Prepared by MERRILL CORPORATION

10-Q 1 a2056370z10-q.htm FORM 10-Q Prepared by MERRILL CORPORATION
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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, 2001

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 July 20, 2001, Registrant had only one class of common stock of which there were 8,906,664 shares outstanding (after deducting 2,981,579 shares held as treasury stock).

PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)

		Nine Months Ended June 30,				Three Months Ended June 30,
		2001		2000		2001		2000
Revenues:
	Sales	$	370,449	$	393,395	$	127,289	$	133,064
	Other income		6,085		5,866		1,190		2,587

			376,534		399,261		128,479		135,651

Costs and expenses:
	Cost of sales		287,194		310,655		99,160		105,721
	Selling, general and administrative expenses		55,298		59,169		17,070		19,690
	Research and development		6,722		4,517		2,542		1,478
	Goodwill amortization		1,977		1,674		654		634
	Interest		2,685		2,749		929		914

			353,876		378,764		120,355		128,437

Income before income taxes			22,658		20,497		8,124		7,214
Income taxes			7,700		7,100		2,800		2,500

Net income		$	14,958	$	13,397	$	5,324	$	4,714

Net income per share		$	1.68	$	1.50	$	0.60	$	0.53

Dividends per common share		$	0.19	$	0.19	$	—	$	—

Average shares of common stock outstanding			8,907		8,907		8,907		8,907

See accompanying notes.

CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)

		June 30, 2001			September 30, 2000
		(Unaudited)			(See note below)
ASSETS
Current assets:
	Cash and cash equivalents	$	72,224		$	69,753
	Marketable securities, available-for-sale		600			3,586
	Accounts receivable		129,334			123,410
	Inventories—Note 4		30,924			29,499
	Deferred income taxes and other current assets		21,077			23,495

Total current assets			254,159			249,743

Property, plant and equipment—net			34,298			38,469
Goodwill, less amortization			20,855			23,193
Other assets			9,900			10,945

		$	319,212		$	322,350

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Trade accounts payable	$	11,007		$	18,749
	Customer advances		25,334			29,976
	Other current liabilities		35,978			36,286
	Income taxes payable		4,205			6,265

Total current liabilities			76,524			91,276

Long-term debt			50,000			50,000
Deferred compensation			5,386			5,051
Shareholders' equity:
	Common stock		234			234
	Additional paid-in capital		12,123			12,123
	Retained earnings		216,903			203,637
	Accumulated other comprehensive loss		(5,895	)		(3,908	)
	Treasury stock at cost		(36,063	)		(36,063	)

			187,302			176,023

		$	319,212		$	322,350

Note: The balance sheet at September 30, 2000 has been derived from the audited financial statements at that date.

See accompanying notes

CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

			Nine Months Ended June 30,
			2001			2000
Operating Activities:
	Net income		$	14,958		$	13,397
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		8,931			7,936
		Changes in operating assets and liabilities		(18,577	)		(4,928	)

NET CASH PROVIDED BY OPERATING ACTIVITIES				5,312			16,405

Investing Activities:
	Acqusition of business, net of cash acquired			—			(4,798	)
	Net additions to property, plant and equipment			(2,981	)		(3,461	)
	Proceeds from sale of marketable securities			2,703			—

NET CASH USED IN INVESTING ACTIVITIES				(278	)		(8,259	)

Financing Activities:
	Change in short-term borrowings			—			(6,220	)
	Change in long-term borrowings			—			(5,000	)
	Purchases of treasury stock			—			(7	)
	Dividends paid			(1,692	)		(1,692	)

NET CASH USED IN FINANCING ACTIVITIES				(1,692	)		(12,919	)

Effect of exchange rates on cash				(871	)		81

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				2,471			(4,692	)
Cash and cash equivalents at the beginning of the period				69,753			61,540

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD			$	72,224		$	56,848

See accompanying notes

CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

June 30, 2001

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 accounting principles generally accepted in the United States 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 ending September 30, 2001. 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, 2000.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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.

Note 2—Per Share Amounts

Per share amounts are based upon the weighted average number of shares of common stock outstanding.

Note 3—Derivative Financial Instruments

The Company adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) effective October 1, 2000. Adoption of SFAS 133 has not materially affected the results of operations or financial position of the Company.

The Company's use of derivative financial instruments is limited to foreign exchange forward and option contracts used to hedge significant contract sales and purchase commitments that are denominated in currencies other than the functional currency of the subsidiary responsible for the commitment. Gains and losses from hedging activities are recognized when the hedged sale or purchase commitment is settled and the hedge is closed out. At June 30, 2001, the Company had foreign exchange contracts with a notional value of $38.2 million outstanding. The net amount of deferred gains and losses at that date was immaterial.

