10-Q 1 a10-q.txt 10-Q 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 June 30, 2000 1-8931 ------ Commission File Number CUBIC CORPORATION Exact Name of Registrant as Specified in its Charter DELAWARE 95-1678055 -------- ---------- State of Incorporation IRS Employer Identification No. 9333 Balboa Avenue San Diego, California 92123 Telephone (858) 277-6780 Indicate by check mark whether the Registrant (1) 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 /_/ As of August 4, 2000, Registrant had only one class of common stock of which there were 8,906,689 shares outstanding (after deducting 2,981,554 shares held as treasury stock). PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CUBIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (amounts in thousands, except per share data)
Nine Months Ended Three Months Ended June 30, June 30, 2000 1999 2000 1999 ---------------- ---------------- --------------- ---------------- Revenues: Sales $ 393,395 $ 367,691 $ 133,064 $ 129,289 Other income 5,866 3,649 2,587 2,043 --------- --------- --------- --------- 399,261 371,340 135,651 131,332 Costs and expenses: Cost of sales 310,655 293,963 105,721 107,086 Selling, general and administrative expenses 59,169 52,342 19,690 15,171 Goodwill amortization 1,674 1,590 634 542 Research and development 4,517 5,639 1,478 1,717 Interest 2,749 3,170 914 1,225 --------- --------- --------- --------- 378,764 356,704 128,437 125,741 --------- --------- --------- --------- Income before income taxes 20,497 14,636 7,214 5,591 Income taxes 7,100 5,000 2,500 1,850 --------- --------- --------- --------- Net income $ 13,397 $ 9,636 $ 4,714 $ 3,741 ========= ======== ======== ======== Net income per common share $ 1.50 $ 1.08 $ 0.53 $ 0.42 ========= ======== ======== ======== Dividends per common share $ 0.19 $ 0.19 $ - $ - ========= ======== ======== ======== Average number of common shares outstanding 8,907 8,907 8,907 8,907 ========= ======== ======== ========
SEE ACCOMPANYING NOTES. 2 CUBIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (thousands of dollars)
June 30, September 30, 2000 1999 (Unaudited) (See note below) --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 56,848 $ 61,540 Marketable securities, available-for-sale 3,212 1,802 Accounts receivable 147,454 133,252 Inventories - Note 3 32,185 36,400 Deferred income taxes and other current assets 14,008 16,540 -------- --------- Total current assets 253,707 249,534 Property, plant and equipment - net 40,004 42,976 Goodwill, less amortization 21,957 23,273 Miscellaneous other assets 10,916 14,378 -------- --------- $326,584 $ 330,161 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ - $ 6,457 Accounts payable 8,647 13,761 Customer advances 24,936 23,460 Salaries and wages, and amounts withheld from employees' compensation 19,325 17,757 Other current liabilities 23,444 20,219 Income taxes payable 3,475 4,671 Current portion of long-term debt - 5,000 -------- --------- Total current liabilities 79,827 91,325 Long-term debt 50,000 50,000 Deferred compensation and other 5,140 5,871 Shareholders' equity: Common stock 234 234 Additional paid-in capital 12,123 12,123 Retained earnings 218,052 206,347 Accumulated other comprehensive income (loss) (2,729) 317 Treasury stock at cost (36,063) (36,056) -------- --------- 191,617 182,965 -------- --------- $326,584 $ 330,161 ======== =========
Note: The balance sheet at September 30, 1999 has been derived from the audited financial statements at that date. SEE ACCOMPANYING NOTES. 3 CUBIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (thousands of dollars)
Nine Months Ended June 30, 2000 1999 --------------- --------------- Operating Activities: Net income $ 13,397 $ 9,636 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,936 7,481 Changes in operating assets and liabilities (4,928) (7,179) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,405 9,938 ---------- ---------- Investing Activities: Sales of marketable securities - 343 Acquisition of business, net of cash acquired (4,798) Net additions to property, plant and equipment (3,461) (7,173) Other items - net - 1,104 ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (8,259) (5,726) ---------- ---------- Financing Activities: Change in short-term borrowings (6,220) (18,706) Change in long-term borrowings (5,000) 45,000 Purchases of treasury stock (7) - Dividends paid to shareholders (1,692) (1,692) ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (12,919) 24,602 ---------- ---------- Effect of exchange rates on cash 81 195 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,692) 29,009 Cash and cash equivalents at the beginning of the period 61,540 3,500 ---------- ---------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 56,848 $ 32,509 ========== ==========
