Defense/Aerospace Industries

[DewDiligence]

CUB Reports FY1Q10 Results

[CUB was hammered last week after reporting fiscal Q1 earnings that fell slightly short of analysts’ expectations. The selloff was so pronounced I figured there had to be a smoking gun, so I read through the 10Q filing to try to find one. All I found was a $2M charge due to a contract dispute with one of CUB’s defense customers, but this charge was disclosed in the PR below and would seem to be too small to be consequential. Moreover, contract disputes in the defense business are commonplace. Bottom line: I think the selloff was a major overreaction. If anyone here disagrees, please post!]

http://finance.yahoo.com/news/Cubic-Corp-NYSE-CUB-Reports-iw-68200143.html?x=0&.v=1

›Monday February 8, 2010, 3:19 pm EST

SAN DIEGO, CA--(Marketwire - 02/08/10) - Cubic Corporation (NYSE:CUB) today reported earnings and sales for the quarter ended December 31, 2009. Sales for the first fiscal quarter were $250.7 million compared to $244.9 million last year, and net income was $13.7 million or 51 cents per share this year compared to $14.2 million or 53 cents per share last year.

Operating income in the first quarter this year was $20.9 million, compared to $21.1 million last year, because of a provision of $2.0 million made during the quarter for a contract dispute. The company is continuing to pursue alternatives for resolution of the dispute that could lead to recovery of the full amount, but the amount or likelihood of recovery cannot be determined at this time. Cash flows from operations were $11.3 million for the quarter.

Transportation Systems Segment

Cubic Transportation Systems (CTS) sales were virtually the same in the first quarter of fiscal 2010 and 2009, at $74.3 million compared to $74.4 million in the prior year.

Operating income from CTS increased 10 percent in the first quarter this year to $11.0 million compared to $10.0 million in the prior year. The prior year results had included two contract restructurings and a dispute resolution, which added $1.6 million to first quarter operating income last year.

Defense Systems Segment

Cubic Defense Systems (CDS) sales increased 15 percent to $75.6 million from $66.0 million in last year's first quarter. Sales increased in both the Training Systems and Communications businesses.

Operating income from CDS improved to $6.7 million from $5.2 million in last year's first quarter. Higher operating income on higher sales of electro-optic training systems and personnel locator systems contributed to the increase.

Mission Support Services Segment

Sales at Mission Support Services (MSS) decreased 3 percent to $100.2 million from $103.8 million in the first quarter of last year. A contributing factor to the decrease was the completion of a contract in Iraq that had added approximately $5.7 million to sales to the first quarter of the prior year.

Operating income from MSS was $4.0 million compared to $7.5 million in the prior year's first quarter. The contract in Iraq mentioned above had contributed approximately $2.0 million to the prior year results in addition to a $1.2 million contract settlement received in last year's first quarter. This year's first quarter included a provision of $2.0 million for a dispute with a customer over contract terms.

Backlog

Total backlog was $2.175 billion at December 31, 2009 compared to $2.183 billion at September 30, 2009.

Financial Condition

The company continues to maintain a strong liquidity position, ending the period with $258.2 million in cash and short-term investments, and total debt of only $21.0 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 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.

CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended
December 31,
2009 2008
----------- -----------

Net sales
Products $ 132,785 $ 123,077
Services 117,899 121,774
----------- -----------
250,684 244,851

Cost and expenses
Products 94,855 94,984
Services 103,337 100,231
Selling, general and administrative 28,683 25,206
Research and development 1,737 1,860
Amortization of purchased intangibles 1,698 1,440
----------- -----------
230,310 223,721
----------- -----------

Operating income 20,374 21,130

Other income (expenses):
Interest and dividends 346 570
Interest expense (450) (532)
Other income (expense) 593 (85)
----------- -----------

Income before income taxes 20,863 21,083

Income taxes 7,200 6,900
----------- -----------

Net income $ 13,663 $ 14,183
=========== ===========

Basic and diluted net income per common share $ 0.51 $ 0.53
=========== ===========

Average number of common shares outstanding 26,732 26,727
=========== ===========

CUBIC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30,
December 31, 2009
2009 (See note
(Unaudited) below)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 234,132 $ 244,074
Short-term investments 24,070 8,127
Accounts receivable - net 206,333 231,461
Inventories - net 54,510 49,107
Deferred income taxes and other current
assets 46,569 52,089
------------ ------------
Total current assets 565,614 584,858
------------ ------------

Long-term contract receivables 9,300 13,400
Property, plant and equipment - net 48,327 48,895
Goodwill 59,529 59,433
Purchased intangibles 26,952 28,618
Other assets 20,680 21,111
------------ ------------
$ 730,402 $ 756,315
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 19,476 $ 28,626
Customer advances 121,197 123,458
Other current liabilities 84,423 109,536
Income taxes payable 3,053 3,491
Current portion of long-term debt 4,561 4,554
------------ ------------
Total current liabilities 232,710 269,665
------------ ------------

Long-term debt 16,409 20,570
Other long-term liabilities 46,048 45,235

Shareholders' equity:
Common stock 12,530 12,530
Retained earnings 469,406 455,743
Accumulated other comprehensive income
(loss) (10,630) (11,357)
Treasury stock at cost (36,071) (36,071)
------------ ------------
435,235 420,845
------------ ------------
$ 730,402 $ 756,315
============ ============

Note: The balance sheet at September 30, 2009 has been derived from the
audited financial statements at that date.

CUBIC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended
December 31,
2009 2008
--------- ---------

Operating Activities:
Net income $ 13,663 $ 14,183
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,562 3,460
Changes in operating assets and liabilities (5,881) (13,151)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,344 4,492
--------- ---------

Investing Activities:
Acquisitions net of cash acquired (850) (6,100)
Net additions to property, plant and equipment (1,171) (1,448)
Proceeds from sales of short-term investments 76 -
Purchases of short-term investments (16,019) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (17,964) (7,548)
--------- ---------

Financing Activities:
Principal payments on long-term borrowings (4,214) (5,568)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,214) (5,568)
--------- ---------

Effect of exchange rates on cash 892 (12,796)
--------- ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS (9,942) (21,420)

Cash and cash equivalents at the beginning of the
period 244,074 112,696
--------- ---------

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 234,132 $ 91,276
========= =========‹