Cubic Corporation (NYSE: CUB) today reported its results for the
third quarter of fiscal year 2013. Sales for the third quarter of
2013 were $340.4 million compared to $365.4 million in the third
quarter of 2012, a decrease of 7 percent. Net income attributable
to Cubic shareholders was $18.4 million, or $0.69 per share
compared to $26.7 million, or $1.00 per share, in the third quarter
of 2012.
Operating income was $27.0 million compared to $38.6 million
last year. In comparison to last year, operating income for the
third quarter of 2013 was down due to a defense systems contract
settlement that occurred in the third quarter of 2012. This
settlement resulted in higher operating income and higher sales of
$12.5 million for the third quarter of 2012.
Total backlog of $2.87 billion for the quarter ended June 30,
2013 increased from $2.83 billion at September 30, 2012, reflecting
strong domestic and international contract award activity in our
two defense segments. The negative changes in currency exchange
rates for the nine months ended June 30, 2013 reduced backlog by
$69.9 million.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA), a non-GAAP measure (as described
below), was $33.4 million in this year’s third quarter compared to
$44.4 million last year.
“We have said 2013 would be a transition year compared to our
record year in 2012. The transportation segment’s performance for
the year has been very good while the defense segments are facing a
challenging DoD environment. Despite the challenges, we are
encouraged by contract awards in our two defense segments and
improved operating profit performance in defense systems in the
third quarter compared to earlier in the fiscal year,” said William
Boyle, Chief Executive Officer of Cubic Corporation.
Reportable Segment Results
Transportation Systems (39% of consolidated sales)
Nine Months Ended Three Months Ended June 30,
June 30, 2013 2012 2013 2012
(in millions) Transportation Systems Segment Sales $ 391.2 $ 383.3
$ 133.8 $ 125.8
Transportation Systems Segment Operating Income $ 63.6 $
60.5 $ 18.2 $ 19.2
Cubic Transportation Systems (CTS) develops and delivers
innovative fare collection systems and services for public transit
authorities worldwide. In the third quarter of this year, CTS sales
increased 6 percent to $133.8 million compared to $125.8 million in
the same period last year. The increase resulted from higher sales
on contracts in the U.S., including a contract for a suburban bus
system near Chicago, and transit system contracts in Minneapolis,
and New York. NextBus, a real-time passenger information system
business the company acquired in January 2013, contributed sales of
$3.1 million for the third quarter of this year.
Operating income from CTS in the third quarter of this year was
$18.2 million compared to $19.2 million last year, a decrease of 5
percent. During the quarter, operating margins declined due to a
decrease in work on U.K. development contracts, and due to an
increase in the estimated costs to complete the electronic
ticketing system in Sydney, Australia. These decreases in operating
income were partially offset for the quarter by higher operating
income on increased work on contracts in the U.S. described above
as well as a settlement from a European service contract claim. CTS
total backlog decreased to $1.54 billion at June 30, 2013 from
$1.66 billion as of September 30, 2012, about half of the decrease
was due to negative changes in currency exchange rates.
Mission Support Services (36% of consolidated sales)
Nine Months Ended Three Months Ended
June 30, June 30, 2013 2012
2013 2012
(in millions) Mission Support Services Segment Sales $ 359.4 $
356.8
$ 123.8 $ 122.4
Mission Support Services Segment Operating Income $ 11.4 $
15.0
$ 3.6 $ 5.9
Mission Support Services (MSS) is a leading provider of highly
specialized support services to the U.S. government and allied
nations. Sales from MSS increased 1 percent to $123.8 million in
the third quarter of this year, compared to $122.4 million in the
third quarter of last year. Sales generated by NEK, a Special
Operation Forces training business acquired in December 2012,
totaled $11.4 million in the quarter ended June 30, 2013. MSS
had lower sales on certain contracts in the quarter due to a
decrease in DoD activity.
MSS operating income was $3.6 million in the third quarter of
this year compared to $5.9 million in the third quarter of last
year, a decrease of 39 percent. The operating income decrease
reflects lower sales on certain contracts for the U.S. military, an
operating loss of $0.7 million from NEK inclusive of amortization
expense of $0.9 million, and the impact of lower margins due to
contracts being awarded by the U.S. government based on low price
technically acceptable criteria.
Total backlog for MSS was $800.6 million this quarter compared
to $737.0 million at September 30, 2012. The increase in backlog
includes $23.9 million of backlog from the acquisition of NEK.
