SOURCE: Cubic Corporation

Cubic Corporation

August 05, 2011 06:00 ET

Cubic Corp. (NYSE: CUB) Reports Financial Results for the Quarter Ended June 30, 2011

SAN DIEGO, CA--(Marketwire - Aug 5, 2011) - Cubic Corporation (NYSE: CUB) today reported its financial results for the third quarter ended June 30, 2011. While sales and earnings were lower than the unusually high third quarter of last year, third quarter earnings were the highest quarter in the nine-month period this year and the second highest quarter ever. Sales, operating income and earnings per share for the nine-month period were all higher than last year, and total backlog at June 30, 2011 was up by $338.6 million compared to last year end.

Net income attributable to Cubic shareholders for the third quarter was $20.8 million or 78 cents per share this year compared to $22.7 million or 85 cents per share last year. Sales for the third fiscal quarter decreased from $331.3 million to $319.9 million. Operating income was $26.8 million in this year's third quarter compared to $32.6 million last year. Cash flow from operations was $51.9 million in the quarter.

In the third quarter of 2010, the company had made a significant delivery of virtual small arms training systems to a U.S. government customer which resulted in a spike in quarterly sales and operating income for the defense systems segment. In the current year, the deliveries of these systems occurred throughout the year, resulting in sales and operating income more evenly spread across the quarters. The third quarter last year also included a large gating system installation for a customer in Southern California by the transportation systems segment, adding to sales and operating income for the quarter. Sales from the transportation systems segment usually come from the development of systems over a period of time, resulting in the revenue spread more evenly over the period of performance.

For the nine months ended June 30, 2011, sales increased to $938.3 million compared to $846.5 million last year. Operating income was $82.0 million for the first nine months compared to $79.1 million last year. Net income attributable to Cubic shareholders was higher for the first nine months, increasing from $57.4 million or $2.15 per share last year, as restated, to $60.7 million or $2.27 per share this year. Cash flow from operations was $96.2 million for the nine-month period.

During the third fiscal quarter of 2011, the company identified errors in its consolidated financial statements for the three months ended March 31, 2010, for the nine months ended June 30, 2010 and for the three months ended September 30, 2010. The company has restated its previously reported consolidated statements of income and cash flows for the nine months ended June 30, 2010 to record the impact of changes in exchange rates on U.S. dollar denominated money market investments that are held by its wholly-owned subsidiary in the United Kingdom that has the British Pound as its functional currency. These investments were purchased during the quarter ended March 31, 2010 and the company historically recorded the impact of changes in exchange rates on these investments in other comprehensive income as they were treated as an economic hedge. Upon reviewing the accounting treatment for these investments, management determined that these changes in exchange rates did not meet the requirements for hedge accounting treatment and therefore should have been recorded in other non-operating income.

As a result of these errors other non-operating income was understated by $5.0 million for the quarter ended March 31, 2010 and non-operating income was overstated by a similar amount for the quarter ended September 30, 2010. The company evaluated the materiality of the errors from a qualitative and quantitative perspective and concluded that they were material to the interim periods previously presented and has restated these amounts. The company also concluded that since the understatement of non-operating income in the quarter ended March 31, 2010 approximated the overstatement in the quarter ended September 30, 2010, these errors were not material to the consolidated financial statements for the fiscal year ended September 30, 2010. The restatements had no impact on the consolidated financial statements for the nine months ended June 30, 2011 or any interim financial statements within that period.

Transportation Systems Segment
Cubic Transportation Systems (CTS) sales in the third quarter this year were $107.4 million compared to $111.2 million last year. Operating income for the quarter decreased in the third quarter this year to $13.6 million from $14.6 million last year. The large gating system installation in the third quarter last year described above contributed to the decrease for the quarter. Partially offsetting these decreases were higher quarterly sales and operating income from work on contracts in Australia and the U.K.

For the nine-month period, CTS sales increased to $293.6 million this year from $276.7 million last year, and operating income was $41.9 million compared to $40.7 million last year. The nine-month sales and operating income this year were higher from work on contracts in Australia and the U.K.

