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Cubic Reports Fiscal Year 2013 Results



  Cubic Reports Fiscal Year 2013 Results

  * Sales of $1.361 billion for fiscal year 2013
  * Net income of $19.8 million, or $0.74 per diluted share for fiscal year
    2013
  * Non-cash goodwill impairment of $50.9 million, or $1.61 per diluted share,
    net of applicable taxes, recorded in the fourth quarter of 2013
  * Non-GAAP Adjusted EBITDA of $112.6 million for fiscal year 2013
  * Backlog of $2.669 billion as of September 30, 2013

Business Wire

SAN DIEGO -- December 5, 2013

Cubic Corporation (NYSE: CUB) today reported its financial results for the
fiscal year ended September 30, 2013.

Sales in fiscal year 2013 were $1.361 billion compared to $1.381 billion in
2012, a decrease of 1%. Four acquisitions made during the fiscal year added
$43.1 million in sales, while organic sales decreased 5%.

Operating income was $36.4 million for the year compared to $128.0 million in
2012. Operating income decreased in all three operating segments. The largest
contributor to lower operating income was a goodwill impairment charge of
$50.9 million taken in the fourth quarter within our Mission Support Services
(MSS) segment. In addition, the decline was driven by an 8% decrease in gross
profit margins on product sales, partially offset by a 4% increase in gross
profit margins for services revenues. The decrease in product gross profit was
due in part to growth in estimated costs to complete transportation projects
in Sydney, Australia, and Vancouver, B.C. Canada, that impacted operating
income by $17.2 million in the fourth quarter. In addition, during the year we
incurred $8.1 million in restructuring charges primarily in our Defense
Systems (CDS) segment.

Non-GAAP Adjusted EBITDA was $112.6 million or 8% of sales in fiscal year 2013
compared to $150.9 million or 11% of sales in 2012. The product gross margin
decrease and restructuring charges, mentioned above, contributed to the
decrease in Adjusted EBITDA (see the table included in the section titled “Use
of Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP
financial measures).

Net income was $19.8 million, or $0.74 per share, in fiscal year 2013 compared
to $91.9 million last year, or $3.44 per share, reflecting lower operating
income, including the goodwill impairment, and a higher effective income tax
rate. Our effective tax rate increased this year due to an unfavorable impact
associated with the goodwill impairment because a large portion of our
goodwill is not deductible for income tax purposes. In addition, we increased
our valuation allowance by $3.9 million in the fourth quarter of 2013 for a
deferred tax asset related to our Australian operations.

Backlog was $2.669 billion at the end of fiscal year 2013 compared to $2.832
billion in the prior year, a decrease of $162.7 million. The decrease was due
to lower backlog in our Transportation Systems (CTS) and MSS segments due to
sales in 2013 in excess of new contract orders added, partially offset by an
increase in CDS backlog, which was driven by more than $125 million of new
contracts in the Asia Pacific region in 2013.

“Fiscal year 2013 was a transition year for the company, which concluded with
a very difficult fourth quarter,” said William W. Boyle, Chief Executive
Officer of Cubic Corporation. “While our performance in 2013 was poor, it was
an important year in terms of positioning the businesses for the long-term. We
believe fiscal 2014 will be a much better year with a turnaround in operating
income and cash flows, as major design and build projects in the
transportation segment move into the services phase. We also expect the
restructuring and realignment of the defense systems business coupled with
recently awarded contracts with the Navy and international customers to
improve margins in defense systems. Next year we expect sales to grow from
$1.361 billion to a range of $1.42 billion to $1.45 billion and EPS to grow
from $0.74 per share to somewhere between $2.60 and $2.75 per share.”

Reportable Segment Results

Transportation Systems (38% of fiscal 2013 consolidated sales)

 
Years ended September 30,                     2013          2012
                                              (in millions)
Transportation Systems Sales                  $ 516.9       $ 513.6
                                                             
Transportation Systems Operating Income       $ 62.4        $ 76.3
 

CTS sales increased 1% in 2013 to $516.9 million from $513.6 million last
year. During 2013 we had higher sales from transit system contracts in North
America and a $7.8 million sales contribution from NextBus which was acquired
in January 2013. These increases were partially offset by a decrease in design
and build activities in Sydney, Vancouver and with UK train operating
companies. Revenue comparisons were also negatively impacted for the year by
$6.6 million in foreign currency exchange rate differences.

