<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 June 30, 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 August 1, 1998, Registrant had only one class of common stock of
which there were 8,907,067 shares outstanding (after deducting
2,981,176 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>
Nine Months Ended Three Months Ended
June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales $281,121 $290,073 $ 99,544 $109,828
Other income 3,799 4,869 1,271 1,875
-------- -------- -------- --------
284,920 294,942 100,815 111,703
Costs and expenses:
Cost of sales 222,489 223,933 76,789 85,367
Selling, general and
administrative expenses 55,815 49,751 18,413 18,828
Research and development 6,931 6,412 2,638 2,240
Interest 1,325 1,269 343 411
-------- -------- -------- --------
286,560 281,365 98,183 106,846
-------- -------- -------- --------
Income (loss) before income taxes (1,640) 13,577 2,632 4,857
Income taxes (benefit) (400) 4,750 850 1,600
-------- -------- -------- --------
Net income (loss) $ (1,240) $ 8,827 $ 1,782 $ 3,257
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common share $ (0.14) $ 0.98 $ 0.20 $ 0.36
-------- -------- -------- --------
-------- -------- -------- --------
Dividends per common share $ 0.19 $ 0.19 $ - $ -
-------- -------- -------- --------
-------- -------- -------- --------
Average shares of common
stock outstanding 8,920 8,981 8,907 8,981
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
June 30 September 30
1998 1997
(Unaudited) (See note below)
----------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,706 $ 53,257
Marketable securities, available-for-sale 2,181 2,426
Accounts receivable 122,591 107,807
Inventories -- Note 3 36,480 20,955
Deferred income taxes 13,858 10,454
Prepaid expenses and other current assets 3,516 5,329
-------- --------
Total current assets 196,332 200,228
Property, plant and equipment - net 39,556 40,110
Cost in excess of net tangible assets of
purchased businesses, less amortization 25,686 27,281
Miscellaneous other assets 12,515 14,663
-------- --------
$274,089 $282,282
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 14,989 $ 9,620
Accounts payable and other current liabilities 47,670 46,270
Customer advances 22,280 30,896
Income taxes payable 2,351 206
Current portion of long-term debt 5,000 5,000
-------- --------
Total current liabilities 92,290 91,992
Long-term debt 5,000 10,000
Deferred income taxes and other liabilities 5,463 4,970
Shareholders' equity:
Common stock 234 234
Additional paid-in capital 12,123 12,123
Retained earnings 195,281 198,213
Foreign currency translation adjustment (247) (557)
Treasury stock at cost (36,055) (34,693)
-------- --------
171,336 175,320
-------- --------
$274,089 $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
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CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
1998 1997
-------- --------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (1,240) $ 8,827
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 7,354 6,291
Changes in operating assets and liabilities (35,538) (12,649)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (29,424) 2,469
-------- --------
Investing Activities:
Sales of marketable securities 245 368
Proceeds from sale of U. S. Elevator Corp. - 31,996
Acquisition of business, net of cash acquired - (11,620)
Net additions to property, plant and equipment (5,186) (4,830)
Other items - net 1,795 685
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (3,146) 16,599
-------- --------
Financing Activities:
Change in short-term borrowings 5,038 -
Change in long-term debt (5,000) (5,000)
Purchases of treasury stock (1,362) (122)
Dividends paid (1,692) (1,706)
-------- --------
NET CASH USED IN
FINANCING ACTIVITIES (3,016) (6,828)
-------- --------
Effect of exchange rates on cash 35 (378)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (35,551) 11,862
Cash and cash equivalents at the
beginning of the period 53,257 20,062
-------- --------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 17,706 $ 31,924
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
CUBIC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998
NOTE 1 -- BASIS FOR PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Cubic
Corporation (the Company) 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.
The interim financial information presented herein includes all normal recurring
adjustments which are considered necessary by the Company's management for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented. 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. Certain prior period
amounts have been restated to reflect the current period classifications.
The preparation of 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.
NOTE 2 -- 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
June 30, 1998
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
June 30 September 30
1998 1997
-------- ------------
<S> <C> <C>
Inventories consist of the following: (In thousands)
Finished products $ 2,367 $ 2,501
Work in process 24,515 10,300
Raw material and purchased parts 9,598 8,154
------- -------
$36,480 $20,955
------- -------
------- -------
</TABLE>
Work in process at June 30, 1998 includes approximately $12 million of
inventoried costs incurred as pre-contract work performed at the Company's risk.
Approximately one-half of this amount relates to a defense segment contract and
one-half to a transportation systems segment contract, both of which are in late
stages of negotiations. Management believes the Company will ultimately recover
this and any future amounts to be incurred through the award of the related
contracts.
