UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,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 March 31,June 30, 1998
1-8931
------
COMMISSION FILE NUMBERCommission File Number
CUBIC CORPORATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
DELAWAREExact Name of Registrant as Specified in its Charter
Delaware 95-1678055
STATE OF INCORPORATION-------- ----------
State of Incorporation IRS Employer Identification No.
9333 Balboa Avenue
San Diego, California 92123
Telephone (619) 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 /X/ NO / /
--- ---Yes [X] No [ ]
As of MayAugust 1, 1998, Registrant had only one class of common stock of
which there were 8,907,1588,907,067 shares outstanding (after deducting
2,981,0852,981,176 shares held as treasury stock).
PART I--FINANCIALI - FINANCIAL INFORMATION
ITEM 1--FINANCIAL1 - FINANCIAL STATEMENTS
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
SixNine Months Ended Three Months Ended
March 31 March 31
---------------------- --------------------June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
1998 1997 1998 1997
---------- ---------- --------- ---------
Revenues:
Net sales...............................................sales $281,121 $290,073 $ 181,577 $ 180,245 $ 89,825 $ 96,18799,544 $109,828
Other income............................................ 2,528 2,994 1,134 1,820
---------- ---------- --------- ---------
184,105 183,239 90,959 98,007income 3,799 4,869 1,271 1,875
-------- -------- -------- --------
284,920 294,942 100,815 111,703
Costs and expenses:
Cost of sales........................................... 145,700 138,566 76,895 74,997sales 222,489 223,933 76,789 85,367
Selling, general and
administrative expenses............ 37,402 30,923 19,408 16,380expenses 55,815 49,751 18,413 18,828
Research and development................................ 4,293 4,172 2,591 2,016
Interest................................................ 982 858 479 439
---------- ---------- --------- ---------
188,377 174,519 99,373 93,832
---------- ---------- --------- ---------development 6,931 6,412 2,638 2,240
Interest 1,325 1,269 343 411
-------- -------- -------- --------
286,560 281,365 98,183 106,846
-------- -------- -------- --------
Income (loss) before income taxes....................... (4,272) 8,720 (8,414) 4,175taxes (1,640) 13,577 2,632 4,857
Income taxes (benefit).................................. (1,250) 3,150 (2,750) 1,500
---------- ---------- --------- --------- (400) 4,750 850 1,600
-------- -------- -------- --------
Net income (loss)....................................... $ (3,022)(1,240) $ 5,5708,827 $ (5,664)1,782 $ 2,675
---------- ---------- --------- ---------
---------- ---------- --------- ---------3,257
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common share......................share $ (0.34)(0.14) $ 0.620.98 $ (0.64)0.20 $ 0.30
---------- ---------- --------- ---------
---------- ---------- --------- ---------0.36
-------- -------- -------- --------
-------- -------- -------- --------
Dividends per common share..............................share $ 0.19 $ 0.19 $ 0.19- $ 0.19
---------- ---------- --------- ---------
---------- ---------- --------- ----------
-------- -------- -------- --------
-------- -------- -------- --------
Average shares of common
stock outstanding.............. 8,927outstanding 8,920 8,981 8,9108,907 8,981
---------- ---------- --------- ---------
---------- ---------- --------- ----------------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to financial statements.SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(thousands of dollars)
March 31June 30 September 30
1998 1997
(Unaudited) (See note below)
----------- ----------------
ASSETS
Current assets:
Cash and cash equivalents......................................equivalents $ 35,65317,706 $ 53,257
Marketable securities, available-for-sale...................... 2,392available-for-sale 2,181 2,426
Accounts receivable............................................ 108,843receivable 122,591 107,807
Inventories--Note C............................................ 36,486Inventories -- Note 3 36,480 20,955
Deferred income taxes 13,858 10,454
Prepaid expenses and other current assets................. 16,956 15,783
----------- ---------------assets 3,516 5,329
-------- --------
Total current assets........................................... 200,330assets 196,332 200,228
Property, plant and equipment--net............................. 39,840equipment - net 39,556 40,110
Cost in excess of net tangible assets of
purchased businesses, less amortization............................................ 26,213amortization 25,686 27,281
Miscellaneous other assets..................................... 14,493assets 12,515 14,663
----------- ---------------
$ 280,876 $ 282,282
----------- ---------------
----------- ----------------------- --------
$274,089 $282,282
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..........................................borrowings $ 7,17314,989 $ 9,620
Accounts payable and other current liabilities................. 47,575liabilities 47,670 46,270
Customer advances.............................................. 34,423advances 22,280 30,896
Income taxes payable........................................... 1,845payable 2,351 206
Current portion of long-term debt..............................debt 5,000 5,000
----------- ----------------------- --------
Total current liabilities...................................... 96,016liabilities 92,290 91,992
Long-term debt................................................. 10,000debt 5,000 10,000
Deferred income taxes and other................................ 5,294other liabilities 5,463 4,970
Shareholders' equity:
Common stock...................................................stock 234 234
Additional paid-in capital.....................................capital 12,123 12,123
