- Sales of $354.5 million for the quarter
and $661.6 million for the six-month period
- Net income of $16.1 million, or $0.60
per diluted share for the quarter
- Net income of $24.5 million or $0.91
per diluted share for the six-month period
- Non-GAAP Adjusted EBITDA of $30.0
million for the quarter (see the table included in the section
titled “Use of Non-GAAP Financial Information” for a reconciliation
of these GAAP and non-GAAP financial measures)
- Backlog of $2.665 billion as of March
31, 2014
Cubic Corporation (NYSE: CUB) today reported its financial
results for the quarter and six-month periods ended March 31, 2014
and announced that it has filed an amended 10-K for the fiscal year
ended September 30, 2013 to restate its financial statements.
The company filed with the Securities and Exchange Commission
(SEC) its financial statements for the quarters ended December 31,
2013 and March 31, 2014. In addition, Cubic filed its restated
financial statements for the fiscal years ended September 30, 2013
and 2012 and interim periods within fiscal years ended
September 30, 2013 and 2012, and adjusted results for the
fiscal year ended September 30, 2011 to correct certain immaterial
errors. The cumulative impact on shareholders’ equity resulting
from the restatement, through September 30, 2013, was an increase
of $12.2 million.
Sales for the second quarter of fiscal 2014 were $354.5 million
compared to $368.6 million in 2013, as restated, a decrease of 4
percent. Net income attributable to Cubic shareholders was $16.1
million, or $0.60 per diluted share, compared to $29.7 million, or
$1.11 per diluted share, as restated, in the second quarter of
2013.
Operating income was $22.2 million compared to $37.4 million, as
restated, in the second quarter of 2013. Operating income decreased
52% in the transportation segment and 61% in the mission support
segment, while it increased by $5.7 million in the defense systems
segment from break-even last year.
Non-GAAP Adjusted EBITDA (as described below) was $30.0 million
or 8.5 percent of sales for the quarter compared to $44.3 million
or 12.0 percent of sales in the second quarter of 2013.
Backlog was $2.665 billion at the end of the quarter compared to
$2.647 billion at September 30, 2013, as restated, an increase of
$17.9 million. Decreases in backlog for the transportation systems
and mission support segments were more than offset by an increase
in defense systems backlog.
First Half Results
Sales for the first half of fiscal 2014 were $661.6 million
compared to $683.4 million in 2013, as restated, a decrease of 3
percent. Net income attributable to Cubic shareholders was $24.5
million, or $0.91 per diluted share, compared to $43.9 million, or
$1.64 per diluted share, as restated, in the first half of
2013.
Operating income was $34.0 million in the first half of 2014
compared to $57.9 million, as restated, in 2013. Operating income
decreased 61% in the transportation segment and 46% in the mission
support segment, while increasing by $11.3 million in the defense
systems segment.
Non-GAAP Adjusted EBITDA was $49.2 million or 7.4 percent of
sales for the first six months compared to $69.5 million or 10.2
percent of sales in 2013.
Reportable Segment Results
Transportation Systems
Six Months Ended Three Months
Ended March 31, March 31, 2014 2013 2014
2013 (in millions) (As Restated) (As Restated)
Transportation Systems Segment Sales $ 276.1 $ 263.6 $ 149.0 $
142.4 Transportation Systems Segment Operating Income $ 19.9
$ 50.5 $ 16.8 $ 35.3
Cubic Transportation Systems (CTS) sales increased 5% in the
second quarter to $149.0 million compared to $142.4 million last
year, and increased 5% for the six-month period to $276.1 million
from $263.6 million last year. Businesses acquired by CTS in fiscal
years 2013 and 2014 contributed sales of $15.1 million and $22.0
million during the quarter and six months ended March 31,
2014, respectively, compared to $1.5 million for the quarter and
six months ended March 31, 2013. During the first half of fiscal
2014, sales increased from a system development and services
contract in Chicago and from system development contracts in the
U.K. For the quarter and six-month periods, CTS realized lower
sales from a contract to design and build a system in Vancouver and
from a contract to design and build a system in Sydney and other
related contracts in Australia. These decreases primarily reflect
expected reductions in activity based on the stage of completion of
these contracts when comparing the quarter and six-month period
ended March 31, 2014 to the corresponding periods in 2013.
