASC 605
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	276,824
Operating income (loss)	(3,897)
ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	28,435		$ 114,900
Operating income (loss)	3,331
Unallocated corporate expenses and other
Revenue, Initial Application Period Cumulative Effect Transition
Operating income (loss)	(9,499)	(14,300)
Unallocated corporate expenses and other | ASU 2014-09 | ASC 605
Revenue, Initial Application Period Cumulative Effect Transition
Operating income (loss)	(9,499)
Transportation Systems
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	181,807	146,500
Operating income (loss)	10,976	9,900
Transportation Systems | ASU 2014-09 | ASC 605
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	172,728
Operating income (loss)	9,186
Transportation Systems | ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	9,079
Operating income (loss)	1,790
Cubic Mission Solutions
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	46,393	33,100
Operating income (loss)	(4,940)	(8,900)
Cubic Mission Solutions | ASU 2014-09 | ASC 605
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	45,363
Operating income (loss)	(5,191)
Cubic Mission Solutions | ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	1,030
Operating income (loss)	251
Cubic Global Defense
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	77,059	68,800
Operating income (loss)	2,897	$ 1,400
Cubic Global Defense | ASU 2014-09 | ASC 605
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	58,733
Operating income (loss)	1,607
Cubic Global Defense | ASU 2014-09 | ASC 606
Revenue, Initial Application Period Cumulative Effect Transition
Net sales	18,326
Operating income (loss)	$ 1,290

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New Accounting Standards Implemented - Impact on Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Oct. 01, 2018	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Restricted cash			$ 27,400	$ 11,800
Accounts receivable - net	$ 118,291	$ 155,624	392,367
Contract assets	320,277	272,210
Recoverable income taxes	1,321	91	91
Inventories	92,201	61,688	84,199
Assets held for sale	8,177	8,177	8,177
Other current assets	40,924	43,705	43,705
Total current assets	684,675	681,103	668,147
Long-term contracts receivables			6,134
Long-term contracts financing receivables			6,134
Property, plant and equipment, net	125,298	117,546	117,546
Deferred income taxes	4,687	5,102	4,713
Goodwill	484,329	333,626	333,626
Purchased intangibles, net	137,201	73,533	73,533
Other assets	13,871
Total assets	1,548,955	1,321,130	1,304,883
Current liabilities:
Short-term borrowings	64,500
Contract liabilities	69,713	70,127
Customer advances			75,941
Accrued compensation and other current liabilities	82,323	118,816	118,233
Income taxes payable	6,771	8,586	8,586
Total current liabilities	332,606	320,097	328,339
Shareholders' equity:
Common stock	260,141	45,008	45,008
Retained earnings	815,083	821,668	801,834
Accumulated other comprehensive loss	(112,642)	(110,643)	(110,643)
Treasury stock at cost	(36,078)	(36,078)	(36,078)
Shareholders’ equity related to Cubic	926,504	719,955	700,121
Noncontrolling interest in consolidated VIE	24,703	28,730	24,075
Total shareholders’ equity	951,207	748,685	724,196
Total liabilities and shareholders' equity	1,548,955	1,321,130	1,304,883
ASU 2014-09 | ASC 605
Current assets:
Accounts receivable - net	390,855
Recoverable income taxes	1,086
Inventories	121,223
Assets held for sale	8,177
Other current assets	40,924
Total current assets	665,749
Long-term contracts receivables	4,064
Property, plant and equipment, net	125,298
Deferred income taxes	4,298
Goodwill	484,329
Purchased intangibles, net	137,201
Other assets	13,871
Total assets	1,533,217
Current liabilities:
Short-term borrowings	64,500
Customer advances	80,993
Accrued compensation and other current liabilities	82,323
Income taxes payable	6,512
Total current liabilities	345,843
Shareholders' equity:
Common stock	260,141
Retained earnings	792,717
Accumulated other comprehensive loss	(112,642)
Treasury stock at cost	(36,078)
Shareholders’ equity related to Cubic	904,138
Noncontrolling interest in consolidated VIE	18,094
Total shareholders’ equity	922,232
Total liabilities and shareholders' equity	1,533,217
ASU 2014-09 | ASC 606
Current assets:
Accounts receivable - net	(272,564)		(236,743)
Contract assets	320,277		272,210
Recoverable income taxes	235
Inventories	(29,022)		(22,511)
Total current assets	18,926		12,956
Long-term contracts receivables	(4,064)		(6,134)
Deferred income taxes	389		389
Total assets	15,738		16,247
Current liabilities:
Contract liabilities	69,713		70,127
Customer advances	(80,993)		(75,941)
Accrued compensation and other current liabilities			583
Income taxes payable	259
Total current liabilities	(13,237)		(8,242)
Shareholders' equity:
Retained earnings	22,366		19,834
Shareholders’ equity related to Cubic	22,366		19,834
Noncontrolling interest in consolidated VIE	6,609		4,655
Total shareholders’ equity	28,975		24,489
Total liabilities and shareholders' equity	15,738		16,247
Cubic Corporation Excluding VIE
Current assets:
Cash and cash equivalents	75,174	111,834	111,834
Restricted cash	17,889	17,400	17,400
Long-term contracts financing receivables	44,936	56,228
Long-term capitalized contract costs			84,924
Other assets	13,871	14,192	14,192
Current liabilities:
Trade accounts payable	109,094	122,403	125,414
Long-term debt	199,801	199,793	199,793
Other long term liabilities	43,838	43,486	43,486
Cubic Corporation Excluding VIE | ASU 2014-09 | ASC 605
Current assets:
Cash and cash equivalents	75,174
Restricted cash	17,889
Long-term capitalized contract costs	95,894
Current liabilities:
Trade accounts payable	111,310
Long-term debt	199,801
Other long term liabilities	43,838
Cubic Corporation Excluding VIE | ASU 2014-09 | ASC 606
Current assets:
Long-term contracts financing receivables	44,936		56,228
Long-term capitalized contract costs	(95,894)		(84,924)
Current liabilities:
Trade accounts payable	(2,216)		(3,011)
OpCo.
Current assets:
Cash and cash equivalents	421	374	374
Restricted cash	10,000	10,000	10,000
Long-term contracts financing receivables	52,996	38,990
Long-term capitalized contract costs			1,258
Other assets	962	810	810
Current liabilities:
Trade accounts payable	205	165	165
Long-term debt	15,357	9,056	9,056
Other long term liabilities	6,146	$ 13	13
OpCo. | ASU 2014-09 | ASC 605
Current assets:
Cash and cash equivalents	421
Restricted cash	10,000
Long-term capitalized contract costs	1,551
Other assets	962
Current liabilities:
Trade accounts payable	205
Long-term debt	15,357
Other long term liabilities	6,146
OpCo. | ASU 2014-09 | ASC 606
Current assets:
Long-term contracts financing receivables	52,996		38,990
Long-term capitalized contract costs	$ (1,551)		$ (1,258)