CTS operating income was down 18% to $62.4 million for fiscal 2013 compared to
$76.3 million last year. The major cause for the decrease was growth in
estimated costs to complete design and build projects in Sydney, Australia and
Vancouver, B.C. Canada, as mentioned above.

Mission Support Services (34% of fiscal 2013 consolidated sales)

 
Years ended September 30,                              2013            2012
                                                       (in millions)
Mission Support Services Sales                         $ 468.5         $ 491.4
                                                                        
Mission Support Services Operating Income (Loss)       $ (36.1 )       $ 21.9
 

MSS sales decreased 5% in 2013 to $468.5 million from $491.4 million in 2012.
During the year we acquired NEK Services which contributed $31.6 million in
sales. The decline in organic sales for MSS was 11% for the year. MSS sales
declined 28% in the fourth quarter of 2013 compared to 2012, excluding NEK
sales.

MSS had an operating loss of $36.1 million in 2013 compared to an operating
profit of $21.9 million in 2012. The loss was primarily related to a goodwill
impairment charge taken in the fourth quarter. The impacts of sequestration
and other changes in the business environment caused significant impacts on
MSS beginning late in 2013. In light of this, during our strategic and
financial planning process late in 2013, we made downward revisions in our
estimates of future revenues and margins. As a result, in the fourth quarter
of 2013 we estimated that there was a decline in the estimated fair value of
MSS, which resulted in the recognition of goodwill impairment totaling $50.9
million.

Defense Systems (28% of fiscal 2013 consolidated sales)

 
Years ended September 30,              2013          2012
                                       (in millions)
Defense Systems Sales                  $ 375.1       $ 375.4
                                                      
Defense Systems Operating Income       $ 14.2        $ 34.6
 

CDS sales were virtually unchanged in 2013 from 2012 at $375.1 million.
Included in sales for 2013 was $3.7 million in sales from two small
acquisitions completed during the year. During the year CDS was awarded a new
$298.5 million indefinite delivery/indefinite quantity (ID/IQ) contract for
immersive game based training for the U.S. Navy’s Littoral Combat Ship
program. For the fiscal year CDS had $4.4 million in sales associated with
this contract.

Operating income in 2013 for CDS was $14.2 million compared to $34.6 million
in 2012. In 2012 operating income was higher by $12.5 million due to a
favorable change in estimate on a ground combat training system. Negatively
impacting operating income in 2013 was a higher operating loss in the secure
communications business. The increased loss this year was attributable to cost
growth on an Intelligence, Surveillance and Reconnaissance (ISR) data link
program and a $2.8 million inventory valuation write down for the global
tracking product line. In addition, operating income in 2013 was negatively
impacted by restructuring costs of $7.8 million.

Conference Call

Cubic management will host a conference call to discuss the company’s fourth
quarter and fiscal year 2013 results today, Thursday, December 5, 2013 at 4:30
PM ET (1:30 PM PT) that will be simultaneously broadcast over the Internet.
William W. Boyle, Chief Executive Officer, and John “Jay” D. Thomas, Chief
Financial Officer, will host the call. 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

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, including, but not limited to,
statements about future events or Cubic’s future financial and 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; 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.

