-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TPy3Hk33WPhckEzrxQ7FjvaOpTioD38I6gYTOuTYgsCe4sOmlzImHq6nvcnjkbHZ m7Xqy5d1ywcP/iloB9vrbg== 0001047469-99-020939.txt : 19990518 0001047469-99-020939.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-020939 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUBIC CORP /DE/ CENTRAL INDEX KEY: 0000026076 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 951678055 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08931 FILM NUMBER: 99625857 BUSINESS ADDRESS: STREET 1: 9333 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6192776780 MAIL ADDRESS: STREET 1: PO BOX 85587 CITY: SAN DIEGO STATE: CA ZIP: 92186-5587 10-Q 1 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 March 31, 1999 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 (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 / / As of May 1, 1999, Registrant had only one class of common stock of which there were 8,907,004 shares outstanding (after deducting 2,981,239 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)
Six Months Ended Three Months Ended March 31 March 31 1999 1998 1999 1998 ---------------- ---------------- --------------- ---------------- Revenues: Net sales $238,402 $181,577 $139,644 $89,825 Other income 1,606 2,528 817 1,134 ---------------- ---------------- --------------- ---------------- 240,008 184,105 140,461 90,959 Costs and expenses: Cost of sales 189,319 145,700 112,241 76,895 Selling, general and administrative expenses 35,777 37,402 19,738 19,408 Research and development 3,922 4,293 2,336 2,591 Interest 1,945 982 1,166 479 ---------------- ---------------- --------------- ---------------- 230,963 188,377 135,481 99,373 ---------------- ---------------- --------------- ---------------- Income (loss) before income taxes 9,045 (4,272) 4,980 (8,414) Income taxes (benefit) 3,150 (1,250) 1,750 (2,750) ---------------- ---------------- --------------- ---------------- Net income (loss) $ 5,895 $ (3,022) $ 3,230 $ (5,664) ================ ================ =============== ================ Net income (loss) per common share $ 0.66 $ (0.34) $ 0.36 $ (0.64) ================ ================ =============== ================ Dividends per common share $ 0.19 $ 0.19 $ 0.19 $ 0.19 ================ ================ =============== ================ Average shares of common stock outstanding 8,907 8,927 8,907 8,910 ================ ================ =============== ================
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -2- CUBIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (thousands of dollars)
March 31 September 30 1999 1998 (Unaudited) (See note below) -------------------------- ------------------------- ASSETS Current assets: Cash and cash equivalents $ 17,154 $ 3,500 Marketable securities, available-for-sale 1,743 2,086 Accounts receivable 158,772 149,640 Inventories - Note 3 57,259 39,623 Deferred income taxes and other current assets 12,408 15,296 ---------------- ---------------- Total current assets 247,336 210,145 Property, plant and equipment - net 41,083 40,400 Cost in excess of net tangible assets of purchased businesses, less amortization 24,092 25,788 Miscellaneous other assets 16,983 17,658 ================ ================ $ 329,494 $ 293,991 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 4,927 $ 30,321 Accounts payable 19,101 14,534 Customer advances 29,216 27,157 Other current liabilities 31,225 31,344 Income taxes payable 3,649 1,305 Current portion of long-term debt 5,000 5,000 ---------------- ---------------- Total current liabilities 93,118 109,661 Long-term debt 55,000 5,000 Deferred income taxes and other 6,139 5,778 Shareholders' equity: Common stock 234 234 Additional paid-in capital 12,123 12,123 Retained earnings 199,927 195,724 Accumulated other comprehensive income (loss) (991) 1,527 Treasury stock at cost (36,056) (36,056) ---------------- ---------------- 175,237 173,552 ================ ================ $ 329,494 $ 293,991 ================ ================
Note: The balance sheet at September 30, 1998 has been derived from the audited financial statements at that date. SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -3- CUBIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (thousands of dollars)
Six Months Ended March 31 1999 1998 --------------- --------------- Operating Activities: Net income (loss) $ 5,895 $(3,022) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 5,041 4,891 Changes in operating assets and liabilities (15,218) (9,401) --------------- --------------- NET CASH USED IN OPERATING ACTIVITIES (4,282) (7,532) --------------- --------------- Investing Activities: Sales of marketable securities 343 34 Net additions to property, plant and equipment (5,113) (3,514) Other items - net (427) (703) --------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (5,197) (4,183) --------------- --------------- Financing Activities: Change in short-term borrowings (24,930) (2,733) Change in long-term borrowings 50,000 - Purchases of treasury stock - (1,359) Dividends paid (1,692) (1,692) --------------- --------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 23,378 (5,784) --------------- --------------- Effect of exchange rates on cash (245) (105) --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,654 (17,604) Cash and cash equivalents at the beginning of the period 3,500 53,257 --------------- --------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $17,154 $35,653 =============== ===============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. -4- CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 1999 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated 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 three and six-month periods ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended September 30, 1999. 