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Acquisitions and Divestitures - CGD Services - Income (loss) from discontinued operations (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Jun. 30, 2018	Apr. 18, 2018
Costs and expenses:
Net income from discontinued operations		$ 1,649
Cubic Global Defense Services
Divestitures
Receivable for estimated amount due from purchaser	$ 0
Cubic Global Defense Services | Disposed of by sale
Divestitures
Consideration from sale			$ 133,800	$ 135,000
Working capital settlement receivable	3,700
Receivable for estimated earn-out amount due from purchaser	3,000
Income (loss) from discontinued operations
Net sales		92,293
Costs and expenses:
Cost of sales		83,120
Selling, general and administrative expenses		3,667
Amortization of purchased intangibles		608
Other income		(5)
Earnings from discontinued operations before income taxes		4,903
Income tax provision (benefit)		3,254
Net income from discontinued operations	$ 0	$ 1,649

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Acquisitions and Divestitures - Consolidated Business Acquisitions (Details) - USD ($) $ in Thousands		1 Months Ended			3 Months Ended
	Feb. 21, 2018	Jan. 31, 2019	Oct. 31, 2018	Jul. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2018	Sep. 30, 2018
Sales and results of operations
Sales					$ 305,259	$ 248,391
Operating income (loss)					(566)	(11,902)
Net loss after taxes					(6,587)	(9,786)
Estimated acquisition-date fair value of consideration
Compensation expense					2,720	$ 1,627
Purchase price allocation
Goodwill					484,329		$ 333,626	$ 333,626
Trafficware
Sales and results of operations
Sales					10,500
Operating income (loss)					(3,300)
Net loss after taxes					(3,300)
Amortization					4,300
Acquisition-related (benefit) expenses					1,400
Estimated acquisition-date fair value of consideration
Fair value of consideration transferred			$ 237,600
Cash consideration paid			239,200
Receivable due from the sellers			1,600
Purchase price allocation
Amortizable intangible assets			4,800
Accounts receivable			10,400
Inventory			9,400
Accounts payable and accrued expenses			(6,500)
Other net assets acquired (liabilities assumed)			(2,000)
Net identifiable assets acquired			85,900
Goodwill			151,700
Net assets acquired			$ 237,600
Weighted average useful life of intangible assets			7 years
Estimated amortization expense related to the intangible assets
2019								15,300
2020								11,400
2021								11,400
2022								11,400
2023								6,400
Thereafter								18,800
Trafficware | Trade names
Purchase price allocation
Indefinite intangible assets			$ 4,600
Trafficware | Technology
Purchase price allocation
Amortizable intangible assets			43,300
Trafficware | Customer relationships
Purchase price allocation
Amortizable intangible assets			$ 21,900
Shield Aviation
Sales and results of operations
Operating income (loss)					(900)
Net loss after taxes					(900)
Amortization					200
Estimated acquisition-date fair value of consideration
Fair value of consideration transferred				$ 12,800
Extinguishment of debt				5,200
Cash consideration paid				1,300
Hold back consideration				700
Contingent consideration				5,600
Purchase price allocation
Other net assets acquired				300
Net identifiable assets acquired				6,300
Goodwill				6,500
Net assets acquired				12,800
Estimated amortization expense related to the intangible assets
2019					800
2020					800
2021					800
2022					800
2023					800
Thereafter					2,100
Shield Aviation | Maximum
Estimated acquisition-date fair value of consideration
Contingent consideration				10,000	10,000
Shield Aviation | Technology
Purchase price allocation
Amortizable intangible assets				$ 6,000
MotionDSP
Sales and results of operations
Sales					200
Operating income (loss)					(400)
Net loss after taxes					(400)
Amortization					200
Acquisition-related (benefit) expenses					$ 100
Estimated acquisition-date fair value of consideration
Cash consideration paid	$ 4,800
Purchase price allocation
Accounts payable and accrued expenses	(300)
Other noncurrent liabilities	(800)
Other net assets acquired (liabilities assumed)	(900)
Net identifiable assets acquired	2,800
Goodwill	6,700
Net assets acquired	$ 9,500
Weighted average useful life of intangible assets	7 years
Estimated amortization expense related to the intangible assets
2019								700
2020								700
2021								700
2022								700
2023								700
Thereafter								$ 800
MotionDSP | Trade names
Purchase price allocation
Indefinite intangible assets	$ 100
MotionDSP | Technology
Purchase price allocation
Amortizable intangible assets	4,500
MotionDSP | Customer relationships
Purchase price allocation
Amortizable intangible assets	$ 200
GRIDSMART | Subsequent event
Estimated acquisition-date fair value of consideration
Fair value of consideration transferred		$ 87,000