Defense Systems Segment
Sales from Cubic Defense Systems (CDS) were $86.4 million in this quarter compared to $108.5 million in last year's third quarter. Operating income for the third quarter decreased from $11.6 million last year to $6.3 million this year. The delivery of small arms training systems in the third quarter of last year mentioned above resulted in significant sales and income for that quarter. Sales also decreased in the communications business for the third quarter this year but operating income increased in the communications business related to higher margins on sales of a mini-common data link product. Partially offsetting the overall decreases in CDS sales and operating income in the current quarter were higher sales and operating income from air and ground combat training systems.

For the first nine months of the year, CDS sales increased from $247.5 million last year to $285.9 million this year due to increased sales from the training systems business, partially offset by decreased sales from the communications business. Operating income increased from $23.6 million last year to $25.7 million in the first nine months of this year due to increased operating profits on increased sales in the training systems business and improved margins in the communications business.

Mission Support Services Segment
Mission Support Services (MSS) sales increased to $125.9 million from $111.3 million in last year's third quarter. The acquisition of Abraxas Corporation (Abraxas) in December 2010 added $15.0 million to sales for the third quarter of this year. Sales were also higher from homeland security related contracts and in support of instruction and maintenance of flight simulators, but were lower from training and education contracts due to delays in contract awards, and services insourcing. Operating income from MSS increased to $8.0 million in the third quarter of this year compared to $7.6 million last year as a result of a settlement received in the quarter related to a dispute over contract terms in 2010. Partially offsetting this increase was decreased operating income on decreased sales from training and education contracts. Abraxas incurred an operating loss of $0.3 million in the quarter, after deducting $2.6 million of intangible asset amortization.

For the first nine months of the year, MSS sales increased from $320.9 million to $357.8 million. Operating income decreased slightly from $18.7 million last year to $18.2 million in the first nine months of this year. The operating loss of Abraxas was $1.8 million since its acquisition, which included amortization of intangible assets of $5.5 million, as well as acquisition costs of $0.7 million that were incurred in the first quarter.

Backlog
Total backlog was $2.825 billion at June 30, 2011 compared to $2.486 billion at September 30, 2010. Abraxas added $120.1 million to total backlog as of June 30, 2011.

Financial Condition
The company continues to maintain a strong liquidity position, ending the period with $339.0 million in cash and short-term investments, and total debt of only $16.2 million.

Cubic Corporation is the parent company of three major business segments: Defense Systems, Mission Support Services and Transportation Systems. Cubic Defense Systems is a leading provider of realistic combat training systems, cyber technologies, asset tracking solutions and defense electronics. Mission Support Services is a leading provider of training, operations, maintenance, technical and other support services. Cubic Transportation Systems is the world's leading provider of automated fare collection systems and services for public transit authorities. For more information about Cubic, see the company's Web site at www.cubic.com.

In addition to historical matters, this release contains forward-looking statements which are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward-looking statements involve predictions of future results. 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, economic conditions in the various countries in which the Company does or hopes to do business, competition and technology changes in the defense and transit industries, and other competitive and technological factors.

Any statements about the Company's expectations, beliefs, plans, objectives, assumptions or future events, or future financial and/or operating performance are not historical and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "may," "will," "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "predict," "potential," "opportunity" and similar words or phrases or the negatives of these words or phrases. These statements involve estimates, assumptions and uncertainties.