CTS operating income decreased 52% in the second quarter to
$16.8 million compared to $35.3 million last year, and decreased
61% for the six-month period to $19.9 million from $50.5 million
last year. The provision of services on a contract in Chicago began
in the 4th quarter of 2013; however, revenue recognized on this
contract is limited to billable amounts, which will be
significantly less than costs incurred to provide these services
until billable amounts increase as the contract progresses. As a
result, the operating losses from the Chicago contract in the
quarter and six-month period were $13.7 million and $26.1 million,
respectively. In addition, for the six-month period operating
margins were lower on decreased sales and increases in estimated
total costs for the development of a system in Vancouver mentioned
above. We are also in a phase of the Sydney contract where we are
continuing to install the system while transitioning to full
operations and the costs incurred to provide services are greater
than the billable revenues for those services. Profit margins are
expected to improve as the Sydney system moves into full operations
in the first half of next year. The decrease in operating income
for the quarter and six-month period was partially offset by
increased system usage bonuses on our contract in London.
Businesses acquired by CTS in 2013 and 2014 had operating losses of
$0.5 million and $1.7 million, respectively, for the three- and
six- month periods ended March 31, 2014 compared to an operating
loss of $0.3 million for the three- and six-month periods ended
March 31, 2013.
Mission Support Services
Six Months Ended Three Months
Ended March 31, March 31, 2014 2013 2014
2013 (in millions) (As Restated) (As Restated) Mission
Support Services Segment Sales $ 199.9 $ 235.6 $ 100.7 $ 122.2
Mission Support Services Segment Operating Income $ 4.2 $
7.8 $ 1.4 $ 3.6
Mission Support Services (MSS) sales decreased 18% in the second
quarter to $100.7 million compared to $122.2 million last year, and
decreased 15% for the six-month period to $199.9 million from
$235.6 million last year. Sales in the first half of the fiscal
year were lower due in part to the U.S. government’s shut down in
October 2013 and to reductions in spending by the U.S. government.
The decrease in sales was also caused by the loss of a contract due
to a lower bid by a competitor. These reductions were partially
offset by growth in the Simulator Training business area due to a
competitive win of a new contract. NEK, a Special Operation Forces
training business acquired in December 2012 had sales of $8.9
million and $19.6 million for the three- and six-month periods
ended March 31, 2014 compared to sales of $9.1 million and $9.6
million for the three- and six-month periods ended March 31,
2013.
MSS operating income decreased 61% in the second quarter to $1.4
million compared to $3.6 million last year, and decreased 46% for
the six-month period to $4.2 million from $7.8 million last year.
The decreased operating income for the quarter and six-month period
resulted from the sales decreases described above and reduced
profit margins on certain contracts due to competitive pressures
driving down bid prices. Operating income also decreased as a
result of a focused investment we are making to increase our
footprint in the Special Operations Forces market. NEK had an
operating loss of $0.4 million for the quarter and $0.6 million for
the six-month period ended March 31, 2014 compared to $0.3 million
for the quarter and $0.5 million for the six-month period ended
March 31, 2013.