Note 4—Inventories

Inventories consist of the following (in thousands):

	June 30, 2001		September 30, 2000
Finished products	$	653	$	1,239
Work in process		19,307		17,699
Raw material and purchased parts		10,964		10,561

	$	30,924	$	29,499

Note 5—Comprehensive Income

Comprehensive income is as follows (in thousands):

		Nine Months Ended June 30,						Three Months Ended June 30,
		2001			2000			2001		2000
Net income		$	14,958		$	13,397		$	5,324	$	4,714
Foreign currency translation adjustments			(1,704	)		(2,896	)		51		(749	)
Unrealized gains on marketable securities:
	Unrealized holding gain during the period		506			294			42		320
	Reclassification adjustment for (gain) loss included in net income		(789	)		—			120		—

		$	12,971		$	10,795		$	5,537	$	4,285

Note 6—Business Segment Information

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

		Nine Months Ended June 30,						Three Months Ended June 30,
		2001			2000			2001			2000
Revenues:
Transportation systems		$	150.0		$	181.3		$	48.7		$	56.6
Defense			209.2			199.9			74.9			72.6

	Total for reportable segments		359.2			381.2			123.6			129.2
Other revenues			17.3			18.1			4.9			6.5

		$	376.5		$	399.3		$	128.5		$	135.7

Operating profit:
Transportation systems		$	16.2		$	13.3		$	5.8		$	4.0
Defense			5.1			7.2			2.5			2.0

	Total for reportable segments		21.3			20.5			8.3			6.0
Other profit			4.1			2.7			0.7			2.1
Interest expense			(2.7	)		(2.7	)		(0.9	)		(0.9	)

Income before income taxes		$	22.7		$	20.5		$	8.1		$	7.2

CUBIC CORPORATION
ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 30, 2001

Results of Operations

Revenues for the first three quarters of fiscal 2001 continued to be somewhat lower than in fiscal 2000, as the result of lower sales in the transportation segment. Third quarter sales were down about 4% overall from the previous year, with a slight increase in sales from the defense segment being offset by a decrease from the transportation segment.

Transportation segment sales were lower primarily due to customer directed delays in the production of new equipment for Bay Area Rapid Transit and due to delays in the award of additional work by the New York City Transit Authority. The Company continued to make progress on the Prestige contract in London, and anticipates on-time completion of the equipment installation phase by August 2002. The Company is actively pursuing several large transportation systems projects and the market for automated transportation systems continues to be very promising.

In spite of the decreased transportation sales volume this year, profit margins improved, resulting in higher profits from this segment for the first three quarters of the fiscal year. Management believes that the quality of earnings in the segment have improved due to the maturity of its customer base and the substantial completion of several contracts with lower profit margins. Management expects operating profits from the transportation segment to continue to be strong in the next year.

The increase in defense segment sales in the third quarter and the first three quarters of the year, compared to fiscal 2000, resulted from acquisitions made in fiscal 2000 and from growth in the computerized battlefield simulation business. Profits of the defense segment improved in the third quarter compared to last year and have improved sequentially in each of the first three quarters of the current fiscal year. Management expects operating profits from this segment to continue to increase over the next year or so.

Funded backlog at June 30, 2001 was $746,000,000 compared to $802,000,000 at September 30, 2000 and $785,000,000 at June 30, 2000. Total backlog, including un-funded customer orders, was $1,106,000,000 at June 30, 2001, compared to $1,071,000,000 at September 30, 2000 and $1,054,000,000 at June 30, 2000.

Liquidity and Capital Resources

Cash flows from operating activities turned positive in the third quarter, as customer payments reduced the accounts receivable balance at the end of the quarter. The Company expects cash flow from operations to continue moderately positive through the end of the fiscal year.

The Company's financial condition remains quite strong with working capital of $178 million and a current ratio of 3.3 to 1 at June 30, 2001. The Company expects that cash on hand and its unused debt capacity will be adequate to meet its working capital requirements for the foreseeable future.

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.

PART II—OTHER INFORMATION

ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K

(a): The following exhibit is included herein:

15—Independent Accountants' Review Report

(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 6, 2001		/s/ W. W. Boyle W. W. Boyle Vice President and CFO

Date August 6, 2001		/s/ T. A. Baz T. A. Baz Vice President and Controller

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PART I—FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS
CUBIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (amounts in thousands, except per share data)
CUBIC CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
CUBIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
CUBIC CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2001
CUBIC CORPORATION ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS June 30, 2001
PART II—OTHER INFORMATION
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES