<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, 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).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CUBIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31 March 31
1999 1998 1999 1998
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
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
================ ================ =============== ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<PAGE>
CUBIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
<TABLE>
<CAPTION>
March 31 September 30
1999 1998
(Unaudited) (See note below)
-------------------------- -------------------------
<S> <C> <C>
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
================ ================
</TABLE>
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-
<PAGE>
CUBIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
March 31
1999 1998
--------------- ---------------
<S> <C> <C>
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
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
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
<TABLE>
<CAPTION>
March 31 September 30
1999 1998
------------------- -------------------
<S> <C> <C>
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
=================== ===================
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,154
<SECURITIES> 1,743
<RECEIVABLES> 158,772
<ALLOWANCES> 0
<INVENTORY> 57,259
<CURRENT-ASSETS> 247,336
<PP&E> 41,083
<DEPRECIATION> 0
<TOTAL-ASSETS> 329,494
<CURRENT-LIABILITIES> 93,118
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 175,003
<TOTAL-LIABILITY-AND-EQUITY> 329,494
<SALES> 238,402
<TOTAL-REVENUES> 240,008
<CGS> 189,319
<TOTAL-COSTS> 189,319
<OTHER-EXPENSES> 39,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,945
<INCOME-PRETAX> 9,045
<INCOME-TAX> 3,150
<INCOME-CONTINUING> 5,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,895
<EPS-PRIMARY> .66
<EPS-DILUTED> 0
</TABLE>