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, 1998. 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. NOTE 2 - PER SHARE AMOUNTS Per share amounts are based upon the weighted average number of shares of common stock outstanding. NOTE 3 - INVENTORIES
March 31 September 30 1999 1998 ------------------- ------------------- Inventories consist of the following (in thousands): Raw material and purchased parts $ 9,194 $ 9,836 Work in process 46,567 27,172 Finished products 1,498 2,615 ------------------- ------------------- $ 57,529 $ 39,623 =================== ===================
Work in process inventories increased from September 30, 1998 to March 31, 1999 primarily as a result of additional gates being built during the period for use in automatic fare collection systems. A substantial portion of these gates were built to meet requirements under existing contracts, the most significant of which is the PRESTIGE contract. It is expected that inventory levels will decrease in future quarters as these gates are installed and the costs are charged to contracts. -5- CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--continued March 31, 1999 NOTE 4 - COMPREHENSIVE INCOME Total comprehensive income was $1,873,000 and $3,377,000 for the three and six-month periods ended March 31, 1999 and a comprehensive loss of $5,477,000 and $2,703,000 for the three and six-month periods ended March 31, 1998. The difference between net income or loss and comprehensive income or loss in each of the periods was the result of foreign currency translation adjustments. 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'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 31, 1999 RESULTS OF OPERATIONS Sales for the second quarter of fiscal 1999 increased 55% over the second quarter of fiscal 1998, as each business segment realized increases. Sales for the first six months of the fiscal year were up by 31%. Transportation systems segment sales rose sharply, as project activity for the PRESTIGE contract, located in the United Kingdom, accelerated. Defense segment sales improved as well, due to increases from the MILES 2000 and JSTARS product lines and from the contract to produce a ground combat training system for the British military, known as Area Weapons Effect Simulator (AWES). Commercial operations segment sales were moderately higher, due to increased sales of Cubic Videocomm's video e-mail product, resulting from the Company's continued marketing and product promotion efforts. While the Company expects to continue to generate a higher level of sales in each quarter of the year than in the comparable quarter of the previous year, it is not expected that sales growth of the magnitude experienced from the first quarter to the second quarter of 1999 will continue, due to the fact that the increase was caused largely by ramp-up of the PRESTIGE contract. Operating profits improved significantly over the loss incurred in the second quarter of fiscal 1998, a quarter in which the Company had recorded a $9.5 million pre-tax reserve for estimated losses on several transportation systems segment contracts in Asia. All but two of these Asian contracts have been substantially completed. Although management believes that the reserve established in 1998 will be adequate to cover all losses pertaining to these contracts, the ultimate outcome of these contracts continues to contain risk, as it depends upon the collection of claims for customer-required work performed outside the scope of the respective contracts. Including these contracts and several European contracts, the Company had approximately $11 million in Accounts Receivable at March 31, 1999, subject to claims. Defense segment operating profits decreased in the second quarter of 1999, due primarily to cost growth on the MILES 2000 project for the U. S. government. Additional technical difficulties with this new product led to an increase in the loss provision for this contract being recorded in the quarter. However, profit margins from the JSTARS and other product lines resulted in a modest operating profit for this segment in the quarter. Operating losses in the commercial operations segment narrowed for the three and six-month periods as compared to the same periods of fiscal 1998. This was mostly the result of improved sales of Cubic Videocomm's video e-mail product. The Company is continuing to pursue the possibility of a partner