<PAGE>
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 December 31, 1997
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 January 30, 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>
Three Months Ended
December 31
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Net sales $ 91,752 $ 84,058
Other income 1,394 1,174
--------- ---------
93,146 85,232
--------- ---------
Costs and expenses:
Cost of sales 68,805 64,870
Selling, general and
administrative expenses 17,994 14,084
Research and development 1,702 1,314
Interest 503 419
--------- ---------
89,004 80,687
--------- ---------
Income before income taxes 4,142 4,545
Income taxes 1,500 1,650
--------- ---------
Net income $ 2,642 $ 2,895
--------- ---------
--------- ---------
Net income per share $ .30 $ .32
--------- ---------
--------- ---------
Average shares of common stock outstanding 8,943 8,981
--------- ---------
</TABLE>
See accompanying notes.
2
<PAGE>
CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
December 31 September 30
1997 1997
(Unaudited) (See note below)
----------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66,359 $ 53,257
Marketable securities, available-for-sale 2,392 2,426
Accounts receivable 103,256 107,807
Inventories -- Note C 25,973 20,955
Deferred income taxes and other current assets 13,113 15,783
---------- ----------
Total current assets 211,093 200,228
---------- ----------
Property, plant and equipment - net 39,710 40,110
Cost in excess of net tangible assets of
purchased businesses, less amortization 26,757 27,281
Miscellaneous other assets 14,505 14,663
-------- --------
$ 292,065 $ 282,282
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 10,905 $ 9,620
Accounts payable and other current liabilities 47,593 46,270
Customer advances 33,445 30,896
Income taxes payable 2,136 206
Current portion of long-term debt 5,000 5,000
---------- ----------
Total current liabilities 99,079 91,992
---------- ----------
Long-term debt 10,000 10,000
Deferred income taxes and other liabilities 5,453 4,970
Shareholders' equity:
Common stock 234 234
Additional paid-in capital 12,123 12,123
Retained earnings 200,855 198,213
Foreign currency translation adjustment (425) (557)
Treasury stock at cost (35,254) (34,693)
---------- ----------
177,533 175,320
---------- ----------
$ 292,065 $ 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.
3
<PAGE>
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1997 1996
-------- --------
<S> <C> <C>
Operating Activities:
Net income $ 2,642 $ 2,895
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,493 2,013
Changes in operating assets and liabilities 8,970 (10,556)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 14,105 (5,648)
-------- --------
Investing Activities:
Sales of marketable securities 34 --
Net additions to property, plant and equipment (1,537) (1,520)
Other items - net 50 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,453) (1,520)
-------- --------
Financing Activities:
Short-term borrowings 1,097 --
Purchases of treasury stock (561) --
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 536 --
-------- --------
Effect of exchange rates on cash (86) (101)
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 13,102 (7,269)
Cash and cash equivalents at the
beginning of the period 53,257 20,062
-------- --------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 66,359 $ 12,793
-------- --------
-------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1997
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 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.
B. PER SHARE AMOUNTS
Per share amounts are based upon the weighted average number of shares of
common stock outstanding.
C. INVENTORIES
<TABLE>
<CAPTION>
December 31 September 30
1997 1997
----------- ------------
<S> <C> <C>
Inventories consist of the following:
Finished products $ 2,179 $ 2,501
Work in process 15,149 10,300
Raw material and purchased parts 8,645 8,154
-------- --------
$ 25,973 $ 20,955
-------- --------
-------- --------
</TABLE>
Work in process inventories include costs relating to long term contracts
of approximately $8.0 million, the recovery of which is subject to future
determination through contract negotiations. These amounts result from
customer-required work performed not specified in contract provisions and
pre-contract work performed at the Company's risk. Management believes the
Company will ultimately recover these amounts through the modification or
award of the related contracts.
5
<PAGE>
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- continued
December 31, 1997
D. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of fiscal 1998, the Company adopted Financial
Accounting Standards Board Statement No. 128, "Earnings per Share". This
statement redefines the standards for computing and presenting earnings per
share, previously promulgated by Accounting Principles Board Opinion No.
15, " Earnings per Share". Due to the Company's current simple capital
structure, the Company is not required to calculate or present diluted
earnings per share, nor restate earnings per share previously reported.
