-----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, HAdc1PK5yKFzMakmD0D0Djg8oHqdqZDCYAWMDvus0AXieV5NR3TorAwz/YRVTd7s nO8yguM9jVBv4X3/a8gttg== 0001047469-99-032305.txt : 19990817 0001047469-99-032305.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691343 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 June 30, 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 August 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)
Nine Months Ended Three Months Ended June 30 June 30 1999 1998 1999 1998 ---------------- ---------------- --------------- ---------------- Revenues: Sales $367,691 $281,121 $129,289 $ 99,544 Other income 3,649 3,799 2,043 1,271 ---------------- ---------------- --------------- ---------------- 371,340 284,920 131,332 100,815 Costs and expenses: Cost of sales 293,619 223,242 104,300 77,005 Selling, general and administrative expenses 53,932 55,815 18,155 18,413 Research and development 5,983 6,178 2,061 2,422 Interest 3,170 1,325 1,225 343 ---------------- ---------------- --------------- ---------------- 356,704 286,560 125,741 98,183 ---------------- ---------------- --------------- ---------------- Income (loss) before income taxes 14,636 (1,640) 5,591 2,632 Income taxes (benefit) 5,000 (400) 1,850 850 ---------------- ---------------- --------------- ---------------- Net income (loss) $ 9,636 $ (1,240) $ 3,741 $ 1,782 ---------------- ---------------- --------------- ---------------- ---------------- ---------------- --------------- ---------------- Net income (loss) per common share $ 1.08 $ (0.14) $ 0.42 $ 0.20 ---------------- ---------------- --------------- ---------------- ---------------- ---------------- --------------- ---------------- Dividends per common share $ 0.19 $ 0.19 $ - $ - ---------------- ---------------- --------------- ---------------- ---------------- ---------------- --------------- ---------------- Average number of common shares outstanding 8,907 8,920 8,907 8,907 ---------------- ---------------- --------------- ---------------- ---------------- ---------------- --------------- ----------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 CUBIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (thousands of dollars)
June 30 September 30 1999 1998 (Unaudited) (See note below) ------------------------- ------------------------- ASSETS Current assets: Cash and cash equivalents $ 32,509 $ 3,500 Marketable securities, available-for-sale 1,743 2,086 Accounts receivable 144,985 149,640 Inventories - Note 3 50,443 39,623 Deferred income taxes and other current assets 12,249 15,296 --------------- --------------- Total current assets 241,929 210,145 Property, plant and equipment - net 41,068 40,400 Cost in excess of net tangible assets of purchased businesses, less amortization 23,328 25,788 Miscellaneous other assets 15,034 17,658 --------------- --------------- $321,359 $293,991 --------------- --------------- --------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 10,787 $ 30,321 Accounts payable 9,635 14,534 Customer advances 25,311 27,157 Other current liabilities 32,602 31,344 Income taxes payable 4,125 1,305 Current portion of long-term debt 5,000 5,000 --------------- --------------- Total current liabilities 87,460 109,661 Long-term debt 50,000 5,000 Deferred income taxes and other 6,253 5,778 Shareholders' equity: Common stock 234 234 Additional paid-in capital 12,123 12,123 Retained earnings 203,668 195,724 Accumulated other comprehensive income (loss) (2,323) 1,527 Treasury stock at cost (36,056) (36,056) --------------- --------------- 177,646 173,552 --------------- --------------- $321,359 $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)
Nine Months Ended June 30 1999 1998 --------------- --------------- Operating Activities: Net income (loss) $ 9,636 $ (1,240) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 7,481 7,354 Changes in operating assets and liabilities (7,179) (35,538) --------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,938 (29,424) --------------- --------------- Investing Activities: Sales of marketable securities 343 245 Net additions to property, plant and equipment (7,173) (5,186) Other items - net 1,104 1,795 --------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (5,726) (3,146) --------------- --------------- Financing Activities: Change in short-term borrowings (18,706) 5,038 Change in long-term borrowings 45,000 (5,000) Purchases of treasury stock (1,362) - Dividends paid to shareholders (1,692) (1,692) --------------- --------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 24,602 (3,016) --------------- --------------- Effect of exchange rates on cash 195 35 --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,009 (35,551) Cash and cash equivalents at the beginning of the period 3,500 53,257 --------------- --------------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $32,509 $17,706 --------------- --------------- --------------- ---------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 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 nine-month periods ended June 30, 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. 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 (exclusive of treasury stock). NOTE 3 - INVENTORIES Inventories consist of the following (in thousands):
June 30 September 30 1999 1998 ----------------- ----------------- Raw material and purchased parts $ 10,782 $ 9,836 Work in process 38,524 27,172 Finished products 1,137 2,615 ----------------- ----------------- $ 50,443 $ 39,623 ----------------- ----------------- ----------------- -----------------