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Acquisitions and Divestitures - MotionDSP (Details) - USD ($) $ in Millions	Feb. 21, 2018	Oct. 31, 2017
MotionDSP
Business acquisition
Cash consideration paid	$ 4.8
MotionDSP
Equity method investment
Purchase price of capital stock		$ 4.7
Ownership percentage		49.00%

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Acquisitions and Divestitures - Goodwill and Pro forma information (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Unaudited pro forma information
Net sales	$ 307,100	$ 261,800
Net income attributable to Cubic	(6,300)	(13,400)
Adjustments made for transaction expenses	0	$ 0
Changes in the carrying amount of goodwill
Net balances at the beginning of the period	333,626
Acquisitions	151,670
Foreign currency exchange rate changes	(967)
Net balance at the end of the period	484,329		$ 333,626
Transportation Systems
Changes in the carrying amount of goodwill
Net balances at the beginning of the period	49,786
Acquisitions	151,670
Foreign currency exchange rate changes	(798)
Net balance at the end of the period	200,658		$ 49,786
Transportation Systems | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value			100.00%
Cubic Mission Solutions
Changes in the carrying amount of goodwill
Net balances at the beginning of the period	138,127
Foreign currency exchange rate changes	(73)
Net balance at the end of the period	138,054		$ 138,127
Cubic Global Defense
Changes in the carrying amount of goodwill
Net balances at the beginning of the period	145,713
Foreign currency exchange rate changes	(96)
Net balance at the end of the period	$ 145,617		$ 145,713
Cubic Global Defense | Minimum
Changes in the carrying amount of goodwill
Estimated percentage of excess of fair value over carrying value			40.00%

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Variable Interest Entities - Narrative (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2018	Oct. 01, 2018	Sep. 30, 2018	Dec. 31, 2017
Revenue recognition
Restricted cash				$ 27,400	$ 11,800
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-01-01
Revenue recognition
Contract term		12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue recognition
Contract term		24 months
Revolving Credit Agreement
Revenue recognition
Unamortized Debt Issuance Expense		$ 1,700
Maximum borrowing capacity under credit agreement		400,000
Borrowings outstanding		$ 64,500
MBTA | Design and Build Phase | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-10-01
Revenue recognition
Contract term		3 years
MBTA | Operate and Maintain Phase | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Revenue recognition
Contract term		10 years
Cubic Corporation Excluding VIE
Revenue recognition
Restricted cash		$ 17,889	$ 17,400	17,400
Long-term capitalized contract costs				84,924
OpCo.
Revenue recognition
Restricted cash		10,000	$ 10,000	10,000
Long-term capitalized contract costs				1,258
OpCo. | Interest Rate Swaps | Not Designated as Hedging Instrument
Revenue recognition
Unrealized loss		(6,100)
P3 Joint Venture
Revenue recognition
Maximum exposure to loss		2,700
OpCo. | Interest Rate Swaps | Not Designated as Hedging Instrument
Revenue recognition
Notional principal outstanding derivative instruments		61,900
OpCo. | Interest Rate Swaps | Not Designated as Hedging Instrument | Other noncurrent liabilities
Revenue recognition
Fair value interest rate swaps		6,100
OpCo. | P3 Credit Agreement | Revolving Credit Agreement
Revenue recognition
Maximum borrowing capacity under credit agreement		13,900
OpCo. | P3 Credit Agreement | Long-term Debt Facility
Revenue recognition
Loan amount	$ 212,400
Proceeds from issuance of debt		15,400
Carrying value		8,800
OpCo. | Design and Build Phase | P3 Credit Agreement | Long-term Debt Facility | LIBOR
Revenue recognition
Variable interest rate (as a percent)	1.30%
OpCo. | Operate and Maintain Phase | P3 Credit Agreement | Long-term Debt Facility | LIBOR
Revenue recognition
Variable interest rate (as a percent)	1.55%
OpCo. | MBTA
Revenue recognition
Expected contract revenue		$ 558,500
OpCo. | Cubic Corporation Excluding VIE | MBTA
Revenue recognition
Long-term capitalized contract costs				$ 27,800
Transportation Systems | HoldCo.
Revenue recognition
Ownership percentage		10.00%
Transportation Systems | HoldCo. | Letter of credit agreement
Revenue recognition
Maximum borrowing capacity under credit agreement		$ 2,700
Borrowings outstanding		0
Transportation Systems | OpCo.
Revenue recognition
Expected contract revenue		$ 427,600
John Laing | HoldCo.
Revenue recognition
Ownership percentage		90.00%
John Laing | HoldCo. | Equity Bridge Loan
Revenue recognition
Loan amount	$ 24,300