Defense Systems
Six Months Ended Three Months Ended
March 31, March 31, 2014 2013 2014 2013
(in millions) (As Restated) (As Restated)
Defense Systems
Segment Sales
Training systems $ 159.3 $ 152.7 $ 89.3 $ 88.3 Secure
communications 26.3 31.2 15.5
15.6 $ 185.6 $ 183.9 $ 104.8
$ 103.9
Defense Systems
Segment Operating Income
Training systems $ 12.4 $ 9.5 $ 5.8 $ 6.7 Secure communications 0.7
(1.9 ) 0.3 (0.6 ) Restructuring costs (0.3 ) (6.1 )
(0.4 ) (6.1 ) $ 12.8 $ 1.5 $ 5.7
$ -
Cubic Defense Systems (CDS) sales increased 1% in the second
quarter to $104.8 million compared to $103.9 million last year, and
increased 1% for the six-month period to $185.6 million from $183.9
million last year. Businesses acquired by CDS in 2013 and 2014
contributed sales of $3.1 million and $5.1 million for the three-
and six-month periods ended March 31, 2014 and had no significant
sales for the comparable periods ended March 31, 2013. In addition,
sales were higher for both the quarter and six-month period from a
new ground combat training system development contract in the Far
East, from tactical engagement simulation system contracts and from
simulator contracts, including a new contract to develop simulation
trainers for the Littoral Combat Ships. These increases in sales
were nearly offset by lower sales of air combat training systems
and communications products and systems for the quarter and
six-month period.
Operating income was $5.7 million for the quarter compared to
break-even last year, and increased to $12.8 million for the
six-month period from $1.5 million last year. Last year’s operating
results for the quarter and six-month period had included a
restructuring charge of $6.1 million compared to $0.2 million for
the quarter and six-month period ended March 31, 2014. Higher
operating income on increased sales from the ground combat training
system, simulator and development contracts mentioned above
contributed to the increase in operating income for the quarter and
six-month period. Profit margin improvement in 2014 was also
partially due to the restructuring activity in the second quarter
of 2013, which reduced ongoing costs. In addition, during the
second quarter and first half of fiscal 2013, we had experienced
cost increases of $1.4 million and $2.6 million, respectively, on a
U.S. government contract for data link products. The increases in
operating income for the quarter and first half of the fiscal year
were partially offset by decreased operating income on lower sales
of air combat training systems. Businesses acquired by CDS in 2013
and 2014 incurred operating losses of $3.5 million and $3.6 million
for the three- and six-month periods ended March 31, 2014,
respectively, and had no operating losses in the comparable periods
ended March 31, 2013. These operating losses included $0.2 million
of transaction and acquisition related costs and $3.1 million of
compensation expense which was paid to employees of Intific, a
business acquired in February 2014, upon the close of the
acquisition.
Financial Restatement Summary
Cubic today also filed its Amendment No. 1 on Form 10-K/A to its
Annual Report on Form 10-K for the year ended September 30, 2013 to
restate its previously filed consolidated financial statements for
the fiscal years ended September 30, 2013 and 2012, and each of the
quarters of 2013 and 2012, and includes certain immaterial
corrections to its previously filed consolidated financial
statements for periods prior to the fiscal year ended September 30,
2012.
The restatement resulted in changes to revenues, operating
income, net income and earnings per share for 2011 through 2013 as
shown in the table below (in thousands, except per share data):
September 30, 2013 2012
2011
Sales (previously reported) $ 1,360,723 $ 1,381,495 $
1,295,581 Adjustments 684 22,589 6,003 Sales
(as restated) $ 1,361,407 $ 1,404,084 $ 1,301,584 Operating
income (previously reported) $ 36,392 $ 128,022 $ 113,508
Adjustments 4,343 8,183 5,075 Operating income
(as restated) $ 40,735 $ 136,205 $ 118,583 Net income
(previously reported) $ 19,798 $ 91,900 $ 83,594 Adjustments
5,288 5,527 2,450 Net income (as restated) $ 25,086 $
97,427 $ 86,044 Earnings per share (previously reported) $
0.74 $ 3.44 $ 3.13 Adjustments 0.20 0.20 0.09
Earnings per share (as restated) $ 0.94 $ 3.64 $ 3.22
Conference Call
Cubic management will host a conference call to discuss the
company’s second quarter and first half results today at 4:30 PM ET
(1:30 PM PT) that will be simultaneously broadcast over the
Internet. William W. Boyle, Chief Executive Officer, John “Jay” D.
Thomas, Chief Financial Officer, and Bradley H. Feldmann, President
and Chief Operating Officer, will host the call.
