<PAGE>
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, 1998
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, 1998, Registrant had only one class of common stock of
which there were 8,907,158 shares outstanding (after deducting 2,981,085
shares held as treasury stock).
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31 March 31
---------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---------- ---------- --------- ---------
Revenues:
Net sales............................................... $ 181,577 $ 180,245 $ 89,825 $ 96,187
Other income............................................ 2,528 2,994 1,134 1,820
---------- ---------- --------- ---------
184,105 183,239 90,959 98,007
Costs and expenses:
Cost of sales........................................... 145,700 138,566 76,895 74,997
Selling, general and administrative expenses............ 37,402 30,923 19,408 16,380
Research and development................................ 4,293 4,172 2,591 2,016
Interest................................................ 982 858 479 439
---------- ---------- --------- ---------
188,377 174,519 99,373 93,832
---------- ---------- --------- ---------
Income (loss) before income taxes....................... (4,272) 8,720 (8,414) 4,175
Income taxes (benefit).................................. (1,250) 3,150 (2,750) 1,500
---------- ---------- --------- ---------
Net income (loss)....................................... $ (3,022) $ 5,570 $ (5,664) $ 2,675
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Net income (loss) per common share...................... $ (0.34) $ 0.62 $ (0.64) $ 0.30
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Dividends per common share.............................. $ 0.19 $ 0.19 $ 0.19 $ 0.19
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Average shares of common stock outstanding.............. 8,927 8,981 8,910 8,981
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
March 31 September 30
1998 1997
(Unaudited) (See note below)
----------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 35,653 $ 53,257
Marketable securities, available-for-sale...................... 2,392 2,426
Accounts receivable............................................ 108,843 107,807
Inventories--Note C............................................ 36,486 20,955
Deferred income taxes and other current assets................. 16,956 15,783
----------- ---------------
Total current assets........................................... 200,330 200,228
Property, plant and equipment--net............................. 39,840 40,110
Cost in excess of net tangible assets of purchased businesses,
less amortization............................................ 26,213 27,281
Miscellaneous other assets..................................... 14,493 14,663
----------- ---------------
$ 280,876 $ 282,282
----------- ---------------
----------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.......................................... $ 7,173 $ 9,620
Accounts payable and other current liabilities................. 47,575 46,270
Customer advances.............................................. 34,423 30,896
Income taxes payable........................................... 1,845 206
Current portion of long-term debt.............................. 5,000 5,000
----------- ---------------
Total current liabilities...................................... 96,016 91,992
Long-term debt................................................. 10,000 10,000
Deferred income taxes and other................................ 5,294 4,970
Shareholders' equity:
Common stock................................................... 234 234
Additional paid-in capital..................................... 12,123 12,123
Retained earnings.............................................. 193,499 198,213
Foreign currency translation adjustment........................ (238) (557)
Treasury stock at cost......................................... (36,052) (34,693)
----------- ---------------
169,566 175,320
----------- ---------------
$ 280,876 $ 282,282
----------- ---------------
----------- ---------------
</TABLE>
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.
3
<PAGE>
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
March 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Operating Activities:
Net income (loss)...................................................... $ (3,022) $ 5,570
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization...................................... 4,891 4,000
Changes in operating assets and liabilities........................ (9,401) (32,454)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES.............................. (7,532) (22,884)
--------- ---------
Investing Activities:
Sales of marketable securities......................................... 34 41
Proceeds from sale of U. S. Elevator Corp.............................. -- 31,996
Net additions to property, plant and equipment......................... (3,514) (3,273)
Other items--net....................................................... (703) 443
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................ (4,183) 29,207
--------- ---------
Financing Activities:
Change in short-term borrowings........................................ (2,733) --
Purchases of treasury stock............................................ (1,359) --
Dividends paid......................................................... (1,692) (1,706)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES.............................. (5,784) (1,706)
--------- ---------
Effect of exchange rates on cash......................................... (105) (241)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (17,604) 4,376
Cash and cash equivalents at the beginning of the period................. 53,257 20,062
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD................. $ 35,653 $ 24,438
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
A. 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, 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.
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 Amounts
Per share amounts are based upon the weighted average number of shares
of common stock outstanding.