NOTE 4 -- LEGAL MATTER
In 1991, the government of Iran commenced an arbitration proceeding against the
Company seeking $12.9 million for reimbursement of payments made for equipment
that was to comprise an Air Combat Maneuvering Range pursuant to a contract
executed in 1977, and an additional $15 million for unspecified damages. The
Company contested the action and brought a counterclaim for compensatory damages
of $10.4 million. In May 1997, the arbitral tribunal awarded the government of
Iran a decision in the amount of $2.8 million, plus simple interest at the rate
of 12% per annum from September 1991. On June 24, 1998, the government of Iran
commenced an action in the United States District Court for the Southern
District of California to enforce the award. The Company strongly believes it
did not receive due process in the arbitral proceeding and is vigorously
contesting the action. The Company believes that the ultimate outcome of the
matter will not have a material effect on the Company's financial statements.
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
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CUBIC CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1998
RESULTS OF OPERATIONS
Sales for the nine-month period ended June 30, 1998 decreased 3% compared to the
same period of fiscal 1997, as a modest sales increase in the transportation
systems segment was offset by lower sales in the defense and commercial
operations segments.
Defense segment sales for the three and nine-month periods ended June 30, 1998
decreased 3% and 5%, respectively, as compared to the same periods of last year,
due primarily to lower sales of the Company's Receiver products. However, sales
volume in this product line is expected to improve in the fourth quarter as a
result of orders recently received.
Operating profits in the defense segment for the three and nine-month periods
ended June 30, 1998 approximately doubled as compared to the same periods of 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 three quarters of fiscal 1997, operating profits in the segment had been
depressed by 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, which significantly improved the operating profits of this
segment as compared to the same periods of the previous year.
Transportation systems segment sales for the three-month period ended June 30,
1998 decreased 16% as compared to the same period of last year primarily due to
lower sales on contracts in New York City and Chicago. This decrease in sales to
United States customers was partially offset by increased sales to customers in
the Far East. For the nine-month period, overall transportation systems sales
were up slightly, due primarily to the acquisition of Thorn Transit Systems
International (TTSI) in April 1997.
During the third quarter, the Company continued its restructuring of management
in the United Kingdom to realign resources and address the operating issues
which resulted in the significant losses on several large contracts recorded in
the second quarter of 1998. Management believes the $9.5 million reserve
established in the second quarter is adequate to absorb the expected losses on
those contracts.
Operating profits for the quarter and year-to-date in the transportation systems
segment were also negatively impacted by lower sales volume on contracts in the
United States, as described above, and lower profit margins on these and other
U.S. based contracts. However, award of the Prestige contract to privatize the
London Transport fare collection system is imminent and should result in
significant growth of the transportation systems segment in future quarters.
7
<PAGE>
CUBIC CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- continued
June 30, 1998
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, amounted to $1.6 million and $3.7 million,
before applicable income taxes, for the three and nine-month periods of this
fiscal year, respectively.
Selling, general and administrative expenses for the nine-month period ended
June 30, 1998 increased, both nominally and as a percentage of sales, over the
level in fiscal 1997. This increase resulted from the acquisition of TTSI last
year, increased selling expenses incurred at the defense segment in pursuit of
new contracts and marketing and promotion expenses related to the video
compression software technology mentioned above.
The effective tax rate for the nine months ended June 30, 1998 was lower than in
the same period of fiscal 1997 because the losses were incurred in the United
Kingdom where the corporate tax rates are lower than in the U.S., providing a
lower tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents has decreased $35.5 million since year end, to
$17.7 million at June 30, 1998. During the nine-month period ended June 30,
1998, operating activities used $29.4 million, primarily due to growth in
inventoried costs and accounts receivable, in addition to a reduction in
customer advances. Investing activities included $5.2 million of planned
expenditures for capital equipment. Financing activities included a $5
million net increase in short-term borrowings from credit facilities in the
United Kingdom, offset by a scheduled $5 million annual installment payment
on a long-term note. The Company expects that cash on hand and its unused
debt capacity will be adequate to meet its short and long-term financing
needs.
The Company's financial condition remains strong with working capital of
$104 million and a current ratio of 2.1 to 1 at June 30, 1998. The backlog
of orders at June 30, 1998 was $348 million, as compared to the $358 million
at September 30, 1997 and the $368 million at June 30, 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:
Exhibit 3(i) Certificate of Incorporation of Cubic Corporation (as
amended)
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 6, 1998 /s/ W. W. Boyle
-------------- ---------------------------------
W. W. Boyle
Vice President Finance and CFO
Date AUGUST 6, 1998 /s/ T. A. Baz
-------------- ---------------------------------
T. A. Baz
Vice President and Controller
9
<PAGE>
EXHIBIT 3(i) - CERTIFICATE OF INCORPORATION OF
CUBIC CORPORATION (AS AMENDED)
1. The name of the corporation is:
CUBIC CORPORATION
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is 20,000,000 shares which shall be Common Stock without par
value.
5. The name and mailing address of the incorporator of the corporation is:
William Bruner
9333 Balboa Avenue
San Diego, California 92123
6. The board of directors is authorized to make, alter, or repeal the
by-laws of the corporation. Elections of Directors need not be by written
ballot unless required by the Bylaws of the corporation.
