Cubic 10-Q 2002 Q2 Quarterly report

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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, 2002

1-8931
Commission File Number

CUBIC CORPORATION
Exact Name of Registrant as Specified in its Charter

Delaware
(State of incorporation) 95-1678055
(IRS Employer Identification No.)

9333 Balboa Avenue
San Diego, California 92123
Telephone (858) 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 ý    No o

As of April 26, 2002, Registrant had only one class of common stock of which there were 26,719,845 shares outstanding (after deducting 8,944,884 shares held as treasury stock).

PART I—FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS

CUBIC CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

		Six Months Ended March 31,				Three Months Ended March 31,
		2002		2001		2002		2001
Revenues:
	Sales	$	262,370	$	243,160	$	138,493	$	122,826
	Other income		2,592		4,895		1,314		1,520
			264,962		248,055		139,807		124,346
Costs and expenses:
	Cost of sales		200,444		188,034		107,143		93,541
	Selling, general and administrative expenses		39,826		39,551		19,759		20,293
	Research and development		4,890		4,180		2,285		2,175
	Interest		1,770		1,756		879		872
			246,930		233,521		130,066		116,881
Income before income taxes			18,032		14,534		9,741		7,465
Income taxes			5,900		4,900		3,300		2,500
Net income		$	12,132	$	9,634	$	6,441	$	4,965
Net income per share		$	0.45	$	0.36	$	0.24	$	0.19
Dividends per common share		$	0.063	$	0.063	$	0.063	$	0.063
Average shares of common stock outstanding			26,720		26,720		26,720		26,720

See accompanying notes.

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CUBIC CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)

		March 31, 2002			September 30, 2001
		(Unaudited)			(See note below)
ASSETS
Current assets:
	Cash and cash equivalents	$	63,941		$	76,837
	Marketable securities, available-for-sale		555			584
	Accounts receivable		149,809			141,516
	Inventories—Note 3		37,959			30,386
	Deferred income taxes and other current assets		24,269			26,783
Total current assets			276,533			276,106
Property, plant and equipment—net			39,418			33,376
Goodwill, less amortization			18,877			18,927
Other assets			14,212			12,938
		$	349,040		$	341,347
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Trade accounts payable	$	20,848		$	11,889
	Customer advances		24,374			30,479
	Other current liabilities		38,263			42,205
	Income taxes payable		8,062			10,321
	Current portion of long-term debt		1,429			—
Total current liabilities			92,976			94,894
Long-term debt			48,571			50,000
Deferred compensation			6,078			5,558
Shareholders' equity:
	Common stock		234			234
	Additional paid-in capital		12,123			12,123
	Retained earnings		231,534			221,095
	Accumulated other comprehensive loss		(6,410	)		(6,494	)
	Treasury stock at cost		(36,066	)		(36,063	)
			201,415			190,895
		$	349,040		$	341,347

Note: The balance sheet at September 30, 2001 has been derived from the audited financial statements at that date.

See accompanying notes

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CUBIC CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

			Six Months Ended March 31,
			2002			2001
Operating Activities:
	Net income		$	12,132		$	9,634
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization		3,379			4,699
		Changes in operating assets and liabilities		(16,967	)		(25,885	)
NET CASH USED IN OPERATING ACTIVITIES				(1,456	)		(11,552	)
Investing Activities:
	Net additions to property, plant and equipment			(9,415	)		(1,986	)
	Proceeds from sale of marketable securities			10			2,483
	Other items—net			—			(3,044	)
NET CASH USED IN INVESTING ACTIVITIES				(9,405	)		(2,547	)
Financing Activities:
	Purchases of treasury stock			(3	)		—
	Dividends paid			(1,693	)		(1,692	)
NET CASH USED IN FINANCING ACTIVITIES				(1,696	)		(1,692	)
Effect of exchange rates on cash				(339	)		(683	)
NET DECREASE IN CASH AND CASH EQUIVALENTS				(12,896	)		(16,474	)
Cash and cash equivalents at the beginning of the period				76,837			69,753
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD			$	63,941		$	53,279

See accompanying notes

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CUBIC CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

March 31, 2002

Note 1—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 accounting principles generally accepted in the United States 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 ending September 30, 2002. 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, 2001.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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 and Stock Split

Per share amounts are based upon the weighted average number of shares of common stock outstanding, after retroactive adjustments to reflect a 3-for-1 stock split which occurred in April 2002.