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Variable Interest Entities - Net assets and liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018	Oct. 01, 2018
ASSETS
Restricted cash		$ 11,800	$ 27,400
Long-term contracts financing receivables			6,134
Other noncurrent assets	$ 13,871
Total assets	1,548,955		1,304,883	$ 1,321,130
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Cubic equity	926,504		700,121	719,955
Noncontrolling interests	24,703		24,075	28,730
Total liabilities and shareholders' equity	1,548,955		1,304,883	1,321,130
Revenue	305,259	248,391
Operating income (loss)	(566)	(11,902)
Other income (expense), net	(4,753)	$ (78)
OpCo.
ASSETS
Cash	421		374	374
Restricted cash	10,000		10,000	10,000
Long-term capitalized contract costs			1,258
Long-term contracts financing receivables	52,996			38,990
Other noncurrent assets	962		810	810
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	205		165	165
Other long term liabilities	6,146		13	13
Long-term debt	15,357		9,056	$ 9,056
VIE
ASSETS
Cash	421		374
Restricted cash	10,000		10,000
Long-term capitalized contract costs			1,258
Long-term contracts financing receivables	52,996
Other noncurrent assets	962		810
Total assets	64,379		12,442
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	205		165
Other long term liabilities	6,146		13
Long-term debt	15,357		9,056
Total liabilities	21,708		9,234
Total Cubic equity	39		(304)
Noncontrolling interests	24,703		24,348
Total liabilities and shareholders' equity	46,450		33,278
Revenue			1,961
Operating income (loss)			1,668
Other income (expense), net			(6,133)
Interest income			503
Interest Expense			(512)
VIE | Consolidation Eliminations
ASSETS
Total assets			$ 20,800
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities	$ 17,900

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Net Income (Loss) Per Share (Details) - shares shares in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Weighted-average number of shares outstanding
Weighted average shares - basic	28,492	27,207
Weighted average shares - diluted	28,492	27,207
Number of anti-dilutive securities	990	1,040

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Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2018
Contract Assets and Liabilities
Contract Assets	$ 320,277		$ 272,210
Contract Liabilities	69,713		$ 70,128
Increase in contract asset	48,100
Impairment losses related to contract assets	0	$ 0
Decrease in contract liabilities	400
Revenue recognized included in contract liability at beginning of quarter	$ 20,700

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Balance Sheet Details (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2018	Sep. 30, 2018
Accounts Receivable
Billed	$ 119,943			$ 156,948
Unbilled				242,877
Allowance for doubtful accounts	(1,652)			(1,324)
Total accounts receivable	118,291			398,501
Less estimated amounts not currently due				(6,134)
Current accounts receivable	118,291		$ 155,624	392,367
Inventories
Finished products	7,716			7,099
Work in process and inventoried costs under long-term contracts	49,295			63,169
Materials and purchased parts	35,190			23,710
Customer advances				(9,779)
Net inventories	92,201		$ 61,688	84,199
Costs incurred outside the scope of work or in advance of a contract award	900			900
Deferred Compensation Plan
Deferred compensation	12,000			11,500
Carrying value of Rabbi trust to fund deferred compensation liabilities	$ 5,800			$ 6,400
Software
Capitalized Software
Estimated useful life	P7Y
Addition to capitalized software expenses	$ 500	$ 2,500
Software development expense	$ 800	$ 6,300
Software | Maximum
Capitalized Software
Estimated useful life	P7Y
Software | Minimum
Capitalized Software
Estimated useful life	P3Y