or new owner of this business and expects to accomplish this before the end of the fiscal year. -7- CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued March 31, 1999 For the three-month period ending March 31, 1999, selling, general and administrative expenses increased slightly from the level in fiscal 1998. This increase occurred primarily in the United Kingdom and was in support of an increase in contractual and administrative activities related to the PRESTIGE and other contracts in the U.K. For the six-month period, selling, general and administrative expenses decreased in 1999, due to reductions in selling expenses in both the defense and transportation systems segments. Selling, general and administrative expenses as a percentage of sales dropped from 20.6% of sales in the first half of 1998 to 15.0% in the comparable period of 1999, as a result of the increase in sales. Cash available for investment was significantly lower in the six-month period ended March 31, 1999 than in the same period of the previous year, resulting in lower investment income. In addition, interest expense was higher in the current year due to a higher level of long-term borrowings. LIQUIDITY AND CAPITAL RESOURCES During the six-month period ended March 31, 1999, operating activities used $4.3 million due to growth in inventories and accounts receivable. The increase in inventories resulted primarily from additional gates being built for use in the transportation systems segment. A substantial portion of these gates were built to meet requirements under existing contracts, the most significant of which is the PRESTIGE contract. It is expected that inventory levels will decrease in future quarters as these gates are installed and the costs are charged to contracts. The increase in accounts receivable was primarily due to the significant increase in sales volume during the second quarter. Cash flow from operating activities did begin improving in the second quarter, when the Company received several large cash payments from customers. The Company's financial condition remains strong with working capital of $154 million and a current ratio of 2.7 to 1 at March 31, 1999. The backlog of orders at March 31, 1999 was $970 million compared to $972 million at September 30, 1998 and $354 million at March 31, 1998. The increase from March 31, 1998 to March 31, 1999, was the result of major contracts awarded in the fourth quarter of fiscal 1998, primarily the AWES and PRESTIGE contracts. -8- CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued March 31, 1999 YEAR 2000 ISSUE The Year 2000 issue arises from the fact that many existing computer software programs use only the last two digits to refer to a specific year, instead of all four digits. As a result, computer programs that have date-sensitive software, or operate with date-sensitive data, may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions in operations, including, among other things, the temporary inability to process transactions or engage in normal business activities. GENERAL The Company has assembled a Year 2000 Task Force, which includes personnel from corporate and business unit management to ensure that the Company, as a whole, is Year 2000 compliant by December 31, 1999. The objectives of this task force are to ensure that the Company and its subsidiaries: (1) identify non-compliant operating systems, software, and data files, (2) assess, to the extent possible, the potential problems of being non-compliant, (3) estimate both the amount and timing of costs to be incurred to fix the potential problems of being non-compliant, and (4) develop and execute a comprehensive strategy, including contingency plans, to mitigate these problems. IDENTIFICATION OF OPERATING SYSTEMS, SOFTWARE AND DATA FILES The Company recognizes that it must make remedial changes to its own operating systems, software and data files, as well as assess the remedial efforts undertaken by its suppliers and customers. In addition, the Company may have potential exposure to make products previously delivered compliant, depending on the terms and conditions of its existing contracts. The Company is making appropriate modifications and updates to its internal information systems, some of which have been or are being done in the ordinary course of business. It is expected that final testing of all systems will be completed by the third calendar quarter of 1999. The Company's goal is to ensure, to the extent possible, that the transition from the year 1999 to the year 2000 will not have a materially adverse impact on its engineering, manufacturing or administrative capabilities. The Company began contacting key suppliers and subcontractors in 1998. The Company is attempting to obtain, wherever possible, written certification of their preparedness for the Year 2000 issues. In cases where this cannot be obtained, the Company is developing precautionary plans, on a case by case basis, to minimize disruptions caused by their non-compliance. There is no possible way to ensure that all suppliers and subcontractors will be Year 2000 compliant by December 31, 