E. LEGAL MATTER
In July 1995, UDT Sensors, Inc. a potential subcontractor, filed a lawsuit
against Cubic Defense Systems, Inc. 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
Sensors, Inc. alleges it was to receive a subcontract to provide a certain
product if Cubic Defense Systems, Inc. was selected by the United States
Army as the prime contractor for a certain government program. After
winning the prime contract, Cubic Defense Systems, Inc. was unable to reach
agreement on certain terms and conditions for a subcontract with UDT
Sensors, Inc. The lawsuit claimed damages in the amount of $20 million and
more according to proof at trial, exemplary damages in an amount to be
determined at trial, pre-judgment interest and costs of suit. Subsequent to
the filing of the lawsuit, the Superior Court dismissed that part of the
claim of UDT Sensors, Inc. dealing with breach of contract and the damages
claim was reduced to $2 million. The only remaining claims are ones for
fraud and unjust enrichment. The trial date has been reset for April 13,
1998. The Company expects an out-of-court settlement to be reached, which
will not have a material adverse effect on the Company's financial
statements.
F. 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
December 31, 1997
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1998 were 9% higher than the first
quarter of fiscal 1997, primarily due to the acquisition of Thorn Transit
Systems International (TTSI) in April 1997. The addition of this business
contributed to a sales increase of 27% from the prior year in the automatic
revenue collection segment. Sales in the defense segment for the first
quarter of fiscal 1998 were comparable to the first quarter of fiscal 1997.
The Company has continued to invest in the development and promotion of its
proprietary software technology which delivers compressed video and audio
transmission over personal computer networks for applications including e-mail,
intra-net based training and surveillance. This investment amounted to
approximately $1 million in the first quarter, resulting in lower overall
operating profits compared to the first quarter of fiscal 1997.
Operating profits in the defense segment for the first quarter were 35% higher
than in the previous year as a result of increased profits from product lines
such as the J-STARS Data Link and Personnel Locator Systems.
Although sales in the first quarter for the revenue collection segment were up
from last year, operating profits for the first quarter were comparable to the
prior year, as the continued delay of an expected contract with the London
Transport has affected profitability. In addition, second quarter earnings may
be negatively impacted because of the possible need to set aside reserves for
some of the Asian contracts that came with the acquisition of TTSI. The impact
of this is currently being assessed and will, if necessary, be reflected in the
second quarter.
For the three-month period, 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 automatic
revenue collection 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
During the three month period ended December 31, 1997, operating activities
provided $14.1 million, due primarily to collections from customers exceeding
the related contract expenditures. Investing activities included planned
expenditures for capital equipment, which used $1.5 million. Financing
activities included an increase in the Company's short-term borrowings in the
United Kingdom that provided $1.1 million. This was partially offset by
treasury stock purchases of $0.6 million. Overall, cash and cash equivalents
increased by $13.1 million during the first quarter to $66.4 million as of
December 31, 1997. The Company expects that cash on hand and its available debt
capacity will be adequate to meet its short-term working capital requirements.
7
<PAGE>
CUBIC CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - continued
December 31, 1997
The Company's financial condition remains strong with working capital of $112.0
million and a current ratio of 2.1 to 1 at December 31, 1997. The backlog of
orders at December 31, 1997 was $380 million compared to $358 million at
September 30, 1997 and $320 million at December 31, 1996. The increase from
December 31, 1996 to December 31, 1997, was primarily the result of the TTSI
acquisition.
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 February 6, 1998 /s/ W. W. Boyle
---------------- -----------------
W. W. Boyle
Vice President Finance and CFO
Date February 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 December 31, 1997, and the related consolidated condensed
statements of income and cash flows for the three-month periods ended December
31, 1997 and 1996. 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
February 6, 1998
San Diego, California
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 66,359
<SECURITIES> 2,392
<RECEIVABLES> 103,256
<ALLOWANCES> 0
<INVENTORY> 25,973
<CURRENT-ASSETS> 211,093
<PP&E> 39,710
<DEPRECIATION> 0
<TOTAL-ASSETS> 292,065
<CURRENT-LIABILITIES> 99,079
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 177,299
<TOTAL-LIABILITY-AND-EQUITY> 292,065
<SALES> 91,752
<TOTAL-REVENUES> 93,146
<CGS> 68,805
<TOTAL-COSTS> 68,805
<OTHER-EXPENSES> 19,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 503
<INCOME-PRETAX> 4,142
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 2,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,642
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