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Fair Value of Financial Instruments - Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Sep. 30, 2018
Level 2
Debt instruments
Fair Value	$ 195,400	$ 193,700
Carrying value	200,000	200,000
Assets and liabilities measured at fair value
Assets
Cash equivalents		9,000
Current derivative assets	5,036	1,803
Noncurrent derivative assets	581	314
Total assets measured at fair value	5,617	11,117
Liabilities
Current derivative liabilities	3,367	1,657
Noncurrent derivative liabilities		75
Total liabilities measured at fair value	11,160	10,846
Assets and liabilities measured at fair value | Deltenna
Liabilities
Contingent consideration to seller	1,343	1,081
Assets and liabilities measured at fair value | Shield Aviation
Liabilities
Contingent consideration to seller	5,618	5,618
Assets and liabilities measured at fair value | H4 Global
Liabilities
Contingent consideration to seller	832	665
Assets and liabilities measured at fair value | Revenue Targets | TeraLogics
Liabilities
Contingent consideration to seller		1,750
Assets and liabilities measured at fair value | Level 1
Assets
Cash equivalents		9,000
Total assets measured at fair value		9,000
Assets and liabilities measured at fair value | Level 2
Assets
Current derivative assets	5,036	1,803
Noncurrent derivative assets	581	314
Total assets measured at fair value	5,617	2,117
Liabilities
Current derivative liabilities	3,367	1,657
Noncurrent derivative liabilities		75
Total liabilities measured at fair value	3,367	1,732
Assets and liabilities measured at fair value | Level 3
Liabilities
Total liabilities measured at fair value	7,793	9,114
Assets and liabilities measured at fair value | Level 3 | Deltenna
Liabilities
Contingent consideration to seller	1,343	1,081
Assets and liabilities measured at fair value | Level 3 | Shield Aviation
Liabilities
Contingent consideration to seller	5,618	5,618
Assets and liabilities measured at fair value | Level 3 | H4 Global
Liabilities
Contingent consideration to seller	$ 832	665
Assets and liabilities measured at fair value | Level 3 | Revenue Targets | TeraLogics
Liabilities
Contingent consideration to seller		$ 1,750

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Fair Value of Financial Instruments - Contingent Consideration (Details) $ in Thousands	1 Months Ended	3 Months Ended	12 Months Ended
	Jul. 31, 2018 USD ($) item	Dec. 31, 2018 USD ($) item	Sep. 30, 2018 USD ($) item
Cubic Global Defense Services | Disposed of by sale
Assets and liabilities measured at fair value on a recurring basis
Receivable for estimated earn-out amount due from purchaser		$ 3,000
Level 3
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		9,114
Cash paid to seller		(1,750)
Total remeasurement (gain) loss recognized in earnings		429
Balance at the ending period		7,793	$ 9,114
Deltenna | Level 3
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		1,081
Total remeasurement (gain) loss recognized in earnings		262
Balance at the ending period		1,343	$ 1,081
Deltenna | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		$ 6,900
Deltenna | Volatility for underlying revenue metrics
Assets and liabilities measured at fair value on a recurring basis
Measurement inputs for contingent consideration | item		40	53
Shield Aviation
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration	$ 5,600
Iterations used in determination of fair value of contingent consideration | item	100,000
Revenue risk adjustment used in determination of fair value of contingent consideration			0.14%
Shield Aviation | Level 3
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		$ 5,618
Balance at the ending period		5,618	$ 5,618
Shield Aviation | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration	$ 10,000	$ 10,000
Shield Aviation | Volatility for underlying revenue metrics
Assets and liabilities measured at fair value on a recurring basis
Measurement inputs for contingent consideration			0.20
Shield Aviation | Discount Rate
Assets and liabilities measured at fair value on a recurring basis
Measurement inputs for contingent consideration		0.050	0.050
TeraLogics | Level 3 | Revenue Targets
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		$ 1,750
Cash paid to seller		$ (1,750)
Balance at the ending period			$ 1,750
H4 Global
Assets and liabilities measured at fair value on a recurring basis
Period for contingent consideration contracts		5 years
H4 Global | Level 3
Change in fair value of our Level 3 contingent consideration
Balance at the Beginning period		$ 665
Total remeasurement (gain) loss recognized in earnings		167
Balance at the ending period		832	$ 665
H4 Global | Maximum
Assets and liabilities measured at fair value on a recurring basis
Contingent consideration		$ 3,200

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Financing Arrangements - underwritten public offering (Details) $ / shares in Units, $ in Millions	1 Months Ended
	Dec. 31, 2018 USD ($) $ / shares shares
Financing Arrangements
Underwritten public offering (in shares)	3,300,000
Period to exercise additional shares	30 years
Additional shares granted to underwriters to purchase additional shares	495,000
Shares exercised by underwriters	495,000
Offered price (per share) | $ / shares	$ 60.00
Net Proceeds from public offering | $	$ 215.8
Underwriting discounts and commissions and offering expenses | $	$ 11.9