Since actual results or outcomes may differ materially from those expressed in any forward-looking statements made by the Company, investors should not place undue reliance on any forward-looking statements. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance, and investors should not use the Company's historical performance to anticipate results or future period trends. Further, any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for the Company to predict which factors will arise. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
Nine Months Ended Three Months Ended
June 30, June 30,
2011 2010 2011 2010
As Restated
Net sales:
Products $ 444,138 $ 456,850 $ 148,441 $ 189,812
Services 494,155 389,633 171,464 141,428
938,293 846,483 319,905 331,240
Costs and expenses:
Products 314,902 323,127 114,325 135,533
Services 401,708 340,544 131,424 124,068
Selling, general and administrative 111,238 88,236 36,831 32,310
Research and development 17,807 10,343 6,281 4,995
Amortization of purchased intangibles 10,607 5,091 4,257 1,698
856,262 767,341 293,118 298,604
Operating income 82,031 79,142 26,787 32,636
Other income (expense):
Interest and dividends 1,729 1,354 490 457
Interest expense (1,155 ) (1,282 ) (374 ) (414 )
Other income (expense) 524 5,031 767 (727 )
Income before income taxes 83,129 84,245 27,670 31,952
Income taxes 22,200 26,861 6,800 9,250
Net income 60,929 57,384 20,870 22,702
Less noncontrolling interest in income of VIE 261 - 56 -
Net income attributable to Cubic $ 60,668 $ 57,384 $ 20,814 $ 22,702
Basic and diluted net income per common share $ 2.27 $ 2.15 $ 0.78 $ 0.85
Dividends per common share $ 0.19 $ 0.09 $ - $ -
Average number of common shares outstanding 26,736 26,735 26,736 26,736
CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, September 30,
2011 2010
(Unaudited) (See note below)
ASSETS
Current assets:
Cash and cash equivalents $ 312,857 $ 295,434
Short-term investments 26,108 84,081
Accounts receivable - net 207,950 210,284
Recoverable income taxes 9,762 8,320
Inventories - net 37,578 32,820
Deferred income taxes and other current assets 41,746 43,718
Total current assets 636,001 674,657
Long-term contract receivables 24,275 28,080
Property, plant and equipment - net 47,828 47,469
Goodwill 146,972 64,142
Purchased intangibles 58,290 26,295
Other assets 15,047 23,766
$ 928,413 $ 864,409
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 41,304 $ 33,638
Customer advances 161,474 139,723
Accrued compensation and other current liabilities 105,959 109,035
Income taxes payable 7,063 20,107
Current portion of long-term debt 4,554 4,545
Total current liabilities 320,354 307,048
Long-term debt 11,596 15,949
Other long-term liabilities 58,313 53,653
Shareholders' equity:
Common stock 12,574 12,574
Retained earnings 577,155 521,567
Accumulated other comprehensive loss (15,199 ) (9,745 )
Treasury stock at cost (36,078 ) (36,074 )
Shareholders' equity related to Cubic 538,452 488,322
Noncontrolling interest in variable interest entity (302 ) (563 )
Total shareholders' equity 538,150 487,759
$ 928,413 $ 864,409
Note: The balance sheet at September 30, 2010 has been derived from the audited financial statements at that date.
CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended Three Months Ended
June 30, June 30,
2011 2010 2011 2010
As Restated
Operating Activities:
Net income $ 60,929 $ 57,384 $ 20,870 $ 22,702
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,246 11,240 6,160 3,946
Changes in operating assets and liabilities 18,999 (6,256 ) 24,915 (15,530 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 96,174 62,368 51,945 11,118
Investing Activities:
Acquisitions, net of cash acquired (126,825 ) (7,176 ) - (6,326 )
Consolidation of variable interest entity - 38,266 - -
Net additions to property, plant and equipment (5,601 ) (4,639 ) (2,026 ) (1,936 )
Proceeds from sales or maturities of short-term investments 57,973 36,935 16,180 33,711
Purchases of short-term investments - (108,180 ) - (44,171 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (74,453 ) (44,794 ) 14,154 (18,722 )
Financing Activities:
Principal payments on long-term borrowings (4,416 ) (4,406 ) (142 ) (131 )
Purchases of treasury stock (4 ) (3 ) - -
Dividends paid (5,080 ) (2,407 ) (5,080 ) (2,407 )
Other - 44 - -
NET CASH USED IN FINANCING ACTIVITIES (9,500 ) (6,772 ) (5,222 ) (2,538 )
Effect of exchange rates on cash 5,202 (7,664 ) 1,004 (1,768 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,423 3,138 61,881 (11,910 )
Cash and cash equivalents at the beginning of the period 295,434 244,074 250,976 259,122
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 312,857 $ 247,212 $ 312,857 $ 247,212

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