1999, and any such failure to be compliant could have an adverse impact on the Company's business. Therefore, the Company's goal is to minimize the potentially adverse impact by monitoring suppliers and subcontractors' compliance efforts, and by identifying alternate suppliers and subcontractors where possible. -9- CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued March 31, 1999 The Company has been in discussions with customers to diagnose and make compliant delivered products and services. The Company has also identified contracts that contain warranty provisions stipulating that the Company is responsible for Year 2000 compliance of products previously delivered. The Company believes it is now aware of the most significant of such products and has completed much of the work required to make its products compliant. Current estimates indicate that the remaining costs to complete this task will be minimal. In certain cases, the Company has received contracts from its customers to upgrade previously delivered products to be Year 2000 compliant and has substantially completed work under these contracts. The Company is aware of the potential that claims could be made against it and other companies for damages arising from products and services that are not Year 2000 compliant. The Company is not in a position to identify or to avoid all possible scenarios that could lead to claims against it. However, the Company will assess scenarios and take steps to mitigate the impact of various scenarios if they were to occur. POTENTIAL PROBLEMS OF NON-COMPLIANCE The potential problems of internal or external non-compliance include, but are not limited to: (1) penalties caused by the inability of the Company to receive supplies and subcontracted deliverables in a timely manner to meet delivery schedules stipulated under existing contracts, (2) cash flow restrictions caused by the failure of significant customers to make payments in accordance with contract terms, and (3) productivity loss caused by disruptions in engineering, manufacturing and administrative capabilities. COSTS TO ADDRESS THE ISSUE Through March 31, 1999, the Company incurred a total of approximately $600,000 in incremental Year 2000 remedial costs. This total represents an increase from previous estimates due to the cost of in-house labor, to review the status of the Company's products and to support vendor and subcontractor inquiries, being higher than previously estimated. Based on current estimates, and assuming there is not a material change in available resources, the Company will incur another $400,000 to $500,000 through the fourth calendar quarter of 1999. These costs, which will be expensed as incurred, consist primarily of in-house labor, but also include a minor amount of outside services and computer hardware and software purchases. -10- CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued March 31, 1999 DEVELOPMENT AND EXECUTION OF COMPREHENSIVE STRATEGY Under the direction of the Year 2000 Task Force, the Company is developing a comprehensive strategy to address the problems associated with the Year 2000 transition. It is expected that this strategy will continually evolve as new issues arise and old ones are resolved. While the Company continues to believe that the Year 2000 matters discussed above will not have a materially adverse impact on its business, financial condition or results of operations, it is not possible to determine with certainty whether or to what extent the Company may be affected. 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. -11- PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: Exhibit 15 - Independent Accountants' Review Report 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 MAY 6, 1999 /s/ W. W. Boyle ------------- ----------------------- W. W. Boyle Vice President Finance and CFO Date MAY 6, 1999 /s/ T. A. Baz ------------- ----------------------- T. A. Baz Vice President and Controller -12- EXHIBIT 15 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Shareholders Cubic Corporation We have reviewed the accompanying condensed consolidated balance sheet of Cubic Corporation as of March 31, 1999, the related condensed consolidated statements of income for the three and six-month periods ended March 31, 1999 and 1998, and the condensed consolidated statements of cash flows for the six-month period ended March 31, 1999 and 1998. 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 condensed consolidated 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, 1998 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 November 25, 1998, except for the second paragraph of Note 11, as to which the date is December 7, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet at September 30, 1998, 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, 1999 -13- EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1999 MAR-31-1999 17,154 1,743 158,772 0 57,259 247,336 41,083 0 329,494 93,118 0 0 0 234 175,003 329,494 238,402 240,008 189,319 189,319 39,699 0 1,945 9,045 3,150 5,895 0 0 0 5,895 .66 0
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