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Financing Arrangements - Senior Unsecured Notes (Details) - Senior unsecured notes - USD ($) $ in Millions		3 Months Ended
	Jul. 17, 2015	Dec. 31, 2018	Feb. 02, 2016	Mar. 31, 2013
Financial arrangement
Coupon rate increase based on leverage ratio (as a percent)		0.75%
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 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 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 Millions, $ in Millions	Aug. 11, 2016 USD ($)	Feb. 02, 2016 USD ($)	Dec. 31, 2018 GBP (£)	Dec. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Financial arrangement
Restricted cash					$ 27.4	$ 11.8
Letters of Credit and bank guarantees outstanding				$ 50.1
Self-insurance liabilities				8.7	$ 8.6
Letters of credit primarily for self-insured liabilities
Financial arrangement
Letters of Credit and bank guarantees outstanding				7.2
Fair value of instruments				0.0
United Kingdom
Financial arrangement
Maximum borrowing capacity under credit agreement			£ 20.0	25.5
Borrowings outstanding				0.0
United Kingdom | Performance guarantee
Financial arrangement
Restricted cash				17.9
Revolving Credit Agreement
Financial arrangement
Maximum borrowing capacity under credit agreement				$ 400.0
Weighted average interest rate on outstanding borrowings			3.75%	3.75%
Debt issuance costs incurred		$ 2.3
Debt modification cost incurred	$ 1.3
Unamortized debt issuance costs				$ 1.7
Borrowings outstanding				64.5
Letters of credit outstanding				38.4
Available amount under line of credit				297.1
Revolving Credit Agreement | Letters of credit and bank guarantees
Financial arrangement
Letters of credit outstanding				38.4
Other Credit Facility
Financial arrangement
Letters of credit outstanding				11.7
Letter of credit agreement | Performance guarantee
Financial arrangement
Letters of credit outstanding				$ 42.9

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Pension Plans (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Components of net periodic pension cost (benefit)
Service cost	$ 149	$ 151
Interest cost	1,910	1,880
Expected return on plan assets	(3,009)	(3,525)
Amortization of actuarial loss	528	692
Administrative expenses	97	110
Net pension cost (benefit)	$ (325)	$ (692)

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Stockholders’ Equity - Narrative (Details)	3 Months Ended	75 Months Ended
	Dec. 31, 2018 item $ / shares shares	Dec. 31, 2018 shares
RSUs
Stockholders' Equity
Number of shares of common stock that each award holder has the contingent right to receive	1
Fair value units granted (per share) | $ / shares	$ 64.33
Time-based RSUs
Stockholders' Equity
Number of units awarded (in shares)		1,285,560
Number of equal installments for vesting of stock awards | item	4
Expected awards vested (in shares)	331,181
Performance-based RSUs
Stockholders' Equity
Number of units awarded (in shares)		1,173,766
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
Expected awards vested (in shares)	129,907
Performance and market-based RSUs
Stockholders' Equity
Number of units awarded (in shares)		219,890
Number of shares of common stock that each award holder has the contingent right to receive	1.25
Vesting period	3 years
Fair value units granted (per share) | $ / shares	$ 67.40
Expected awards vested (in shares)	152,570
Performance and market-based RSUs | Maximum
Stockholders' Equity
Increase in multiplier based on performance	25.00%
Performance and market-based RSUs | Minimum
Stockholders' Equity
Decrease in multiplier based on performance	25.00%

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Stockholders’ Equity - Assumption used for RSU activity (Details) - RSUs	3 Months Ended
	Dec. 31, 2018 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Closing average share value (mean)	$ 68.56
Risk-free interest rate(as a percent)	2.80%
Expected volatility (as a percent)	34.00%

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Stockholders’ Equity - RSU activity (Details)	3 Months Ended
	Dec. 31, 2018 $ / shares shares
RSUs
Number of Shares
Balance unvested at the beginning of the period (in shares)	366,460
Granted (in shares)	195,033
Vested (in shares)	(128,949)
Forfeited (in shares)	(15,391)
Balance unvested at the end of the period (in shares)	417,153
Weighted Average Grant-Date Fair Value
Balance unvested at the beginning of the period (in dollars per share) | $ / shares	$ 52.31
Granted (in dollars per share) | $ / shares	64.33
Vested (in dollars per share) | $ / shares	50.61
Forfeited (in dollars per share) | $ / shares	50.04
Balance unvested at the end of the period (in dollars per share) | $ / shares	$ 58.54
Vested (in shares)	128,949
Performance-based RSUs
Number of Shares
Balance unvested at the beginning of the period (in shares)	635,628
Forfeited (in shares)	(295,759)
Balance unvested at the end of the period (in shares)	339,869
Weighted Average Grant-Date Fair Value
Balance unvested at the beginning of the period (in dollars per share) | $ / shares	$ 50.11
Forfeited (in dollars per share) | $ / shares	43.86
Balance unvested at the end of the period (in dollars per share) | $ / shares	$ 55.54
Performance and market-based RSUs
Number of Shares
Granted (in shares)	219,890
Balance unvested at the end of the period (in shares)	219,890
Weighted Average Grant-Date Fair Value
Granted (in dollars per share) | $ / shares	$ 67.40
Balance unvested at the end of the period (in dollars per share) | $ / shares	$ 67.40

