**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

 

**FORM 10-Q**

 

 

**QUARTERLY REPORT**

 

**Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

 

**For the Quarter Ended March 31, 2003**

 

 

**1-8931**

**Commis****sion FileNumber**

 

 

| **CUBIC CORPORATION**                                                         |
|-------------------------------------------------------------------------------|
| Exact Name of Registrant as Specified in its Charter                          |
|                                                                          |   |   |
| **Delaware**                                                                  |   | **95-1678055** |
| State of Incorporation                                                        |   | IRS Employer Identification No. |
|                                                                          |   |   |
| **9333 Balboa Avenue  San Diego, California 92123  Telephone (858) 277-6780** |

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months, and (2) has been subject to such filing requirements for the past 90days.

 

Yes  ý   No  o

 

Asof April 30, 2003, Registrant had only one class of common stock of which therewere 26,719,845 shares outstanding (after deducting 8,944,884 shares held astreasury stock).

 

 

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**PART I -FINANCIAL INFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

 

### **CUBIC CORPORATION**

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

 
|                                          |   | **Six Months Ended  March 31,** |    | **Three Months Ended  March 31,** |   |
|-----------------------------------------------|--------|---------------------------------|---------|-----------------------------------|--------|
|                                          |   | **2003**                        |    | **2002**                          |   | **2003** |   | **2002** |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Sales                                         |   | $                               | 315,513 |                              | $      | 262,370 |   | $ | 167,157 |   | $ | 138,493 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Costs  and expenses:                          |   |                            |    |                              |   |   |   |   |   |
| Cost  of sales                                |   | 250,074                         |    | 200,444                           |   | 133,703 |   | 107,143 |   |
| Selling,  general and administrative expenses |   | 41,380                          |    | 39,826                            |   | 20,971 |   | 19,759 |   |
| Research  and development                     |   | 3,034                           |    | 4,890                             |   | 1,623 |   | 2,285 |   |
|                                          |   | 294,488                         |    | 245,160                           |   | 156,297 |   | 129,187 |   |
| Operating  income                             |   | 21,025                          |    | 17,210                            |   | 10,860 |   | 9,306 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Other  income (expenses)                      |   |                            |    |                              |   |   |   |   |   |
| Gain  on sale of real estate                  |   | 6,190                           |    | —                            |   | 6,190 |   | — |   |
| Interest  expense                             |   | (1,869                          | )       | (1,770                            | )      | (998 | ) | (879 | ) |
| Other  income                                 |   | 1,470                           |    | 2,592                             |   | 794 |   | 1,314 |   |
| Income  before income taxes                   |   | 26,816                          |    | 18,032                            |   | 16,846 |   | 9,741 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Income  taxes                                 |   | 8,900                           |    | 5,900                             |   | 5,600 |   | 3,300 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Net  income                                   |   | $                               | 17,916  |                              | $      | 12,132 |   | $ | 11,246 |   | $ | 6,441 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Net  income per share                         |   | $                               | 0.67    |                              | $      | 0.45 |   | $ | 0.42 |   | $ | 0.24 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Dividends  per common share                   |   | $                               | 0.070   |                              | $      | 0.063 |   | $ | 0.070 |   | $ | 0.063 |   |
|                                          |   |                            |    |                              |   |   |   |   |   |
| Average  shares of common stock outstanding   |   | 26,720                          |    | 26,720                            |   | 26,720 |   | 26,720 |   |

 

*Seeaccompanying notes.*

 

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## **CUBIC CORPORATION**

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)

 
|                                            |   | **March 31,  2003** |    | **September 30,  2002** |   |
|-------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                            |   | **(Unaudited)**     |    | **(See note below)**    |   |
| **ASSETS**                                      |   |                |    |                    |   |
| Current  assets:                                |   |                |    |                    |   |
| Cash  and cash equivalents                      |   | $                   | 43,729  |                    | $      | 78,656 |   |
| Marketable  securities, available-for-sale      |   | 408                 |    | 406                     |   |
| Accounts  receivable                            |   | 221,577             |    | 163,283                 |   |
| Inventories                                     |   | 26,961              |    | 29,200                  |   |
| Deferred  income taxes and other current assets |   | 24,489              |    | 25,262                  |   |
| Total  current assets                           |   | 317,164             |    | 296,807                 |   |
|                                            |   |                |    |                    |   |
| Accounts  receivable                            |   | 16,000              |    | —                  |   |
| Property,  plant and equipment - net            |   | 44,407              |    | 42,419                  |   |
| Goodwill,  less amortization                    |   | 19,984              |    | 19,650                  |   |
| Other  assets                                   |   | 15,829              |    | 15,583                  |   |
|                                            |   | $                   | 413,384 |                    | $      | 374,459 |   |
|                                            |   |                |    |                    |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   |   |                |    |                    |   |
| Current  liabilities:                           |   |                |    |                    |   |
| Short-term  borrowings                          |   | $                   | 5,118   |                    | $      | — |   |
| Trade  accounts payable                         |   | 19,979              |    | 16,374                  |   |
| Customer  advances                              |   | 33,037              |    | 30,232                  |   |
| Other  current liabilities                      |   | 37,362              |    | 33,424                  |   |
| Accrued  pension liability                      |   | 24,154              |    | 22,311                  |   |
| Income  taxes payable                           |   | 7,478               |    | 2,558                   |   |
| Current  portion of long-term debt              |   | 1,429               |    | 1,429                   |   |
| Total  current liabilities                      |   | 128,557             |    | 106,328                 |   |
|                                            |   |                |    |                    |   |
| Long-term  debt                                 |   | 47,142              |    | 48,571                  |   |
| Deferred  compensation                          |   | 6,390               |    | 6,397                   |   |
|                                            |   |                |    |                    |   |
| Shareholders’  equity:                     |   |                |    |                    |   |
| Common  stock                                   |   | 234                 |    | 234                     |   |
| Additional  paid-in capital                     |   | 12,123              |    | 12,123                  |   |
| Retained  earnings                              |   | 263,013             |    | 246,968                 |   |
| Accumulated  other comprehensive loss           |   | (8,009              | )       | (10,096                 | )      |
| Treasury  stock at cost                         |   | (36,066             | )       | (36,066                 | )      |
|                                            |   | 231,295             |    | 213,163                 |   |
|                                            |   | $                   | 413,384 |                    | $      | 374,459 |   |

 

*Note: The balance sheet at September30, 2002 has been derived from the audited financial statements at that date.*

# *See accompanying notes.*

 

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**CUBICCORPORATION**

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
|                                                                           |   | **Six Months Ended  March 31,** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                           |   | **2003**                        |   | **2002** |   |
| Operating  Activities:                                                         |   |                            |   |   |   |
| Net  income                                                                    |   | $                               | 17,916 |   | $ | 12,132 |   |
| Adjustments  to reconcile net income to net cash used in operating activities: |   |                            |   |   |   |
| Depreciation  and amortization                                                 |   | 3,246                           |   | 3,379 |   |
| Gain  on sale of real estate                                                   |   | (6,190                          | )      | — |   |
| Changes  in operating assets and liabilities                                   |   | (53,659                         | )      | (16,967 | ) |
| NET  CASH USED IN OPERATING ACTIVITIES                                         |   | (38,687                         | )      | (1,456 | ) |
|                                                                           |   |                            |   |   |   |
| Investing  Activities:                                                         |   |                            |   |   |   |
| Net  additions to property, plant and equipment                                |   | (5,917                          | )      | (9,415 | ) |
| Proceeds  from sale of real estate                                             |   | 7,008                           |   | — |   |
| Other  items - net                                                             |   | (1                              | )      | 10 |   |
| NET  CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                           |   | 1,090                           |   | (9,405 | ) |
|                                                                           |   |                            |   |   |   |
| Financing  Activities:                                                         |   |                            |   |   |   |
| Change  in short-term borrowings, net                                          |   | 5,142                           |   | — |   |
| Principal  payment on long-term borrowings                                     |   | (1,429                          | )      | — |   |
| Purchases  of treasury stock                                                   |   | —                          |   | (3 | ) |
| Dividends  paid                                                                |   | (1,871                          | )      | (1,693 | ) |
| NET  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                           |   | 1,842                           |   | (1,696 | ) |
|                                                                           |   |                            |   |   |   |
| Effect  of exchange rates on cash                                              |   | 828                             |   | (339 | ) |
|                                                                           |   |                            |   |   |   |
| NET  DECREASE IN CASH AND CASH EQUIVALENTS                                     |   | (34,927                         | )      | (12,896 | ) |
|                                                                           |   |                            |   |   |   |
| Cash  and cash equivalents at the beginning of the period                      |   | 78,656                          |   | 76,837 |   |
|                                                                           |   |                            |   |   |   |
| CASH  AND CASH EQUIVALENTS AT THE END OF THE PERIOD                            |   | $                               | 43,729 |   | $ | 63,941 |   |

 

# *See accompanying notes.*

 

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# ***CUBIC CORPORATION***

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

March 31, 2003

 

**Note1 – Basis for Presentation**

 

Theaccompanying unaudited consolidated condensed financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all informationand footnotes required by accounting principles generally accepted in theUnited States for complete financial statements.

 

Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Operating results for the quarter are not necessarily indicative of the resultsthat may be expected for the year ending September 30, 2003. For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the Company’s annual report on Form 10-K for the year endedSeptember 30, 2002.

 

Thepreparation of the financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

 

**Note2 – Per Share Amounts**

 

Per share amounts are basedupon the weighted average number of shares of common stock outstanding, afterretroactive adjustments to reflect a 3-for-1 stock split which occurred inApril 2002.