Retained earnings.............................................. 193,499earnings 195,281 198,213
Foreign currency translation adjustment........................ (238)adjustment (247) (557)
Treasury stock at cost......................................... (36,052)cost (36,055) (34,693)
----------- ---------------
169,566-------- --------
171,336 175,320
----------- ---------------
$ 280,876 $ 282,282
----------- ---------------
----------- ----------------------- --------
$274,089 $282,282
-------- --------
-------- --------
Note: The balance sheet at September 30, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes to financial statements.SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(thousands of dollars)
SixNine Months Ended
March 31
--------------------June 30
1998 1997
-------- --------
1998 1997
--------- ---------
Operating Activities:
Net income (loss)...................................................... $ (3,022)(1,240) $ 5,5708,827
Adjustments to reconcile net income (loss) to
net cash used inprovided by (used in) operating
activities:
Depreciation and amortization...................................... 4,891 4,000amortization 7,354 6,291
Changes in operating assets and liabilities........................ (9,401) (32,454)
--------- ---------liabilities (35,538) (12,649)
-------- --------
NET CASH USED INPROVIDED BY (USED IN)
OPERATING ACTIVITIES.............................. (7,532) (22,884)
--------- ---------ACTIVITIES (29,424) 2,469
-------- --------
Investing Activities:
Sales of marketable securities......................................... 34 41securities 245 368
Proceeds from sale of U. S. Elevator Corp.............................. --Corp. - 31,996
Acquisition of business, net of cash acquired - (11,620)
Net additions to property, plant and equipment......................... (3,514) (3,273)equipment (5,186) (4,830)
Other items--net....................................................... (703) 443
--------- ---------items - net 1,795 685
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES................ (4,183) 29,207
--------- ---------ACTIVITIES (3,146) 16,599
-------- --------
Financing Activities:
Change in short-term borrowings........................................ (2,733) --borrowings 5,038 -
Change in long-term debt (5,000) (5,000)
Purchases of treasury stock............................................ (1,359) --stock (1,362) (122)
Dividends paid.........................................................paid (1,692) (1,706)
--------- ----------------- --------
NET CASH USED IN
FINANCING ACTIVITIES.............................. (5,784) (1,706)
--------- ---------ACTIVITIES (3,016) (6,828)
-------- --------
Effect of exchange rates on cash......................................... (105) (241)
--------- ---------cash 35 (378)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS............... (17,604) 4,376EQUIVALENTS (35,551) 11,862
Cash and cash equivalents at the
beginning of the period.................period 53,257 20,062
--------- ----------------- --------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD.................PERIOD $ 35,65317,706 $ 24,438
--------- ---------
--------- ---------31,924
-------- --------
-------- --------
See accompanying notes to financial statements.SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31,June 30, 1998
A. Basis for PresentationNOTE 1 -- BASIS FOR PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Cubic
Corporation (the Company) have been prepared in accordance with generally
accepted accounting principles 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 generally accepted
accounting principles for complete financial statements.
In the opinion of management,The interim financial information presented herein includes all adjustments (consisting of normal recurring
accruals)adjustments which are considered necessary by the Company's management for a
fair presentation have
been included.of the financial position, results of operations, and cash
flows for the periods presented. Operating results for the quarter are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended September 30, 1997. Certain prior period
amounts have been restated to reflect the current period classifications.
The preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the 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.
Certain prior period amounts have been restated to reflect the current
period classifications.
B. Per Share AmountsNOTE 2 -- PER SHARE AMOUNTS
Per share amounts are based upon the weighted average number of shares of common
stock outstanding.
5
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)--continued
March 31, -- continued
June 30, 1998
C. InventoriesNOTE 3 -- INVENTORIES
March 31June 30 September 30
1998 1997
- -------------------------------------------------------------------- ------------------- ------------
Inventories consist of the following: (In thousands)
Finished products...................................................products $ 2,0842,367 $ 2,501
Work in process..................................................... 25,505process 24,515 10,300
Raw material and purchased parts.................................... 8,897parts 9,598 8,154
----------- ------------
$ 36,486 $ 20,955
----------- ------------
----------- ------------------- -------
$36,480 $20,955
------- -------
------- -------
Work in process at March 31,June 30, 1998 includes $8.4 million of inventoried
long-term contract costs incurred as a result of customer-required work
performed not specified in contract provisions. The recovery of this
entire amount was successfully negotiated in April 1998 and a contract
modification has been received. Work in process at March 31, 1998 also
includes $4.7approximately $12 million of
inventoried costs incurred as pre-contract work performed at the Company's risk.
Approximately one-half of this amount relates to a defense segment contract and
one-half to a transportation systems segment contract, both of which are in late
stages of negotiations. Management believes the Company will ultimately recover
this and any future amounts to be incurred through the award of the related
contract.
D. Legal Mattercontracts.
NOTE 4 -- LEGAL MATTER
In July 1995, UDT Sensors, Inc. (UDT)1991, the government of Iran commenced an arbitration proceeding against the
Company seeking $12.9 million for reimbursement of payments made for equipment
that was to comprise an Air Combat Maneuvering Range pursuant to a potential subcontractor, filedcontract
executed in 1977, and an additional $15 million for unspecified damages. The
Company contested the action and brought a lawsuit against Cubic Defense Systems, Inc. (CDS)counterclaim for compensatory damages
of $10.4 million. In May 1997, the arbitral tribunal awarded the government of
Iran a decision in the Superior Courtamount of $2.8 million, plus simple interest at the Staterate
of California12% per annum from September 1991. On June 24, 1998, the government of Iran
commenced an action in Los Angeles, alleging breach of a written
contract, unjust enrichment, fraud and deceit, among other related
charges. The claims allegedly arose out of a strategic supplier
agreement under which UDT alleged it was to receive a subcontract to
provide a certain product if CDS was selected by the United States Army
asDistrict Court for the prime contractor forSouthern
District of California to enforce the award. The Company strongly believes it
did not receive due process in the arbitral proceeding and is vigorously
contesting the action. The Company believes that the ultimate outcome of the
matter will not have a certain government program. After winningmaterial effect on the prime contract, CDS was unable to reach agreement on certain terms and
conditions for a subcontract with UDT.
In April 1998, CDS reached a business settlement with UDT which provides
that, among other lesser items, CDS will purchase from UDT, a minimum
percentage of worldwide requirements for certain products at competitive
prices.
E. Review by Independent AccountantsCompany's financial statements.
NOTE 5 -- REVIEW BY INDEPENDENT ACCOUNTANTS
A review of the data presented was made by Ernst & Young LLP, independent
accountants, in accordance with established professional standards and
procedures, and their report is included herein.
6
CUBIC CORPORATION
ITEM 2--MANAGEMENT'S2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31,June 30, 1998
RESULTS OF OPERATIONS
Sales for the six monthnine-month period ended March 31,June 30, 1998 were essentially flat asdecreased 3% compared to the
same period of fiscal 1997. Sales increased1997, as a modest sales increase in the transportation
systems segment primarily due to the acquisition of Thorn
Transit Systems International (TTSI) in April 1997, however, this increase
was offset by lower sales volume on transportation system contracts in the United Statesdefense and a decrease in defensecommercial
operations segments.
Defense segment sales. Salessales for the three month periodand nine-month periods ended March 31,June 30, 1998
decreased 7%3% and 5%, respectively, as compared to the same periods of last year,
due primarily to lower sales of the Company's Receiver products. However, sales
volume in this product line is expected to improve in the fourth quarter as thea
result of the
delayed award of the MILES 2000 (Multiple Integrated Laser Engagement System)
production contract. A contract modification for the exercise of production
options on MILES 2000 has now beenorders recently received.
During the second quarter, the Company established a $9.5 million reserve,
before applicable income taxes, for estimated losses on several contracts in
Asia, related to the TTSI subsidiary referred to above. Management believes
the reserve is sufficient to cover all losses associated with the existing
contracts of this subsidiary. In response to these losses, in April 1998, the
Company commenced a restructuring of management in the United Kingdom to
realign resources and address the operating issues which resulted in the
losses.
Operating profits in the transportation systems segment were also negatively
impacted by lower sales volume and profit margins on contracts in the United
States. However, award of the Prestige contract to privatize the London
Transport fare collection system is expected within the next few months,
which should increase sales and operating profits of this segment in future
quarters.
Operating profits in the defense segment for the six month periodthree and nine-month periods
ended March
31,June 30, 1998 were 86% higher than inapproximately doubled as compared to the same periods of the
previous year. The J-STARS Data Link product line continued to contribute
significantly to the operating profits of this segment. In addition, during the
first halfthree quarters of fiscal 1997, operating profits in the segment had been
lower due todepressed by the recognition of losses caused by cost growth in the development
of MILES 2000. In the current year, the MILES 2000 product line has operated at
a break-even status, helping to
improve overallwhich significantly improved the operating profits of this
segment as compared to the same periods of the previous year.
Transportation systems segment sales for the three-month period ended June 30,
1998 decreased 16% as compared to the same period of last year primarily due to
lower sales on contracts in New York City and Chicago. This decrease in sales to
United States customers was partially offset by increased sales to customers in
the Far East. For the nine-month period, overall transportation systems sales
were up slightly, due primarily to the acquisition of Thorn Transit Systems
International (TTSI) in April 1997.