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Stockholders’ Equity - Non-cash compensation expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity
Non-cash compensation expense related to stock-based awards	$ 2,720	$ 1,627
Estimated forfeiture rate (as a percent)	12.50%
Cost of sales
Stockholders' Equity
Non-cash compensation expense related to stock-based awards	$ 313	156
Selling, general and administrative
Stockholders' Equity
Non-cash compensation expense related to stock-based awards	2,407	$ 1,471
RSUs
Stockholders' Equity
Unrecognized compensation cost related to unvested awards	52,000
Aggregate fair value of awards	$ 37,500
Weighted-average period of recognition	1 year 7 months 6 days

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended		12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Income Taxes
U.S. statutory tax rate (as a percent)	21.00%
Effective tax rate (as a percent)	(31.00%)	(6.00%)	48.00%
Deferred tax asset valuation allowance	$ 79.3

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Derivative Instruments and Hedging Activities - Notional principal amounts (Details) - Foreign currency forwards - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Sep. 30, 2018
Derivative Instruments and Hedging Activities
Unrealized loss	$ (300)	$ (300)
Instruments designated as accounting hedges:
Derivative Instruments and Hedging Activities
Notional principal outstanding derivative instruments	169,095		$ 169,406
Instruments not designated as accounting hedges:
Derivative Instruments and Hedging Activities
Notional principal outstanding derivative instruments	24,824		27,909
Notional principal outstanding derivative instruments designed to manage exposure	$ 12,700		$ 14,700

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Derivative Instruments and Hedging Activities - Fair value of derivative financial instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Sep. 30, 2018
Derivative Instruments and Hedging Activities
Asset derivatives	$ 5,618	$ 2,117
Liability derivatives	3,367	1,732
Foreign currency forwards | Other current assets
Derivative Instruments and Hedging Activities
Asset derivatives	5,036	1,803
Foreign currency forwards | Other noncurrent assets
Derivative Instruments and Hedging Activities
Asset derivatives	582	314
Foreign currency forwards | Other current liabilities
Derivative Instruments and Hedging Activities
Liability derivatives	$ 3,367	1,657
Foreign currency forwards | Other noncurrent liabilities
Derivative Instruments and Hedging Activities
Liability derivatives		$ 75

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Derivative Instruments and Hedging Activities - Gains and losses recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
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	$ (1,700)
Foreign currency forwards
Derivative instruments and hedging activities
Gains (losses) recognized in OCI	1,779	$ 656
Gains (losses) reclassified into earnings - Effective Portion	$ (33)	$ (774)

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Segment Information - Business segment financial data (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Segment Information
Total sales	$ 305,259	$ 248,391
Operating income (loss)	(566)	(11,902)
Depreciation and amortization	16,011	12,433
Transportation Systems
Segment Information
Total sales	181,807	146,500
Operating income (loss)	10,976	9,900
Depreciation and amortization	7,700	3,300
Cubic Mission Solutions
Segment Information
Total sales	46,393	33,100
Operating income (loss)	(4,940)	(8,900)
Depreciation and amortization	5,400	5,900
Cubic Global Defense
Segment Information
Total sales	77,059	68,800
Operating income (loss)	2,897	1,400
Depreciation and amortization	2,200	2,100
Corporate
Segment Information
Depreciation and amortization	700	1,100
Unallocated corporate expenses and other
Segment Information
Operating income (loss)	$ (9,499)	$ (14,300)

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Segment Information - Narrative (Details) - USD ($) $ in Millions	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Unallocated corporate expenses and other
Segment Information
Expense related to strategic and IT system resource planning	$ 1.6	$ 8.0

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Segment Information - Sales by Geographical Region (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue
Total sales	$ 305,259	$ 248,391
Transportation Systems
Disaggregation of Revenue
Total sales	181,807	146,500
Cubic Mission Solutions
Disaggregation of Revenue
Total sales	46,393	33,100
Cubic Global Defense
Disaggregation of Revenue
Total sales	77,059	$ 68,800
United States
Disaggregation of Revenue
Total sales	172,500
United States | Transportation Systems
Disaggregation of Revenue
Total sales	91,300
United States | Cubic Mission Solutions
Disaggregation of Revenue
Total sales	45,500
United States | Cubic Global Defense
Disaggregation of Revenue
Total sales	35,700
United Kingdom
Disaggregation of Revenue
Total sales	55,600
United Kingdom | Transportation Systems
Disaggregation of Revenue
Total sales	50,900
United Kingdom | Cubic Mission Solutions
Disaggregation of Revenue
Total sales	400
United Kingdom | Cubic Global Defense
Disaggregation of Revenue
Total sales	4,300
Australia
Disaggregation of Revenue
Total sales	35,500
Australia | Transportation Systems
Disaggregation of Revenue
Total sales	29,800
Australia | Cubic Mission Solutions
Disaggregation of Revenue
Total sales	100
Australia | Cubic Global Defense
Disaggregation of Revenue
Total sales	5,600
Far East/Middle East
Disaggregation of Revenue
Total sales	23,200
Far East/Middle East | Transportation Systems
Disaggregation of Revenue
Total sales	4,400
Far East/Middle East | Cubic Mission Solutions
Disaggregation of Revenue
Total sales	400
Far East/Middle East | Cubic Global Defense
Disaggregation of Revenue
Total sales	18,400
Other foreign countries
Disaggregation of Revenue
Total sales	18,500
Other foreign countries | Transportation Systems
Disaggregation of Revenue
Total sales	5,400
Other foreign countries | Cubic Global Defense
Disaggregation of Revenue
Total sales	$ 13,100