7. The affirmative vote of the holders of two-thirds (66 2/3%) of the
outstanding Common Stock of this corporation shall be required for the approval,
adoption or authorization of a business combination (as hereinafter defined) and
no business combination shall be entered into without such affirmative vote.
As used in this Article 7., the term "business combination" means:
(a) The merger of this corporation into, or its consolidation with, any
other corporation, person or business entity;
(b) The merger of any other corporation, person or business entity into, or
its consolidation with this corporation;
(c) the sale, exchange, lease transfer, or other disposition by this
corporation of sixty percent (60%) or more of its assets or business to any
other corporation, person or business entity;
(d) The issuance or transfer at any one time by this corporation, or by any
subsidiary of this corporation, of fifty percent (50%) or more of voting
securities issued pursuant to a stock option, purchase, bonus performance unit
or other plan or agreement for natural persons who are directors, employees,
consultants, and/or agents of this corporation and/or a subsidiary thereof to
any other corporation, person or business entity in exchange for cash, assets,
or securities or any combination thereof; or
1
<PAGE>
(e) any agreement, contract or other arrangement between this corporation
and any other corporation, person or business entity providing for any of the
transactions described in clauses (a), (b), (c), or (d) immediately preceding
this clause (e).
The provisions of the Article 7., shall not apply to any transaction
described in this Article 7., (i) if the Board of Directors of this corporation
has approved a memorandum of understanding with such other corporation, person
or business entity with respect to and substantially consistent with such
transaction prior to the time such other corporation, person or business entity
became an owner of five percent (5%) of the outstanding Common Stock of this
corporation, or (ii) to any corporation, person or business entity which is an
owner of five percent (5%) of the outstanding Common Stock of this corporation
at the time of adoption of this Article 7.
The affirmative vote of the holders of two-thirds (66 2/3%) of the
outstanding Common Stock of this corporation shall be required for the amendment
of all or any part of this Article 7.
8. No action shall be taken by the Shareholders except at an Annual or
Special meeting of Shareholders.
9. Special meetings of the Shareholders of the corporation for any purpose
or purposes may be called at any time by the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the Bylaws of the corporation, include the power to
call such meetings, but such Special meetings may not be called by any other
person or persons.
10. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of this corporation, but any Bylaw
amendment by the Board of Directors increasing or reducing the authorized
number of Directors shall require a resolution adopted by the affirmative
vote of not less than two-thirds (2/3rds) of the then authorized number of
Directors. Bylaws shall not be made, repealed, altered, amended or rescinded
by the Shareholders of the corporation except by the vote of the holders of
not less than 66 2/3% of the total voting power of all outstanding shares of
voting stock of the corporation.
11. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on Shareholders
herein are granted subject to this reservation.
Notwithstanding the foregoing, the provisions set forth in Articles 7, 8,
9, 10 and this Article 11 may not be repealed or amended in any respect unless
such repeal or amendment is approved by the affirmative vote of the holders of
not less than 66 2/3% of the total voting power of all outstanding shares of
voting stock of this corporation.
12. No Director shall be personally liable to the Corporation or
Stockholders for monetary damages for any breach of fiduciary duty by such
Director, as a Director. Notwithstanding the foregoing sentence, a Director
shall be liable to the extent provided by applicable law (i) for breach
2
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of the Director's duty of loyalty to the Corporation or its Stockholders (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
Corporation Law, or (iv) for any transaction from which the Director derived an
improper personal benefit.
No amendment to, or repeal of, this Article shall apply to, or have any
effect on, the liability or alleged liability of any Director of Cubic
Corporation for, or with respect to, any acts or omissions of such Director,
occurring prior to such amendment.
THE UNDERSIGNED, being the incorporator herein before named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does hereby make and file this Certificate.
/s/ William Bruner
------------------------------
WILLIAM BRUNER
3
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EXHIBIT 23 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Cubic Corporation
We have reviewed the accompanying consolidated condensed balance sheet of Cubic
Corporation as of June 30, 1998, and the related consolidated condensed
statement of income for the three and nine-month periods ended June 30, 1998 and
1997, and the consolidated condensed statement of cash flows for the nine-month
periods ended June 30, 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
August 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,706
<SECURITIES> 2,181
<RECEIVABLES> 122,591
<ALLOWANCES> 0
<INVENTORY> 36,480
<CURRENT-ASSETS> 196,332
<PP&E> 39,556
<DEPRECIATION> 0
<TOTAL-ASSETS> 274,089
<CURRENT-LIABILITIES> 92,290
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 171,102
<TOTAL-LIABILITY-AND-EQUITY> 274,089
<SALES> 281,121
<TOTAL-REVENUES> 284,920
<CGS> 222,489
<TOTAL-COSTS> 222,489
<OTHER-EXPENSES> 62,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,325
<INCOME-PRETAX> (1,640)
<INCOME-TAX> (400)
<INCOME-CONTINUING> (1,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,240)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