Conference Dial-In Information
Financial analysts and institutional investors interested in
participating in the call are invited to dial
- (877) 407-8293 for domestic
callers
- (201) 689-8349 for international
callers
Please dial-in approximately 10 minutes prior to the start of
the call.
Audio Webcast
Listeners may access the conference call live over the Internet
at the company’s website under the “Investor Relations” tab at
www.cubic.com.
Please allow 15 minutes prior to the call to visit our website
to download any necessary audio software. For those unable to
listen to the live broadcast, an archived version will be available
at the same location for approximately 30 days following the live
webcast.
About Cubic Corporation
Cubic Corporation is globally diversified in transportation and
defense markets. The company’s Transportation segment is a leading
systems integrator that develops and provides fare collection
infrastructure, services and technology for public transit
authorities and operators worldwide. Cubic’s Mission Support
Services segment is a leading provider of training, operations,
maintenance, technical and other support services to the U.S. and
allied nations. The Defense Systems segment is a leading provider
of realistic combat training systems and secure communications
systems. For more information about Cubic, see the company's web
site at www.cubic.com.
Forward-Looking Statements
This press release contains forward‐looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
that are subject to the safe harbor created by such Act.
Forward‐looking statements include, among others, statements about
our expectations regarding future events or our future financial
and/or operating performance. 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 risks, estimates,
assumptions and uncertainties that could cause actual results to
differ materially from those expressed in these statements,
including, among others: our dependence on U.S. and foreign
government contracts; delays in approving U.S. and foreign
government budgets and cuts in U.S. and foreign government defense
expenditures; the ability of certain government agencies to
unilaterally terminate or modify our contracts with them; our
ability to successfully integrate new companies into our business
and to properly assess the effects of such integration on our
financial condition; the U.S. government’s increased emphasis on
awarding contracts to small businesses, and our ability to retain
existing contracts or win new contracts under competitive bidding
processes; the effects of politics and economic conditions on
negotiations and business dealings in the various countries in
which we do business or intend to do business; risks associated
with the restatement of our prior consolidated financial
statements, including our identification of material weaknesses in
our internal control over financial reporting; competition and
technology changes in the defense and transportation industries;
our ability to accurately estimate the time and resources necessary
to satisfy obligations under our contracts; the effect of adverse
regulatory changes on our ability to sell products and services;
our ability to identify, attract and retain qualified employees;
business disruptions due to cyber security threats, physical
threats, terrorist acts, acts of nature and public health crises;
our involvement in litigation, including litigation related to
patents, proprietary rights and employee misconduct; our reliance
on subcontractors and on a limited number of third parties to
manufacture and supply our products; our ability to comply with our
development contracts and to successfully develop, introduce and
sell new products, systems and services in current and future
markets; defects in, or a lack of adequate coverage by insurance or
indemnity for, our products and systems; and changes in U.S. and
foreign tax laws, exchange rates or our economic assumptions
regarding our pension plans. In addition, please refer to the risk
factors contained in our SEC filings available at www.sec.gov,
including our most recent Annual Report on Form 10‐K and Quarterly
Reports on Form 10‐Q. Because the risks, estimates, assumptions and
uncertainties referred to above could cause actual results or
outcomes to differ materially from those expressed in any
forward‐looking statements, you should not place undue reliance on
any forward‐looking statements. Any forward‐looking statement
speaks only as of the date hereof, and, except as required by law,
we undertake no obligation to update any forward‐looking statement
to reflect events or circumstances after the date hereof.