Defense Systems (25% of consolidated sales)
Nine Months Ended Three Months Ended
June 30, June 30, 2013 2012
2013 2012
(in millions)
Defense Systems
Segment Sales
Training systems $ 222.6 $ 243.1
$ 69.4 $ 108.1 Secure communications 44.6 37.8
13.4 8.8 $ 267.2 $ 280.9
$ 82.8 $ 116.9
Defense Systems
Segment Operating Income
Training systems $ 17.7 $ 31.4
$ 8.8 $ 19.1 Secure communications (3.0 ) (4.7 )
(1.7 ) (4.5 ) Restructuring costs (6.2 ) -
(0.1 ) - $ 8.5 $ 26.7
$ 7.0 $ 14.6
Cubic Defense Systems (CDS) is focused on two primary lines of
business: training systems and secure communications. In the third
quarter, training systems sales were $69.4 million compared to
$108.1 million last year, a decrease of 36 percent, which reflects
lower sales from ground combat training systems and virtual small
arms training systems partially offset by higher sales of air
combat training systems. Operating income was down 54 percent to
$8.8 million this year from $19.1 million last year primarily due
to a defense systems contract settlement that occurred in the third
quarter of 2012. This settlement resulted in higher operating
income and higher sales of $12.5 million for the third quarter of
2012.
Certain CDS product lines previously categorized as “Other” have
been reclassified into “Secure Communications” due to management
realignment. Secure Communications sales increased 52 percent to
$13.4 million this year from $8.8 million last year due to higher
sales from personnel locator systems and data link products. Secure
Communications operating loss decreased to $1.7 million in the
third quarter from $4.5 million last year. The overall operating
loss for Secure Communications is primarily due to the results of
operations of our asset tracking and cyber security product lines.
In the third quarter of 2013, increased margins on higher sales of
data link products were primarily responsible for the reduction in
the overall Secure Communications operating loss.
CDS backlog increased to $521.8 million from $430.9 million at
September 30, 2012. The increase in backlog includes several
international awards and $30 million in task order funding for the
recently awarded Littoral Combat Ship ID/IQ contract received
during the third quarter.
Conference Call
Cubic management will host a conference call to discuss the
company’s third quarter fiscal year 2013 results today, Thursday
August 1, 2013 at 4:30 ET (1:30 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 through September 3, 2013.
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. 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
To supplement our consolidated financial statements presented in
accordance with U.S. generally accepted accounting principles
(GAAP), we use Adjusted EBITDA which represents net income
attributable to Cubic before interest, taxes, non-operating income,
depreciation and amortization. We believe that the presentation of
Adjusted EBITDA 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 and the age and book
depreciation of property, plant and equipment (affecting relative
depreciation expense), 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.
Nine Months Ended Three Months Ended June 30,
June 30,
2013 2012 2013 2012 (in thousands)
Reconciliation: Net
income attributable to Cubic $ 57,968 $ 70,812 $ 18,364 $ 26,721
Add: Provision for income taxes 19,859 29,538 7,416 11,338 Interest
expense (income), net 1,159 (1,524 ) 392 (476 ) Other income, net
764 (95 ) 813 950 Noncontrolling interest in income of VIE 149 149
24 53 Depreciation and amortization 18,014 17,140
6,417 5,843
ADJUSTED EBITDA $
97,913 $ 116,020 $ 33,426 $ 44,429
Summary Results
The company's three reportable segments are: Transportation
Systems, Mission Support Services and Defense Systems. The
following table presents sales, operating profits, and depreciation
and amortization for each of the three business segments, in
millions.
Nine Months Ended Three
Months Ended June 30, June 30, 2013 2012 2013
2012
Sales: Transportation Systems $
391.2 $ 383.3 $ 133.8 $ 125.8 Mission Support Services 359.4 356.8
123.8 122.4 Defense Systems 267.2 280.9 82.8 116.9 Other 0.3
0.8 - 0.3 Total
sales $ 1,018.1 $ 1,021.8 $ 340.4 $ 365.4
Operating income (loss): Transportation
Systems $ 63.6 $ 60.5 $ 18.2 $ 19.2 Mission Support Services 11.4
15.0 3.6 5.9 Defense Systems 8.5 26.7 7.0 14.6 Unallocated
corporate expenses and other (3.6 ) (3.3 )
(1.8 ) (1.1 ) Total operating income $ 79.9 $ 98.9
$ 27.0 $ 38.6
Depreciation and
amortization: Transportation Systems $ 2.7 $ 2.8 $ 1.2 $ 1.1
Mission Support Services 10.0 9.6 3.5 3.1 Defense Systems 4.4 3.9
1.5 1.4 Other 0.9 0.8 0.2
0.2 Total depreciation and amortization $ 18.0
$ 17.1 $ 6.4 $ 5.8
CUBIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (UNAUDITED) (amounts in thousands, except per share data)
Nine Months Ended Three Months Ended June 30, June 30, 2013
2012 2013 2012 Net sales: Products $ 432,226 $ 498,829 $
131,557 $ 189,743 Services 585,895 522,979
208,888 175,654 1,018,121
1,021,808 340,445 365,397 Costs and expenses: Products
311,964 338,564 93,946 118,431 Services 462,075 430,602 164,458
153,552 Selling, general and administrative 126,447 121,010 44,130
42,751 Research and development 19,346 21,395 6,426 8,427
Amortization of purchased intangibles 12,192 11,357 4,362 3,650
Restructuring costs 6,198 - 114
- 938,222 922,928
313,436 326,811 Operating income
79,899 98,880 27,009 38,586 Other income (expense): Interest
and dividend income 1,279 2,423 530 697 Interest expense (2,438 )
(899 ) (922 ) (221 ) Other income (expense) - net (764 )
95 (813 ) (950 ) Income before
income taxes 77,976 100,499 25,804 38,112 Income taxes
19,859 29,538 7,416
11,338 Net income 58,117 70,961 18,388 26,774
Less noncontrolling interest in income of VIE 149
149 24 53
Net income attributable to Cubic $ 57,968 $ 70,812 $
18,364 $ 26,721 Net income per share
attributable to Cubic Basic $ 2.17 $ 2.65 $ 0.69 $ 1.00 Diluted $
2.17 $ 2.65 $ 0.69 $ 1.00 Dividends per common share $ 0.12
$ 0.12 $ - $ - Weighted average shares used in per share
calculations: Basic 26,736 26,736 26,736 26,736 Diluted 26,745
26,736 26,762 26,736
CUBIC
CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) June 30, September 30, 2013 2012
ASSETS Current assets: Cash and cash equivalents $ 212,451 $
212,267 Restricted cash 68,853 68,749 Marketable securities 4,049 -
Accounts receivable - net 388,436 350,697 Recoverable income taxes
6,673 7,083 Inventories - net 48,312 52,366 Deferred income taxes
and other current assets 17,035 21,564
Total current assets 745,809 712,726
Long-term contract receivables 19,850 22,070 Long-term
capitalized contract costs 61,782 26,875 Property, plant and
equipment - net 54,770 55,327 Goodwill 183,895 146,933 Purchased
intangibles - net 58,517 39,374 Other assets 20,974
23,012 $ 1,145,597 $ 1,026,317
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Trade accounts payable $ 31,293 $ 47,917 Customer advances 107,256
100,764 Accrued compensation and other current liabilities 114,100
108,668 Income taxes payable 7,229 20,733 Current portion of
long-term debt 529 4,561 Total current
liabilities 260,407 282,643
Long-term debt 102,380 6,942 Other long-term liabilities 66,412
66,390 Shareholders' equity: Common stock 14,208 12,574
Retained earnings 769,803 715,043 Accumulated other comprehensive
loss (31,635 ) (21,148 ) Treasury stock at cost (36,078 )
(36,078 ) Shareholders' equity related to Cubic 716,298
670,391 Noncontrolling interest in variable interest entity
100 (49 ) Total shareholders' equity 716,398
670,342 $ 1,145,597 $ 1,026,317
CUBIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in
thousands) Nine Months Ended Three Months Ended June 30,
June 30, 2013 2012 2013 2012 Operating Activities: Net income $
58,117 $ 70,961 $ 18,388 $ 26,774
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 18,014 17,140 6,417 5,843 Share-based
compensation expense 1,634 - 1,575 - Changes in operating assets
and liabilities (84,595 ) (126,916 ) 22,761
(31,524 )
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
(6,830 ) (38,815 ) 49,141 1,093
Investing Activities: Acquisition of businesses, net
of cash acquired (60,649 ) - (7,377 ) - Purchases of property,
plant and equipment (6,209 ) (13,244 ) (2,348 ) (3,094 ) Purchases
of marketable securities (4,054 ) - (4,054 ) -
Proceeds from sales or maturities of
marketable securities
- 25,829 - 7,895
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES
(70,912 ) 12,585 (13,779 ) 4,801
Financing Activities: Proceeds from short-term
borrowings 70,000 - - - Principal payments on short-term borrowings
(70,000 ) - (25,000 ) - Proceeds from long-term borrowings 100,000
- 50,000 - Principal payments on long-term debt (8,407 ) (4,411 )
(134 ) (137 ) Dividends paid (3,208 ) (3,208 ) - - Net change in
restricted cash (104 ) (68,584 ) (20 ) -
Contingent consideration payments related
to acquisitions of businesses
(224 ) - (224 ) -
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES
88,057 (76,203 ) 24,622
(137 ) Effect of exchange rates on cash (10,131 )
4,414 3,862 (5,394 )
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
184 (98,019 ) 63,846 363
Cash and cash equivalents at the beginning
of the period
212,267 329,148 148,605
230,766
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD
$ 212,451 $ 231,129 $ 212,451 $ 231,129
Supplemental disclosure of non-cash investing and
financing activities: Liability incurred to acquire NEK $
12,108 $ - $ - $ -
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