Note 3—Inventories

Inventories consist of the following (in thousands):

	March 31, 2002		September 30, 2001
Finished products	$	1,319	$	1,528
Work in process		26,149		19,020
Raw material and purchased parts		10,491		9,838
	$	37,959	$	30,386

Note 4—Change in Accounting

In June 2001, the Financial Accounting Standards board issued Statements of Financial Accounting Standards No. 141,Business Combinations and No. 142,Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements.

As allowed by early adoption provisions, the Company began applying the new rules on accounting for goodwill and other intangible assets effective October 1, 2001. The following table presents a reconciliation of net income and per share data to what would have been reported had the new rules

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been in effect during the three and six month periods ended March 31, 2001 (in thousands, except per share data):

	Six Months Ended March 31,				Three Months Ended March 31,
	2002		2001		2002		2001
Reported net income	$	12,132	$	9,634	$	6,441	$	4,965
Add back goodwill amortization, net of tax		—		873		—		437
Adjusted net income	$	12,132	$	10,507	$	6,441	$	5,402
Basic and diluted net income per common share:
Reported net income	$	0.45	$	0.36	$	0.24	$	0.19
Goodwill amortization, net of tax	$	—	$	0.03	$	—	$	0.02
Adjusted net income	$	0.45	$	0.39	$	0.24	$	0.20

Note 5—New Accounting Pronouncement

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (FAS 144),Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 establishes a single model to account for impairment of assets to be held or disposed, incorporating guidelines for accounting and disclosure of discontinued operations. FAS 144 is effective for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. Management believes the impact on the financial statements of the Company will be immaterial.

Note 6—Comprehensive Income

Comprehensive income is as follows (in thousands):

		Six Months Ended March 31,						Three Months Ended March 31,
		2002			2001			2002			2001
Net income		$	12,132		$	9,634		$	6,441		$	4,965
Foreign currency translation adjustments			103			(1,755	)		211			(2,325	)
Unrealized gains on marketable securities:
	Unrealized holding gain (loss) during the period		(19	)		464			(32	)		19
	Reclassification adjustment for gain included in net income					(909	)		—			—
		$	12,216		$	7,434		$	6,620		$	2,659

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Note 7—Business Segment Information

Business segment financial data is as follows (in millions):

		Six Months Ended March 31,						Three Months Ended March 31,
		2002			2001			2002			2001
Revenues:
Transportation systems		$	98.0		$	101.3		$	54.3		$	51.0
Defense			157.1			134.3			80.7			68.0
	Total for reportable segments		255.1			235.6			135.0			119.0
Other revenues			9.9			12.5			4.8			5.4
		$	265.0		$	248.1		$	139.8		$	124.4
Operating profit:
Transportation systems		$	9.6		$	10.4		$	5.4		$	5.9
Defense			8.0			2.6			4.3			2.0
	Total for reprotable segments		17.6			13.0			9.7			7.9
Other profit			2.2			3.3			0.9			0.4
Interest expense			(1.8	)		(1.8	)		(0.9	)		(0.9	)
Income before income taxes		$	18.0		$	14.5		$	9.7		$	7.4

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CUBIC CORPORATION
ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

March 31, 2002

Forward-Looking Statements

In addition to historical matters, this report contains forward-looking statements. They can be identified by words such asmay, likely,anticipate, hope, estimate, plan, potential, promising, feel, expect, should, andconfident. 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.

Results of Operations

Sales for the first half of fiscal 2002 were about 8% higher than in the first half of fiscal 2001, as the result of higher sales from the defense segment. For the second quarter, sales were up by nearly 13%, as both the defense and transportation segments generated sales increases compared to the prior year. While the Company cannot be assured of continued quarter-to-quarter increases in sales, new contract awards in the first half of the fiscal year have been strong, resulting in an increase in backlog at March 31, 2002.

Total backlog, including un-funded customer orders, increased to $1,218,000,000 at March 31, 2002, compared to $1,095,000,000 at September 30, 2001 and $1,035,000,000 at March 31, 2001. Included in the above amounts was funded backlog of $817,000,000 at March 31, 2002, $738,000,000 at September 30, 2001 and $765,000,000 at March 31, 2001.