SEE ACCOMPANYING NOTES. 4 CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2000 NOTE 1 - BASIS FOR PRESENTATION The accompanying unaudited consolidated condensed financial statements 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, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ended September 30, 2000. 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, 1999. 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 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. Certain prior period amounts have been reclassified to conform to current period classifications. NOTE 2 - PER SHARE AMOUNTS Per share amounts are based upon the weighted average number of shares of common stock outstanding. NOTE 3 - ACCOUNTS RECEIVABLE During the second quarter, the Company revised its estimate to complete the MILES 2000 program. While this program will not be completed for nearly two years, the Company's current estimates indicate that costs at completion will be higher than previously expected. In management's opinion, based on information currently available, the potential outcome could range from an unrecognized loss of $25 million, before applicable income tax benefit, to full recovery. The Company has not recorded any additional losses at this time, as management believes there is a reasonable basis for recovery of the additional costs. 5 CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- continued June 30, 2000 NOTE 4 - INVENTORIES Inventories consist of the following (in thousands):
June 30, September 30, 2000 1999 --------- ------------- Finished products $ 1,387 $ 1,515 Work in process 19,574 22,926 Raw material and purchased parts 11,224 11,959 ------- ------- $32,185 $36,400 ======= =======
NOTE 5 - COMPREHENSIVE INCOME Comprehensive income is as follows (in thousands):
Nine Months Ended Three Months Ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------- ------------ Net income $13,397 $ 9,636 $ 4,714 $ 3,741 Foreign currency translation adjustment (2,896) (2,490) (749) (1,332) Unrealized holding gain on marketable securities, net of applicable income taxes 294 - 320 - ------------ ------------ ------------- ------------ $10,795 $ 7,146 $ 4,285 $ 2,409 ============ ============ ============= ============
6 CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- continued June 30, 2000 NOTE 6 - BUSINESS SEGMENT INFORMATION Business segment financial data is as follows (in millions):
Nine Months Ended Three Months Ended June 30, June 30, 2000 1999 2000 1999 --------- ---------- ----------- ---------- Revenues: Transportation systems $181.3 $197.0 $ 56.6 $ 69.0 Defense 199.9 157.5 72.6 56.3 Software development - 2.1 - 0.2 --------- ---------- ----------- ---------- Total for reportable segments 381.2 356.6 129.2 125.5 Other revenues 12.2 11.1 3.9 3.8 --------- ---------- ----------- ---------- $393.4 $367.7 $133.1 $129.3 ========= ========== =========== ========== Operating profit: Transportation systems $ 13.3 $ 13.7 $ 4.0 $ 4.1 Defense 7.2 5.4 2.0 2.2 Software development - (3.2) - (1.5) --------- ---------- ----------- ---------- Total for reportable segments 20.5 15.9 6.0 4.8 Other profit 2.7 1.9 2.1 2.0 Interest expense (2.7) (3.2) (0.9) (1.2) --------- ---------- ----------- ---------- Income before income taxes $ 20.5 $ 14.6 $ 7.2 $ 5.6 ========= ========== =========== ==========
NOTE 7 - SUBSEQUENT EVENT - ACQUISITION On July 31, 2000 the Company acquired all the outstanding common shares of Oscmar International, Ltd. ("OSCMAR"), a New Zealand company, for approximately $10 million cash. Goodwill resulting from the acquisition of Oscmar will total approximately $3 million. Oscmar provides tactical engagement simulation systems for use in military training for customers throughout the world. Oscmar will be included in the Company's defense segment. NOTE 8 - 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. 7 CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS June 30, 2000 RESULTS OF OPERATIONS Total revenues for the first three quarters of fiscal 2000 were up 7% compared to 1999, while third quarter revenues increased approximately 3% from the third quarter of the previous year. The revenue increase came almost entirely from the defense segment, as the result of combat training systems contracts awarded to the Company in recent quarters and to increased revenues from its defense related service businesses. Transportation systems sales were somewhat lower than in the prior year as certain automatic fare collection systems contracts in the United Kingdom neared completion. While revenues from the PRESTIGE contract in London also declined somewhat, this decline is consistent with the planned level of activity on the contract. Other revenues increased from the prior year for the first nine months, primarily due to increased investment income resulting from higher available cash balances. During the second quarter, the Company revised its estimate to complete MILES 2000, a program in the defense segment. While this program will not be completed for nearly two years, the Company's current estimates indicate that costs at completion will be higher than previously expected. The customer has been advised of this increase in estimated costs and, as the product already delivered is performing well in the field, is working with the Company to mitigate its financial impact. In management's opinion, based on information currently available, the potential outcome could range from an unrecognized loss of $25 million, before applicable income tax benefit, to full recovery. The Company has not recorded any additional losses at this time, as management believes there is a reasonable basis for recovery of the additional costs. Operating profits in the transportation segment were comparable to the previous year on somewhat lower sales volume. Operating margins from the PRESTIGE contract increased modestly as progress continued on the equipment supply phase of the contract. Mature programs such as the New York City Transit Authority contract continued to provide a solid base of revenues and operating profits. The discontinuance of the video email segment, in the fourth quarter of fiscal 1999, accounted for the third quarter and year-to-date segment operating losses, incurred in fiscal 1999, not being repeated this year. Selling, general and administrative expenses for the three and nine months ended June 30, 2000 increased from the comparable periods in the prior year. The increased spending resulted primarily from selling costs in both the defense and transportation systems segments as proposal and selling activities related to new business prospects increased. 8 CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued June 30, 2000 LIQUIDITY AND CAPITAL RESOURCES The $16 million in cash provided by operating activities for the nine-month period reflected the profitability of the Company during the period, with only a moderate increase in operating assets and liabilities. Investing activities included nearly $5 million used for the acquisition made at the end of the second quarter, while capital spending was somewhat less than in the previous year. Financing activities included the repayment of short-term borrowings in the United Kingdom, in addition to a scheduled payment on long-term borrowings. The Company's financial condition remains strong with working capital of $171 million and a current ratio of 3.1 to 1 at June 30, 2000. The Company expects that cash on hand will be adequate to meet its short-term working capital requirements for the foreseeable future. The backlog of orders at June 30, 2000 was $785 million compared to $907 million at September 30, 1999 and $951 million at June 30, 1999. The decrease in backlog compared to the previous year is primarily attributable to ongoing completion of work on the PRESTIGE contract. FORWARD-LOOKING STATEMENTS In addition to historical matters, this report contains forward-looking statements. They can be identified by words such as MAY, LIKELY, ANTICIPATE, HOPE, ESTIMATE, PLAN, POTENTIAL, FEEL, EXPECT, SHOULD, and CONFIDENT. These forward-looking statements are made pursuant to the safe harbor provisions of 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. These include the effects of politics on negotiations and business dealings with government entities, reductions in defense budgets, economic conditions in the various countries in which the Company does or hopes to do business, competition and technology changes in the defense and transportation industries, and other competitive and technological factors. 9 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: 15--Independent Accountants' Review Report 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 August 10, 2000 /s/ W. W. BOYLE ------------------ ----------------- W. W. Boyle Vice President and CFO Date August 10, 2000 /s/ T. A. BAZ ---------------- ---------------- T. A. Baz Vice President and Controller 10