During the third quarter, the Company continued its restructuring of management
in the United Kingdom to realign resources and address the operating issues
which resulted in the significant losses on several large contracts recorded in
the second quarter of 1998. Management believes the $9.5 million reserve
established in the second quarter is adequate to absorb the expected losses on
those contracts.
Operating profits for the quarter and year-to-date in the transportation systems
segment were also negatively impacted by lower sales volume on contracts in the
United States, as described above, and lower profit margins on these and other
U.S. based contracts. However, award of the Prestige contract to privatize the
London Transport fare collection system is imminent and should result in
significant growth of the transportation systems segment in future quarters.
7
CUBIC CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- continued
June 30, 1998
The Company has continued to invest in the development and promotion of its
proprietary software technology which delivers compressed video and audio
transmission over computer networks for applications including e-mail, intra-net
based training and surveillance. This investment, which has resulted in losses
in the commercial operations segment, for both the three
and six month periods, has amounted to approximately $1$1.6 million and $3.7 million,
before applicable income taxes, in each of the first two quarters of the fiscal year.
7
CUBIC CORPORATION
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--CONTINUED
March 31, 1998
Forfor the three and six month period ended March 31, 1998, selling,nine-month periods of this
fiscal year, respectively.
Selling, general and administrative expenses for the nine-month period ended
June 30, 1998 increased, both nominally and as a percentage of sales, over the
level in fiscal 1997. This increase was in supportresulted from the acquisition of higher
sales volume at the transportation systems segment,TTSI last
year, increased selling expenses incurred at the defense segment in pursuit of
new contracts and sellingmarketing and promotion expenses related to the video
compression productsoftware technology mentioned above.
The effective tax rate for the nine months ended June 30, 1998 was lower than in
the same period of fiscal 1997 because the losses were incurred in the United
Kingdom where the corporate tax rates are lower than in the U.S., providing a
lower tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents has decreased $17.6$35.5 million since year end, to
$35.7$17.7 million at March 31,June 30, 1998. During the six monthnine-month period ended March 31,June 30,
1998, operating activities used $7.5$29.4 million, primarily due primarily to growth in
inventoried costs as describedand accounts receivable, in note C.addition to a reduction in
customer advances. Investing activities included $5.2 million of planned
expenditures for capital equipment, which used $3.5 million.equipment. Financing activities included a $2.7$5
million repayment ofnet increase in short-term borrowings from credit facilities in the
United Kingdom, and $3.1offset by a scheduled $5 million used to purchase treasury
stock and pay cash dividends to shareholders.annual installment payment
on a long-term note. The Company expects that cash on hand and its availableunused
debt capacity will be adequate to meet its short and long term working capital requirements.long-term financing
needs.
The Company's financial condition remains strong with working capital of
$104.3$104 million and a current ratio of 2.1 to 1 at March 31,June 30, 1998. The backlog
of orders at March 31,June 30, 1998 was $354$348 million, which is comparableas compared to the $358 million
at September 30, 1997 and a slight increase from $343the $368 million at March 31,June 30, 1997.
Except for historical matters contained herein, statements in this discussion
and analysis are forward-looking and are made pursuant to the Securities
Litigation Reform Act of 1995. Investors are cautioned that forward-looking
statements involve risks and uncertainties which may affect the Company's
business and prospects, including economic, competitive, governmental,
technological and other factors.
8
PART II--OTHERII - OTHER INFORMATION
ITEM 6--EXHIBITS6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
15--IndependentExhibit 3(i) Certificate of Incorporation of Cubic Corporation (as
amended)
Exhibit 15 Independent Accountants' Review Report
27--Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
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 MayAugust 6, 1998 /s/ W. W. Boyle
------------------------------------------ ---------------------------------
W. W. Boyle
VICE PRESIDENT FINANCE ANDVice President Finance and CFO
Date MayAUGUST 6, 1998 /s/ T. A. Baz
------------------------------------------ ---------------------------------
T. A. Baz
VICE PRESIDENT AND CONTROLLERVice President and Controller
9
EXHIBIT 15--INDEPENDENT ACCOUNTANTS' REVIEW REPORT
THE BOARD OF DIRECTORS
CUBIC CORPORATION
We have reviewed the accompanying consolidated condensed balance sheet of
Cubic Corporation as of March 31, 1998, and the related consolidated
condensed statement of income for the three and six-month periods ended March
31, 1998 and 1997, and the consolidated condensed statement of cash flows for
the six-month periods ended March 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated condensed financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Cubic Corporation as of
September 30, 1997, and the related consolidated statements of income,
retained earnings, and cash flows for the year then ended (not presented
herein) and in our report dated December 4, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated condensed balance
sheet at September 30, 1997, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
SAN DIEGO, CALIFORNIA
May 6, 1998
10