5 CUBIC CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--continued June 30, 1999 Work in process inventories increased $11.4 million from September 30, 1998 to June 30, 1999, but decreased $8.0 million from March 31, 1999. As previously expected, a significant number of automatic fare collection gates and other contract deliverables, which were being carried in inventory through March 31, were installed in the third quarter. It is expected that work in process inventories will continue to decrease through the end of the fiscal year. NOTE 4 - COMPREHENSIVE INCOME The following information is presented in accordance with Financial Accounting Standards Board Statement No. 130, "REPORTING COMPREHENSIVE INCOME." In 1999, total comprehensive income was $2,409,000 and $5,786,000 for the three and nine-month periods ended June 30. In 1998, total comprehensive income was $1,773,000 for the three-month period ended June 30, contrasted with a comprehensive loss of $930,000 for the respective nine-month period. 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 June 30, 1999 RESULTS OF OPERATIONS Sales for the third quarter and first nine months of fiscal 1999 increased approximately 30% over the comparable periods of 1998, as each business segment realized an increase in volume. Transportation systems segment sales rose sharply as a result of work on the PRESTIGE contract, which was awarded in the fourth quarter of fiscal 1998. Defense segment sales improved as well, due to increases from most product lines, including MILES 2000, JSTARS and the ground combat training system being built for the British military, called AWES. Operating profits improved significantly for the quarter ended June 30, 1999 when compared to the same quarter last year as the transportation systems segment continued to generate higher profits, primarily from its maintenance contracts in the U.K. The maintenance contracts contributing most significantly to this increase are associated with the Thorn Transit Systems International (TTSI) business acquired in 1997, which has since been merged into the previously existing U.K. operations. Operating profits in this segment for the nine-month period reflect an improvement of more than $19 million over the same period in the previous year, as that period included a provision of $9.5 million to recognize losses on certain Asian contracts acquired with TTSI. Included in Accounts Receivable at June 30, 1999 are approximately $11 million in claims for customer required work performed outside the scope of the respective contracts. Although this amount has not changed during the quarter, we have made progress toward settlement and expect closure on most significant issues before the end of the calendar year. Defense segment operating profits were down 28% in both the three- and nine-month periods ended June 30, 1999 due to further technical problems with the MILES and Nellis Air Combat Training System (NACTS) contracts, which we believe have now been resolved. These problems have been partially offset by continued favorable performance from the JSTARS program. As a result of cost reduction measures which have been taken and improved program performance, it is expected that defense segment operating profits should improve in the fourth quarter of the fiscal year. The commercial operations segment continues to register losses in the Cubic Videocomm business unit as we pursue a partner for, or new owner of, this business by fiscal year end. The paper products business unit in this segment continues to post profitable quarters at levels consistent with prior years. Other income includes a $1.4 million, one-time, pretax gain in the third quarter of the fiscal year, generated from the Company's sale of its investment in a real estate development project. 7 CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued June 30, 1999 Selling, general and administrative expenses decreased in all segments as cost containment actions, especially in the defense segment, have taken hold. As a result, during the three- and nine-month periods, while sales increased by approximately 30%, SG&A expense decreased one and three percent, respectively. The increase in interest expense, compared to the three- and nine-month periods of last year, reflects the higher level of long-term borrowing in the current year. LIQUIDITY AND CAPITAL RESOURCES During the nine-month period ended June 30, 1999, cash provided from operations exceeded $9.9 million. Accelerated collections of accounts receivable in the defense segment offset growth in inventories resulting primarily from additional gates being built for use in transportation systems in the U.K. We expect that inventory levels will decrease in the near future as these gates are installed for PRESTIGE and other U.K. contracts. The Company's financial condition remains strong with working capital of $154 million and a current ratio of 2.8 to 1 at June 30, 1999. We expect that cash on hand and available debt capacity will be adequate to meet the company's short-term working capital requirements. The backlog of orders at June 30, 1999 was $951 million compared to $972 million at September 30, 1998 and $348 million at June 30, 1998. The increase from June 30, 1998 to June 30, 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 June 30, 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. Final testing of all systems should be completed by September 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, while we do not expect it will be the case, any such failure to be compliant could have a materially 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 where possible. 9 CUBIC CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued June 30, 1999 The Company's business unit personnel have been in discussions with customers to diagnose and make compliant delivered products. 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 insignificant. 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 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 each known possible scenario, and take appropriate actions, where necessary, to mitigate the impact of each one. 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 June 30, 1999, the Company incurred a total of approximately $750,000 in incremental Year 2000 remedial costs. Based on current estimates, and assuming there is not a material change in available resources, the Company will incur another $250,000 to $350,000 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 June 30, 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 BELIEVE, 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 August 5, 1999 /s/ W. W. Boyle --------------- ------------------------- W. W. Boyle Vice President Finance and CFO Date August 5, 1999 /s/ T. A. BAZ --------------- --------------- T. A. Baz Vice President and Controller 12 EX-15 2 EXHIBIT 15 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 June 30, 1999, the related condensed consolidated statements of income for the three and nine-month periods ended June 30, 1999 and 1998, and the condensed consolidated statements of cash flows for the nine-month periods ended June 30, 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 August 5, 1999 EX-27 3 EXHIBIT 27
5 1,000 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 32,509 1,743 144,985 0 50,443 241,929 41,068 0 321,359 87,460 0 0 0 234 177,412 321,359 367,691 371,340 293,619 293,619 59,915 0 3,170 14,636 5,000 9,636 0 0 0 9,636 1.08 0
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