The increase in defense segment sales for the second quarter and first half of the year resulted primarily from higher sales of the Company's communications and electronics products and from continued growth of the computerized battlefield simulation business. The Company has also won new multiple integrated laser engagement system (MILES) contracts in the past year and increased the size of its operation and maintenance business, resulting in higher sales from these divisions of the defense segment as well.

Increased operating profits in the segment came primarily from communications and electronics products and computerized battlefield simulation contracts, due to improved margins and the increased sales volume mentioned above. The Company's MILES products also generated improved margins in the current year, coming from the new contracts won last year.

Transportation segment sales were relatively flat for the first half of the year as lower sales from contracts in the Far East were offset by increased sales from new contracts in North America. Sales in Europe remained strong as progress continued on the Prestige project in London and on smaller contracts on the continent, which the Company hopes will lead to further business in this part of the world.

During the quarter the Company acquired a new facility south of London in order to gain greater efficiency by bringing operations in the region together into one facility. This new building will be outfitted over the next several months and is expected to be occupied by the end of the fiscal year. In

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connection with this consolidation of operations, the Company recorded a provision of $900 thousand in the first quarter for severance costs related to the planned closing of a remote facility in western England. Of this amount, approximately $150 thousand was expended during the quarter ended March 31, 2002. Management believes the balance of $750 thousand will be adequate to cover the remaining costs of this facility closure.

Operating profits in the segment were lower in the second quarter this year due to legal costs incurred in connection with the Company's dispute of a contract tender in Australia. For the first half of the year lower operating profits resulted from these legal costs and the severance costs mentioned above, while the operating profits from transportation system projects remained strong.

Other profits in the first half were higher last year than in the current year, primarily as a result of the sale of certain marketable securities at a profit last year. Lower interest rates on the Company's cash investments also contributed to the reduction of other profits this year.

In June 2001, the Financial Accounting Standards board issued Statements of Financial Accounting Standards No. 141,Business Combinations and No. 142,Goodwill and Other Intangible Assets. The Company began applying the new rules on accounting for goodwill and other intangible assets effective October 1, 2001. If the nonamortization provisions of Statement 142 had been in effect last year it would have resulted in an increase in net income for the three-and six-month periods ended March 31, 2001 of $437 thousand ($.01 per share) and $873 thousand ($.03 per share), respectively, after applicable income taxes.

Liquidity and Capital Resources

Operating activities for the first half of the year resulted in somewhat negative cash flows, primarily due to an increase in long-term contract accounts receivable in the defense segment and inventories in the transportation segment. These increases represent normal fluctuations due to the timing of customer payments and the transfer of inventoried costs to contracts and are expected to reverse by the end of the fiscal year. As a result, the Company expects that cash flows from operations will be positive for the fiscal year ending September 30, 2002.

The building acquisition mentioned above was the primary cause of a use of cash from investing activities during the first half of the fiscal year. The only significant financing activity in the first six months of the year was the payment of a semi-annual cash dividend to shareholders.

The Company's financial condition remains strong with working capital of $184 million and a current ratio of 3.0 at March 31, 2002. The Company expects that cash on hand and its unused debt capacity will be adequate to meet its working capital requirements for the foreseeable future.

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CUBIC CORPORATION
PART II—OTHER INFORMATION

ITEM 2—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The shareholders ratified a three-for-one split of the Company's stock during a special shareholders meeting held on April 17, 2002. The stock split was effective for stockholders of record on April 17, 2002 and additional stock certificates were distributed to shareholders on April 30, 2002.

ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K

(a)

The following exhibit is included herein:

15—Independent Accountants' Review Report

(b)

No reports on Form 8-K were filed during the quarter.

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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 1, 2002	/s/  W. W. BOYLE      W. W. Boyle Vice President and CFO
Date May 1, 2002	/s/  T. A. BAZ      T. A. Baz Vice President and Controller

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QUARTERLY REPORT
PART I—FINANCIAL INFORMATION ITEM 1—FINANCIAL STATEMENTS
CUBIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (amounts in thousands, except per share data)
CUBIC CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
CUBIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
CUBIC CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) March 31, 2002
CUBIC CORPORATION ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 31, 2002
CUBIC CORPORATION PART II—OTHER INFORMATION
ITEM 2—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6—EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES