- Sales of $338.8 million for the quarter
and $657.3 million for the six-month period
- Adjusted EBITDA1 of $34.3 million for
the quarter and $50.4 million for the six-month period
- Net loss of $11.0 million, or $0.41 per
diluted share for the quarter and a net loss of $5.9 million, or
$0.22 per diluted share for the six-month period, which included
the impact of a non-cash valuation allowance on deferred tax assets
of $29.3 million or $1.09 per diluted share
- Total backlog of $3.102 billion as of
March 31, 2015
- Cash provided by operating activities
of $52.8 million for the quarter and $61.1 million for the
six-month period
- Revenue guidance maintained; EPS
guidance lowered to a range of $1.10 to $1.30 per share
Cubic Corporation (NYSE: CUB) today reported its financial
results for the quarter and six months ended March 31, 2015.
Results for Six Months Ended March 31, 2015
Sales for the first six months of fiscal 2015 were $657.3
million compared to $661.6 million in fiscal 2014, a slight
decrease of 1 percent. Sales from recent acquisitions for the first
half of fiscal 2015 were $40.8 million compared to $18.1 million
last year. Foreign currency translation reduced reported sales by
$18.0 million, or 3 percent year-to-date.
Operating income was $30.4 million in the first six months of
2015 compared to $34.0 million in 2014, a decrease of 11 percent.
Operating income was impacted by a restructuring charge in the
second quarter of 2015 totaling $5.4 million, costs related to an
audit committee investigation totaling $2.5 million, and operating
losses on recently acquired businesses totaling $6.2 million.
Foreign exchange translation further reduced operating income by
$3.1 million.
Adjusted EBITDA1 increased 2 percent to $50.4 million or 7.7
percent of sales for the first six months of fiscal 2015 compared
to $49.2 million or 7.4 percent of sales in fiscal 2014.
Net loss attributable to Cubic shareholders was $5.9 million, or
a loss of $0.22 per diluted share, compared to net income
attributable to Cubic of $24.5 million, or $0.91 per diluted share,
in the first six months of fiscal 2014. The net loss resulted from
a non-cash tax charge of $29.3 million related to establishing a
valuation allowance against the company’s net U.S. deferred tax
assets and the additional costs and charges described above.
Total backlog was $3.102 billion at the end of the quarter
compared to $3.180 billion at September 30, 2014, a decrease of
$78.3 million. Decreases in backlog for CTS and CGD Services were
partially offset by an increase in CGD Systems. Changes in currency
exchange rates between September 30, 2014 and March 31, 2015
reduced backlog by $120.6 million.
“Our underlying business fundamentals remain strong, and we are
taking important actions across the board to improve the company’s
operating efficiency,” said Bradley H. Feldmann, president and
chief executive officer of Cubic Corporation. “We are encouraged by
the positive trends we see in our business segments and are focused
on the continued advancement of our OneCubic Strategy, including
the implementation of a new ERP system to provide a scalable
platform as we grow. Primarily as a consequence of the deferred tax
valuation allowance and the impact of foreign currency exchange
rates on our expected financial results, we are revising our EPS
guidance for fiscal year 2015.”
(1)
Adjusted EBITDA is a Non-GAAP
metric - 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.
Reportable Segment Results
Cubic Transportation Systems (42 percent of consolidated
sales for the first half of fiscal 2015)
Six Months Ended Three Months Ended
March 31, March 31, 2015 2014 2015 2014
(in millions) Cubic Transportation Systems Segment Sales $
278.2 $ 276.1 $ 146.7 $ 149.0 Cubic Transportation Systems
Segment Operating Income $ 39.1 $ 19.9 $ 27.0 $ 16.8
CTS sales increased 1 percent for the six-month period to $278.2
million from $276.1 million last year. Sales from ITMS, a company
acquired in December 2013, contributed sales of $22.2 million
during the six months ended March 31, 2015, compared to $17.3
million last year. Revenue recognized on a system development and
operation contract in Chicago was higher in the first half of
fiscal 2015 than the first six months of last year. CTS also
recognized higher sales on a services contract in Australia. These
increases in sales were partially offset by decreased work on
system development contracts in the U.K. and U.S. In addition,
changes in foreign currency exchange rates compared to last year
reduced revenue by $14.8 million for the first half of 2015.
CTS operating income increased 96 percent for the first half of
fiscal 2015 to $39.1 million from $19.9 million last year. The
increase was attributable to an increase in gross margins on the
contract in Chicago described above and a commercial settlement
totaling $3.6 million. These increases in operating income were
partially offset by cost growth on a system development contract in
North America which reduced operating income by $7.6 million and
the impact of changes in foreign currency exchange rates compared
to last year which reduced operating income by $2.4 million.
Cubic Global Defense Services (28 percent of consolidated
sales for the first half of fiscal 2015)
Six Months Ended Three Months Ended
March 31, March 31, 2015 2014 2015 2014
(in millions) Cubic Global Defense Services Segment Sales $
186.5 $ 199.9 $ 97.5 $ 100.7 Cubic Global Defense Services
Segment Operating Income $ 1.1 $ 4.2 $ 1.1 $ 1.4
CGD Services sales decreased 7 percent for the first half of
fiscal 2015 to $186.5 million compared to $199.9 million last year.
Sales for the first half were lower primarily because there were
fewer training exercises conducted under a contract with the Joint
Readiness Training Center and a general reduction in the number of
training exercises and other support requirements for our U.S.
government customers. These reductions were partially offset by
growth in the simulator training business.
CGD Services operating income decreased 74 percent for the
six-month period ended March 31, 2015 to $1.1 million from $4.2
million last year. The lower operating income for the period
resulted from the decreased sales described above, including the
number of training exercises supported and reduced profit margins
on contracts due to competitive pressures driving down bid
prices.
Cubic Global Defense Systems (29 percent of consolidated
sales for the first half of fiscal 2015)
Six Months Ended Three Months Ended
March 31, March 31, 2015 2014 2015 2014
(in millions) Cubic Global Defense Systems Segment Sales $
192.6 $ 185.6 $ 94.6 $ 104.8 Cubic Global Defense Systems
Segment Operating Income (Loss) $ (0.4 ) $ 12.8 $ 2.3 $ 5.7
CGD Systems sales increased 4 percent for the first half of
fiscal 2015 to $192.6 million from $185.6 million last year.
Businesses recently acquired by CGD Systems contributed sales of
$18.6 million in the first half of fiscal 2015 compared to $0.8
million last year. Sales were higher from air combat training
systems, but were lower from datalinks, ground combat training
systems and engagement skills trainers.
CGD Systems had an operating loss of $0.4 million for the first
half of fiscal 2015 compared to operating income of $12.8 million
last year. The decrease in operating income for the first half of
fiscal 2015 was primarily driven by a restructuring charge of $4.1
million in the second quarter of 2015 and increased development
costs for a training system which resulted in a decrease in
operating income of $5.1 million. In addition, lower operating
income on lower sales of ground combat training systems and
engagement skills trainers contributed to the decrease. These
decreases were partially offset by higher operating income from
higher sales of air combat training systems. Businesses recently
acquired by CGD Systems had operating losses of $5.0 million for
the first half of fiscal 2015 compared to $3.4 million last
year.
Cash Flows
Operating activities provided cash of $61.1 million. All three
segments contributed to cash provided by operating activities for
the first half of fiscal 2015. We invested $89.5 million to acquire
DTECH LABs in the first half of 2015. A portion of this purchase
was funded by draws on our U.S. revolving credit facility. At March
31, 2015 we had $55 million outstanding under this facility at a
variable interest rate of 1.64 percent.
Audit Committee Investigation
The audit committee of the Board of Directors has conducted an
investigation with the assistance of Latham & Watkins LLP
and Deloitte FAS LLP to review the company’s controls and
procedures in connection with programs that are accounted for under
the percentage of completion method. Through the application of the
company’s internal controls, management identified an issue which
led to the investigation. As a result of the investigation, the
audit committee and management of the company have together
determined that, as of September 30, 2014, the total estimated
costs of certain of our CGD Systems segment (formerly known as
Cubic Defense Systems (CDS) segment) contracts were inappropriately
reduced during its accounting close for the year ended September
30, 2014. The inappropriate reduction of the estimated costs to
complete these contracts resulted in the overstatement of CGD
Systems sales and operating income by approximately $750,000 for
the fourth quarter and full year of fiscal 2014. This error, as
well as the unrelated errors described in the following paragraph,
are cumulatively and individually considered immaterial to the 2014
financial statements and are immaterial to the expected full year
results for 2015 and had no effect on the trend of financial
results. As such, these errors have been corrected in the financial
statements for the quarter ended December 31, 2014.
Correction of Immaterial Errors
During the accounting close for our March 31, 2015 financial
statements, management of the company identified certain errors in
the September 30, 2014 financial statements including an
overstatement of revenue recognition on one contract and the
understatement of cost of sales on a small number of contracts. The
cumulative impact of these errors resulted in an overstatement of
the company’s operating income for the year ended September 30,
2014 of $1.6 million. These errors, as well as the unrelated errors
described above related to the audit committee Investigation, are
cumulatively and individually considered immaterial to the 2014
financial statements and are immaterial to the expected full year
results for 2015 and had no effect on the trend of financial
results. As such, these errors have been corrected in the financial
statements for the quarter ended December 31, 2014.
Conference Call
Cubic management will host a conference call to discuss the
company’s second quarter and six month results today, Monday, May
18, 2015, at 4:30 PM ET (1:30 PM PT) that will be simultaneously
broadcast over the Internet. Bradley H. Feldmann, president and
chief executive officer, and John “Jay” D. Thomas, executive vice
president and chief financial 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
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. CGD Services is a leading
provider of training, operations, maintenance, technical and other
support services to the U.S. and allied nations. CGD Systems 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, 2015
2014 2015 2014 (in thousands)
Reconciliation: Net income (loss) attributable to Cubic $
(5,872 ) $ 24,480 $ (11,024 ) $ 16,092 Add: Provision for income
taxes 34,304 8,248 33,609 5,809 Interest expense, net 1,030 1,250
624 634 Other expense (income), net 900 (40 ) (16 ) (386 )
Noncontrolling interest in income of VIE 23 69 13 28 Depreciation
and amortization 20,064 15,229
11,117 7,852
ADJUSTED EBITDA $ 50,449
$ 49,236 $ 34,323 $ 30,029
Financial Statements
CUBIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (LOSS) (UNAUDITED)
(amounts in thousands, except per share data)
Six Months Ended Three Months Ended
March 31, March 31, 2015 2014 2015
2014 Net sales: Products $ 259,122 $ 268,770 $
130,510 $ 146,789 Services 398,200 392,859
208,324 207,703 657,322 661,629
338,834 354,492 Costs and expenses: Products 194,545 196,944
90,121 110,185 Services 305,337 324,180 156,045 162,693 Selling,
general and administrative 100,476 85,019 52,922 48,265 Research
and development 6,892 9,873 2,640 4,959 Amortization of purchased
intangibles 14,429 11,403 8,494 6,010 Restructuring costs
5,258 203 5,406 203
626,937 627,622 315,628
332,315 Operating income 30,385 34,007
23,206 22,177 Other income (expense): Interest and dividend
income 903 363 438 118 Interest expense (1,933 ) (1,613 ) (1,062 )
(752 ) Other income (expense) - net (900 ) 40
16 386 Income before income
taxes 28,455 32,797 22,598 21,929 Income taxes 34,304
8,248 33,609 5,809
Net income (loss) (5,849 ) 24,549 (11,011 ) 16,120
Less noncontrolling interest in income of VIE 23
69 13 28 Net
income (loss) attributable to Cubic $ (5,872 ) $ 24,480 $
(11,024 ) $ 16,092 Net income (loss) per share
attributable to Cubic Basic $ (0.22 ) $ 0.91 $ (0.41 ) $ 0.60
Diluted $ (0.22 ) $ 0.91 $ (0.41 ) $ 0.60 Dividends per
common share $ 0.14 $ 0.12 $ 0.14 $ 0.12 Weighted average
shares used in per share calculations: Basic 26,861 26,785 26,862
26,786 Diluted 26,861 26,892 26,862 26,901
CUBIC
CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) March 31,
September 30, 2015 2014
ASSETS Current assets: Cash
and cash equivalents $ 208,104 $ 215,849 Restricted cash 69,157
69,056 Marketable securities 4,482 1,196 Accounts receivable - net
376,425 394,179 Recoverable income taxes 15,516 16,055 Inventories
- net 48,779 38,775 Deferred income taxes and other current assets
28,122 30,277 Total current assets
750,585 765,387 Long-term
contract receivables 14,310 15,870 Long-term capitalized contract
costs 73,070 76,209 Property, plant and equipment - net 70,754
64,149 Deferred income taxes 2,701 17,849 Goodwill 237,395 184,141
Purchased intangibles - net 85,463 63,618 Other assets
23,670 7,383 $ 1,257,948 $ 1,194,606
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Short-term borrowings $ 55,000 $ - Trade accounts
payable 22,986 31,344 Customer advances 117,890 91,690 Accrued
compensation and other current liabilities 144,082 133,367 Income
taxes payable 10,174 12,737 Deferred income taxes 4,773 474 Current
portion of long-term debt 514 563 Total
current liabilities 355,419 270,175
Long-term debt 101,412 101,827 Other long-term liabilities
58,457 40,103 Shareholders' equity: Common stock 23,308
20,669 Retained earnings 793,514 803,059 Accumulated other
comprehensive loss (38,330 ) (5,372 ) Treasury stock at cost
(36,078 ) (36,078 ) Shareholders' equity related to Cubic
742,414 782,278 Noncontrolling interest in variable interest entity
246 223 Total shareholders' equity
742,660 782,501 $ 1,257,948 $
1,194,606
CUBIC CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six Months Ended
Three Months Ended March 31, March 31, 2015
2014 2015 2014 Operating Activities: Net
income (loss) $ (5,849 ) $ 24,549 $ (11,011 ) $ 16,120
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 20,064 15,229 11,117 7,852
Share-based compensation expense 5,291 2,585 4,238 1,725
Changes in operating assets and
liabilities net of effects from acquisitions
41,592 (71,662 ) 48,473
(15,201 )
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
61,098 (29,299 ) 52,817
10,496 Investing Activities: Acquisition of
businesses, net of cash acquired (89,460 ) (79,683 ) (6,037 )
(10,708 ) Purchases of property, plant and equipment (2,580 )
(10,947 ) (1,704 ) (6,025 ) Purchases of marketable securities
(4,590 ) - (4,590 ) -
Proceeds from sales or maturities of
marketable securities
1,196 4,055 1,196 4,055 Purchases of other assets (2,993 )
- (641 ) - NET CASH USED IN
INVESTING ACTIVITIES (98,427 ) (86,575 )
(11,776 ) (12,678 ) Financing Activities: Proceeds
from short-term borrowings 70,000 30,000 10,000 10,000 Principal
payments on short-term borrowings (15,000 ) - (15,000 ) - Principal
payments on long-term debt (269 ) (284 ) (131 ) (144 ) Proceeds
from issuance of common stock - 113 - 113 Purchases of common stock
(1,723 ) - (141 ) - Dividends paid (3,627 ) (3,215 ) (3,627 )
(3,215 ) Net change in restricted cash (101 ) 397 (42 ) 457
Contingent consideration payments related
to acquisitions of businesses
- (1,117 ) - (447 )
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES
49,280 25,894 (8,941 )
6,764 Effect of exchange rates on cash (19,696
) 11,431 (11,259 ) (615 )
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(7,745 ) (78,549 ) 20,841 3,967
Cash and cash equivalents at the beginning
of the period
215,849 203,892 187,263
121,376
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD
$ 208,104 $ 125,343 $ 208,104 $ 125,343
Supplemental disclosure of non-cash investing and
financing activities: Liability incurred to acquire DTECH,
net $ 8,854 $ - $ - $ - Liability incurred to acquire Intific, net
$ 1,173 $ 2,233 $ - $ 2,233 Liability incurred to acquire ITMS, net
$ - $ 3,301 $ - $ - Liability incurred to acquire internal use
software $ 10,800 $ - $ 10,800 $ -
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Cubic CorporationDiane DyerInvestor Relations858-505-2907orCubic
CorporationJohn D. ThomasMedia858-505-2989
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