Use of Non-GAAP Financial Information
Adjusted EBITDA represents net income attributable to Cubic
before interest, taxes, non-operating income, goodwill impairment
charges, depreciation and amortization. We believe that the
presentation of Adjusted EBITDA included in this report provides
useful information to investors with which to analyze our operating
trends and performance and ability to service and incur debt. Also,
Adjusted EBITDA is a factor we use in measuring our performance and
compensating certain of our executives. Further, we believe
Adjusted EBITDA facilitates company-to-company operating
performance comparisons by backing out potential differences caused
by variations in capital structures (affecting net interest
expense), taxation, the age and book depreciation of property,
plant and equipment (affecting relative depreciation expense),
goodwill impairment charges and non-operating expenses which may
vary for different companies for reasons unrelated to operating
performance. In addition, we believe that Adjusted EBITDA is
frequently used by securities analysts, investors and other
interested parties in their evaluation of companies, many of which
present an Adjusted EBITDA measure when reporting their results.
Adjusted EBITDA is not a measurement of financial performance under
GAAP and should not be considered as an alternative to net income
as a measure of performance. In addition, other companies may
define Adjusted EBITDA differently and, as a result, our measure of
Adjusted EBITDA may not be directly comparable to Adjusted EBITDA
of other companies. Furthermore, Adjusted EBITDA has limitations as
an analytical tool, and you should not consider it in isolation, or
as a substitute for analysis of our results as reported under
GAAP.
Because of these limitations, Adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted EBITDA only supplementally. You are cautioned not to place
undue reliance on Adjusted EBITDA.
The following table reconciles Adjusted EBITDA to net income
attributable to Cubic, which we consider to be the most directly
comparable GAAP financial measure to Adjusted EBITDA.
Six Months Ended Three Months Ended
March 31, March 31, 2014 2013 2014 2013
(in thousands) (As Restated) (As Restated)
Reconciliation:
Net income attributable to Cubic $ 24,480 $ 43,891 $ 16,092 $
29,650 Add: Provision for income taxes 8,248 13,145 5,809 7,276
Interest expense, net 1,250 773 634 345 Other expense (income), net
(40 ) (49 ) (386 ) 53 Noncontrolling interest in income of VIE 69
125 28 52 Depreciation and amortization 15,229
11,597 7,852 6,879
ADJUSTED
EBITDA $ 49,236 $ 69,482 $ 30,029 $ 44,255
Financial Statements
CUBIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED) (amounts in thousands, except per share data)
Six Months Ended Three Months
Ended March 31, March 31, 2014 2013 2014
2013
(As Restated)
(As Restated)
Net sales: Products $ 268,770 $ 301,754 $ 146,789 $ 167,036
Services 392,859 381,651 207,703
201,573 661,629 683,405 354,492 368,609
Costs and expenses: Products 196,944 219,032 110,185 119,145
Services 324,180 297,391 162,693 153,320 Selling, general and
administrative 85,019 82,263 48,265 41,320 Restructuring costs 203
6,084 203 6,084 Research and development 9,873 12,920 4,959 7,098
Amortization of purchased intangibles 11,403
7,830 6,010 4,266 627,622
625,520 332,315 331,233
Operating income 34,007 57,885 22,177 37,376
Other income (expense): Interest and dividend income 363 749 118
312 Interest expense (1,613 ) (1,522 ) (752 ) (657 ) Other income
(expense) - net 40 49 386
(53 ) Income before income taxes 32,797 57,161 21,929
36,978 Income taxes 8,248 13,145
5,809 7,276 Net income 24,549
44,016 16,120 29,702 Less noncontrolling interest in income
of VIE 69 125 28
52 Net income attributable to Cubic $ 24,480 $
43,891 $ 16,092 $ 29,650 Net income per
share attributable to Cubic Basic $ 0.91 $ 1.64 $ 0.60 $ 1.11
Diluted $ 0.91 $ 1.64 $ 0.60 $ 1.11 Dividends per common