5
<PAGE>
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)--continued
March 31, 1998
C. Inventories
<TABLE>
<CAPTION>
March 31 September 30
1998 1997
- -------------------------------------------------------------------- ----------- ------------
Inventories consist of the following: (In thousands)
<S> <C> <C>
Finished products................................................... $ 2,084 $ 2,501
Work in process..................................................... 25,505 10,300
Raw material and purchased parts.................................... 8,897 8,154
----------- ------------
$ 36,486 $ 20,955
----------- ------------
----------- ------------
</TABLE>
Work in process at March 31, 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 $4.7 million of inventoried costs incurred as pre-contract work
performed at the Company's risk. Management believes the Company will
ultimately recover this and any future amounts to be incurred through
the award of the related contract.
D. Legal Matter
In July 1995, UDT Sensors, Inc. (UDT) a potential subcontractor, filed a
lawsuit against Cubic Defense Systems, Inc. (CDS) in the Superior Court
of the State of California 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
as the prime contractor for a certain government program. After winning
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 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
<PAGE>
CUBIC CORPORATION
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
RESULTS OF OPERATIONS
Sales for the six month period ended March 31, 1998 were essentially flat as
compared to the same period of fiscal 1997. Sales increased 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 States and a decrease in defense segment sales. Sales for the three
month period ended March 31, 1998 decreased 7% primarily as the 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 been 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 period ended March
31, 1998 were 86% higher than in 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 half of fiscal 1997, operating
profits in the segment had been lower due to 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 overall operating profits as compared to the previous year.
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 million, before
applicable income taxes, in each of the first two quarters of the fiscal year.
7
<PAGE>
CUBIC CORPORATION
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--CONTINUED
March 31, 1998
For the three and six month period ended March 31, 1998, selling, general and
administrative expenses increased, both nominally and as a percentage of
sales, over the level in fiscal 1997. This increase was in support of higher
sales volume at the transportation systems segment, increased selling
expenses incurred at the defense segment in pursuit of new contracts and
selling expenses related to the video compression product mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $17.6 million since year end, to $35.7
million at March 31, 1998. During the six month period ended March 31, 1998,
operating activities used $7.5 million, due primarily to growth in
inventoried costs as described in note C. Investing activities included
planned expenditures for capital equipment, which used $3.5 million.
Financing activities included a $2.7 million repayment of short-term
borrowings in the United Kingdom, and $3.1 million used to purchase treasury
stock and pay cash dividends to shareholders. The Company expects that cash
on hand and its available debt capacity will be adequate to meet its short
and long term working capital requirements.
The Company's financial condition remains strong with working capital of
$104.3 million and a current ratio of 2.1 to 1 at March 31, 1998. The backlog
of orders at March 31, 1998 was $354 million, which is comparable to the $358
million at September 30, 1997 and a slight increase from $343 million at
March 31, 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
<PAGE>
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 May 6, 1998 /s/ W. W. Boyle
----------------------------
W. W. Boyle
VICE PRESIDENT FINANCE AND CFO
Date May 6, 1998 /s/ T. A. Baz
----------------------------
T. A. Baz
VICE PRESIDENT AND CONTROLLER
9
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,653
<SECURITIES> 2,392
<RECEIVABLES> 108,843
<ALLOWANCES> 0
<INVENTORY> 36,486
<CURRENT-ASSETS> 200,330
<PP&E> 39,840
<DEPRECIATION> 0
<TOTAL-ASSETS> 280,876
<CURRENT-LIABILITIES> 96,016
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 169,332
<TOTAL-LIABILITY-AND-EQUITY> 280,876
<SALES> 181,577
<TOTAL-REVENUES> 184,105
<CGS> 145,700
<TOTAL-COSTS> 145,700
<OTHER-EXPENSES> 41,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 982
<INCOME-PRETAX> (4,272)
<INCOME-TAX> (1,250)
<INCOME-CONTINUING> (3,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,022)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