 
                                     Year Ended September 30,
                                     2013          2012            2011
                                     (in thousands)
Reconciliation:
Net income attributable to Cubic     $ 19,798      $ 91,900        $ 83,594
Add:
Provision for income taxes             14,205        38,183          32,373
Interest expense (income), net         1,839         (1,444  )       (1,107  )
Other expense (income), net            367           (821    )       (1,662  )
Noncontrolling interest in             183           204             310
income of VIE
Depreciation and amortization          25,359        22,857          22,341
Impairment of goodwill                 50,865        -               -        
ADJUSTED EBITDA                      $ 112,616     $ 150,879       $ 135,849  
 

Financial Statements

 
CUBIC CORPORATION
                                                                
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
                                                                  
                         Years Ended September 30,
                           2013                2012                2011       
                                                                  
Net sales:
Products                 $ 568,442           $ 663,287           $ 600,933
Services                   792,281             718,208             694,648    
                           1,360,723           1,381,495           1,295,581
Costs and
expenses:
Products                   429,494             451,573             418,279
Services                   629,832             594,662             564,062
Selling, general
and administrative         164,876             163,688             159,791
expenses
Restructuring              8,139               -                   -
costs
Impairment of              50,865              -                   -
goodwill
Research and               24,445              28,722              25,260
development
Amortization of
purchased                  16,680              14,828              14,681     
intangibles
                           1,324,331           1,253,473           1,182,073  
                                                                  
Operating income           36,392              128,022             113,508
                                                                  
Other income
(expenses):
Interest and               1,576               2,994               2,568
dividend income
Interest expense           (3,415    )         (1,550    )         (1,461    )
Other income               (367      )         821                 1,662      
(expense) - net
                                                                  
Income before              34,186              130,287             116,277
income taxes
                                                                  
Income taxes               14,205              38,183              32,373     
                                                                  
Net income                 19,981              92,104              83,904
                                                                  
Less
noncontrolling             183                 204                 310        
interest in income
of VIE
                                                                  
Net income
attributable to          $ 19,798            $ 91,900            $ 83,594     
Cubic
                                                                  
Net income per
share attributable
to Cubic:
Basic                    $ 0.74              $ 3.44              $ 3.13
Diluted                    0.74                3.44                3.13
                                                                  
Weighted average
shares used in per
share
calculations:
Basic                      26,736              26,736              26,736
Diluted                    26,760              26,736              26,736
                                                                  

                                                                
CUBIC CORPORATION
                                                                  
CONSOLIDATED BALANCE SHEETS
(in thousands)
                                              
                                             September 30,
                                               2013                2012       
                                                                  
ASSETS
                                                                  
Current assets:
Cash and cash equivalents                    $ 203,892           $ 212,267
Restricted cash                                69,381              68,749
Marketable securities                          4,055               -
Accounts receivable:
Trade and other receivables                    17,976              17,543
Long-term contracts                            358,825             333,617
Allowance for doubtful accounts                (658      )         (463      )
                                               376,143             350,697
                                                                  
Recoverable income taxes                       7,885               7,083
Inventories                                    54,400              52,366
Deferred income taxes                          8,354               7,587
Prepaid expenses and other current             10,284              13,977     
assets
Total current assets                           734,394             712,726    
                                                                  
Long-term contract receivables                 19,249              22,070
Long-term capitalized contract costs           75,520              26,875
Property, plant and equipment, net             56,305              55,327
Deferred income taxes                          19,322              16,364
Goodwill                                       134,851             146,933
Purchased intangibles, net                     57,542              39,374
Miscellaneous other assets                     9,772               6,648      
                                                                  
Total assets                                 $ 1,106,955         $ 1,026,317  
                                                                  

                                                                
CUBIC CORPORATION
                                                                  
CONSOLIDATED BALANCE SHEETS—continued
(in thousands)
                                             September 30,
                                               2013                2012       
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                  
Current liabilities:
Trade accounts payable                       $ 39,016            $ 47,917
Customer advances                              103,187             100,764
Accrued compensation                           43,394              52,680
Other current liabilities                      62,693              55,988
Income taxes payable                           8,076               20,733
Current maturities of long-term debt           557                 4,561      
Total current liabilities                      256,923             282,643    
                                                                  
Long-term debt                                 102,363             6,942
Accrued pension liability                      20,785              46,382
Deferred compensation                          9,792               8,619
Income taxes payable                           6,769               4,862
Other non-current liabilities                  5,396               6,527
                                                                  