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Segment Information - Sales by End Customer (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue
Total sales	$ 305,259	$ 248,391
U.S. Government
Disaggregation of Revenue
Total sales	169,000
Other
Disaggregation of Revenue
Total sales	136,300
Transportation Systems
Disaggregation of Revenue
Total sales	181,807	146,500
Transportation Systems | U.S. Government
Disaggregation of Revenue
Total sales	90,800
Transportation Systems | Other
Disaggregation of Revenue
Total sales	91,000
Cubic Mission Solutions
Disaggregation of Revenue
Total sales	46,393	33,100
Cubic Mission Solutions | U.S. Government
Disaggregation of Revenue
Total sales	45,800
Cubic Mission Solutions | Other
Disaggregation of Revenue
Total sales	600
Cubic Global Defense
Disaggregation of Revenue
Total sales	77,059	$ 68,800
Cubic Global Defense | U.S. Government
Disaggregation of Revenue
Total sales	32,400
Cubic Global Defense | Other
Disaggregation of Revenue
Total sales	$ 44,700

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Segment Information - Sales by Contract Type (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue
Total sales	$ 305,259	$ 248,391
Fixed Price
Disaggregation of Revenue
Total sales	295,600
Other
Disaggregation of Revenue
Total sales	9,700
Transportation Systems
Disaggregation of Revenue
Total sales	181,807	146,500
Transportation Systems | Fixed Price
Disaggregation of Revenue
Total sales	178,200
Transportation Systems | Other
Disaggregation of Revenue
Total sales	3,600
Cubic Mission Solutions
Disaggregation of Revenue
Total sales	46,393	33,100
Cubic Mission Solutions | Fixed Price
Disaggregation of Revenue
Total sales	45,800
Cubic Mission Solutions | Other
Disaggregation of Revenue
Total sales	600
Cubic Global Defense
Disaggregation of Revenue
Total sales	77,059	$ 68,800
Cubic Global Defense | Fixed Price
Disaggregation of Revenue
Total sales	71,600
Cubic Global Defense | Other
Disaggregation of Revenue
Total sales	$ 5,500

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Segment Information - Sales by Deliverable Type (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue
Total sales	$ 305,259	$ 248,391
Products
Disaggregation of Revenue
Total sales	182,253	131,743
Services
Disaggregation of Revenue
Total sales	123,006	116,648
Transportation Systems
Disaggregation of Revenue
Total sales	181,807	146,500
Transportation Systems | Products
Disaggregation of Revenue
Total sales	92,000
Transportation Systems | Services
Disaggregation of Revenue
Total sales	89,800
Cubic Mission Solutions
Disaggregation of Revenue
Total sales	46,393	33,100
Cubic Mission Solutions | Products
Disaggregation of Revenue
Total sales	40,600
Cubic Mission Solutions | Services
Disaggregation of Revenue
Total sales	5,800
Cubic Global Defense
Disaggregation of Revenue
Total sales	77,059	$ 68,800
Cubic Global Defense | Products
Disaggregation of Revenue
Total sales	49,700
Cubic Global Defense | Services
Disaggregation of Revenue
Total sales	$ 27,400

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Segment Information - Revenue Recognition Method (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue
Total sales	$ 305,259	$ 248,391
Point in time
Disaggregation of Revenue
Total sales	51,600
Over time
Disaggregation of Revenue
Total sales	253,700
Transportation Systems
Disaggregation of Revenue
Total sales	181,807	146,500
Transportation Systems | Point in time
Disaggregation of Revenue
Total sales	16,700
Transportation Systems | Over time
Disaggregation of Revenue
Total sales	165,100
Cubic Mission Solutions
Disaggregation of Revenue
Total sales	46,393	33,100
Cubic Mission Solutions | Point in time
Disaggregation of Revenue
Total sales	34,400
Cubic Mission Solutions | Over time
Disaggregation of Revenue
Total sales	12,000
Cubic Global Defense
Disaggregation of Revenue
Total sales	77,059	$ 68,800
Cubic Global Defense | Point in time
Disaggregation of Revenue
Total sales	500
Cubic Global Defense | Over time
Disaggregation of Revenue
Total sales	$ 76,600

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Subsequent Events (Detail) - Subsequent event - Construction and Leasing Agreement	Feb. 05, 2019 building
Subsequent Events
Number of buildings	2
Lease term	5 years