share $ 0.12 $ 0.12 $ 0.12 $ 0.12 Weighted average shares
used in per share calculations: Basic 26,785 26,736 26,786 26,736
Diluted 26,892 26,736 26,901 26,736
CUBIC
CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
March 31, September 30, 2014 2013
(As Restated)
ASSETS Current assets: Cash and cash equivalents $ 125,343 $
203,892 Restricted cash 68,984 69,381 Marketable securities - 4,055
Accounts receivable - net 439,626 379,002 Recoverable income taxes
14,231 7,885 Inventories - net 64,303 59,746 Deferred income taxes
and other current assets 29,743 18,638
Total current assets 742,230 742,599
Long-term contract receivables 17,410 19,021 Long-term
capitalized contract costs 79,010 68,963 Property, plant and
equipment - net 63,789 56,305 Deferred income taxes 18,181 19,322
Goodwill 186,808 136,094 Purchased intangibles - net 75,389 57,542
Other assets 15,107 9,772 $ 1,197,924
$ 1,109,618
LIABILITIES AND SHAREHOLDERS'
EQUITY Current liabilities: Short-term borrowings $ 30,000 $ -
Trade accounts payable 24,616 40,310 Customer advances 88,830
84,307 Accrued compensation and other current liabilities 143,938
109,253 Income taxes payable 9,842 12,731 Current portion of
long-term debt 578 557 Total current
liabilities 297,804 247,158
Long-term debt 102,166 102,363 Other long-term liabilities 46,390
43,017 Shareholders' equity: Common stock 17,322 15,825
Retained earnings 761,262 740,002 Accumulated other comprehensive
loss 8,855 (2,803 ) Treasury stock at cost (36,078 )
(36,078 ) Shareholders' equity related to Cubic 751,361 716,946
Noncontrolling interest in variable interest entity 203
134 Total shareholders' equity 751,564
717,080 $ 1,197,924 $ 1,109,618
CUBIC CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended Three Months Ended March 31, March
31, 2014 2013 2014 2013
(As Restated)
(As Restated)
Operating Activities: Net income $ 24,549 $ 44,016 $ 16,120 $
29,702
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 15,229 11,597 7,852 6,879 Share-based
compensation expense 2,585 59 1,725 59 Changes in operating assets
and liabilities (71,662 ) (111,643 ) (15,201 )
(66,495 )
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
(29,299 ) (55,971 ) 10,496
(29,855 ) Investing Activities: Acquisition of businesses,
net of cash acquired (79,683 ) (53,272 ) (10,708 ) (20,177 )
Purchases of property, plant and equipment (10,947 ) (3,861 )
(6,025 ) (2,438 )
Proceeds from sales or maturities of
marketable securities
4,055 - 4,055 -
NET CASH USED IN INVESTING ACTIVITIES (86,575 )
(57,133 ) (12,678 ) (22,615 ) Financing
Activities: Proceeds from short-term borrowings 30,000 70,000
10,000 45,000 Principal payments on short-term borrowings - (45,000
) - (45,000 ) Proceeds from long-term borrowings - 50,000 - 50,000
Principal payments on long-term debt (284 ) (8,273 ) (144 ) (4,133
) Proceeds from issuance of common stock 113 - 113 - Dividends paid
(3,215 ) (3,208 ) (3,215 ) (3,208 ) Net change in restricted cash
397 (84 ) 457 (313 )
Contingent consideration payments related
to acquisitions of businesses
(1,117 ) - (447 ) -
NET CASH PROVIDED BY FINANCING
ACTIVITIES
25,894 63,435 6,764
42,346 Effect of exchange rates on cash
11,431 (13,993 ) (615 ) (15,387 )
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(78,549 ) (63,662 ) 3,967 (25,511 )
Cash and cash equivalents at the beginning
of the period
203,892 212,267 121,376
174,116
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD
$ 125,343 $ 148,605 $ 125,343 $ 148,605
Supplemental disclosure of non-cash investing and
financing activities: Liability incurred to acquire NEK, net
$ - $ 19,552 $ - $ - Liability incurred to acquire ITMS, net $
3,301 $ - $ - $ - Liability incurred to acquire Intific, net $
2,233 $ - $ 2,233 $ - Receivable from the seller of NextBus $ - $
682 $ - $ 682
Cubic CorporationDiane DyerInvestor Relations858-505-2907orCubic
CorporationJohn D. ThomasMedia858-505-2989
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