Commitments and contingencies
                                                                  
Shareholders' equity:
Preferred stock, no par value:
Authorized--5,000 shares
Issued and outstanding--none                   -                   -
Common stock, no par value:
Authorized--50,000 shares
2013 and 2012--Issued 35,682 shares,           15,825              12,574
outstanding--26,736 shares
Retained earnings                              728,424             715,043
Accumulated other comprehensive loss           (3,378    )         (21,148   )
Treasury stock at cost - 8,945 shares          (36,078   )         (36,078   )
Shareholders' equity related to Cubic          704,793             670,391
Noncontrolling interest in variable            134                 (49       )
interest entity
Total shareholders' equity                     704,927             670,342    
                                                                  
Total liabilities and shareholders'          $ 1,106,955         $ 1,026,317  
equity
                                                                  

                                                                 
CUBIC CORPORATION
                                                                   
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                                                                   
                             Years Ended September 30,
                               2013              2012               2011      
                                                                   
Operating Activities:
Net income                   $ 19,981          $ 92,104           $ 83,904
Adjustments to
reconcile net income
to net cash
provided by (used in)
operating activities:
Depreciation and               25,359            22,857             22,341
amortization
Share-based                    3,251             -                  -
compensation expense
Inventory write-down           2,760             -                  -
Impairment of goodwill         50,865            -                  -
Deferred income taxes          (7,508  )         (1,486   )         2,512
Changes in operating
assets and
liabilities,
net of effects from
acquisitions:
Accounts receivable            (14,588 )         (118,164 )         3,566
Inventories                    (4,219  )         (13,636  )         2,442
Prepaid expenses and           3,485             7,574              5,122
other current assets
Long-term capitalized          (48,645 )         (26,875  )         -
contract costs
Accounts payable and
other current                  (27,587 )         8,525              (1,547   )
liabilities
Customer advances              3,006             (37,999  )         37,143
Income taxes                   (19,027 )         11,929             (23,713  )
Other items, net               (409    )         494                (2,676   )
NET CASH PROVIDED BY
(USED IN) OPERATING            (13,276 )         (54,677  )         129,094   
ACTIVITIES
                                                                   
Investing Activities:
Acquisition of
businesses, net of             (63,691 )         -                  (126,825 )
cash acquired
Purchases of                   (4,050  )         -                  -
marketable securities
Proceeds from sales or
maturities of                  -                 25,829             58,252
short-term investments
Purchases of property,         (9,052  )         (14,226  )         (8,728   )
plant and equipment
NET CASH PROVIDED BY
(USED IN) INVESTING            (76,793 )         11,603             (77,301  )
ACTIVITIES
                                                                   
Financing Activities:
Proceeds from short            70,000            -                  -
term borrowings
Payments from short            (70,000 )         -                  -
term borrowings
Proceeds from long             100,000           -                  -
term borrowings
Principal payments on          (8,543  )         (4,549   )         (4,555   )
long-term borrowings
Contingent
consideration payments         (7,842  )         -                  -
related to acquisition
of businesses
Net change in                  (158    )         (68,584  )         -
restricted cash
Dividends paid to              (6,417  )         (6,417   )         (7,486   )
shareholders
Purchases of treasury          -                 -                  (4       )
stock
NET CASH PROVIDED BY
(USED IN) FINANCING            77,040            (79,550  )         (12,045  )
ACTIVITIES
                                                                   
Effect of exchange             4,654             5,743              (6,034   )
rates on cash
                                                                   
NET INCREASE
(DECREASE) IN CASH AND         (8,375  )         (116,881 )         33,714
CASH EQUIVALENTS
                                                                   
Cash and cash
equivalents at the             212,267           329,148            295,434   
beginning of the year
                                                                   
CASH AND CASH
EQUIVALENTS AT THE END       $ 203,892         $ 212,267          $ 329,148   
OF THE YEAR
                                                                   
Supplemental
disclosure of non-cash
investing and
financing activities:
Liability incurred to        $ 4,490             -                  -
acquire NEK, net
                                                                   

Contact:

Cubic Corporation
Media:
John D. Thomas, 858-505-2989
or
Investors:
Diane Dyer, 858-505-2907
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