 

### **Note 3 – BalanceSheet Details**

 

The components of accounts receivable are as follows (in thousands):

 
|                                                   |   | **March 31,  2003** |    | **September 30,  2002** |   |
|--------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                   |   |                |    |                    |   |
| Trade  and other receivables                           |   | $                   | 8,156   |                    | $      | 8,760 |   |
| Long-term  contracts:                                  |   |                |    |                    |   |
| Billed                                                 |   | 68,795              |    | 42,148                  |   |
| Unbilled                                               |   | 144,970             |    | 112,690                 |   |
| Allowance  for doubtful accounts                       |   | (344                | )       | (315                    | )      |
| Total  current                                         |   | 221,577             |    | 163,283                 |   |
| Long-term  contracts not currently due – unbilled |   | 16,000              |    | —                  |   |
| Total  accounts receivable                             |   | $                   | 237,577 |                    | $      | 163,283 |   |

 

The amount classified asnot currently due is an estimate of the amount of long-term contract accountsreceivable that will not be collected within one year from March 31, 2003.

 

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Inventoriesconsist of the following (in thousands):

 
|                              |   | **March 31,  2003** |   | **September 30,  2002** |   |
|-----------------------------------|--------|---------------------|--------|-------------------------|--------|
|                              |   |                |   |                    |   |
| Finished  products                |   | $                   | 687    |                    | $      | 1,219 |   |
| Work  in process                  |   | 13,913              |   | 14,746                  |   |
| Raw  material and purchased parts |   | 12,361              |   | 13,235                  |   |
| Total  inventories                |   | $                   | 26,961 |                    | $      | 29,200 |   |

 

**Note4 – New Accounting Pronouncement**

 

In July 2002, the FASBissued Statement of Financial AccountingStandards No. 146 (FAS 146), *Accounting for Costs Associated with Exit or DisposalActivities*. The standard requires companies to recognize costsassociated with exit or disposal activities when they are incurred rather thanat the date of a commitment to an exit or disposal plan. Examples of costscovered by the standard include lease termination costs and certain employeeseverance costs that are associated with a restructuring, discontinuedoperation, plant closing, or other exit or disposal activity. The principaleffect of applying FAS 146 will be on the timing of recognition of these costs.Had the statement been in effect during the first half of fiscal 2003 andfiscal year 2002, the Company’s net income for the six months ended March 31,2002 would have been higher by approximately $500,000 (2 cents per share). Thenew standard is effective as of December 31, 2002 and has been appliedprospectively to exit or disposal activities initiated after that date.

 

**Note 5 – Short-Term Borrowings**

 

The Company maintains ashort-term borrowing arrangement totaling 10 million British Pounds (equivalentto approximately $15.7 million at March 31, 2003) with a United Kingdom bank tohelp meet the short-term working capital requirements of its Europeanoperations.  The outstanding balance ispayable on demand and bears interest at the bank’s base rate, as defined, plusone percent.  At March 31, 2003 theamount outstanding under this arrangement was $5.1 million at an interest rateof 5 percent.

 

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### **Note 6 –Comprehensive Income**

 

Comprehensive income is asfollows (in thousands):

 
|                                              |   | **Six Months Ended  March 31,** |   | **Three Months Ended  March 31,** |   |
|---------------------------------------------------|--------|---------------------------------|--------|-----------------------------------|--------|
|                                              |   | **2003**                        |   | **2002**                          |   | **2003** |   | **2002** |   |
|                                              |   |                            |   |                              |   |   |   |   |   |
| Net  income                                       |   | $                               | 17,916 |                              | $      | 12,132 |   | $ | 11,246 |   | $ | 6,441 |   |
| Foreign  currency translation adjustments         |   | 2,085                           |   | 103                               |   | 175 |   | 211 |   |
| Unrealized  gains on marketable securities:       |   |                            |   |                              |   |   |   |   |   |
| Unrealized  holding gain (loss) during the period |   | 2                               |   | (19                               | )      | — |   | (32 | ) |
| Comprehensive  income                             |   | $                               | 20,003 |                              | $      | 12,216 |   | $ | 11,421 |   | $ | 6,620 |   |

 

### **Note 7 – SegmentInformation**

 

Businesssegment financial data is as follows (in millions):

 
|                         |   | **Six Months Ended  March 31,** |   | **Three Months Ended  March 31,** |   |
|------------------------------|--------|---------------------------------|--------|-----------------------------------|--------|
|                         |   | **2003**                        |   | **2002**                          |   | **2003** |   | **2002** |   |
|                         |   |                            |   |                              |   |   |   |   |   |
| **Sales:**                   |   |                            |   |                              |   |   |   |   |   |
| Transportation  systems      |   | $                               | 133.8  |                              | $      | 98.0 |   | $ | 71.6 |   | $ | 54.3 |   |
| Defense                      |   | 174.0                           |   | 157.1                             |   | 91.8 |   | 80.7 |   |
| Corporate  and other         |   | 7.7                             |   | 7.3                               |   | 3.8 |   | 3.5 |   |
| Total  sales                 |   | $                               | 315.5  |                              | $      | 262.4 |   | $ | 167.2 |   | $ | 138.5 |   |
|                         |   |                            |   |                              |   |   |   |   |   |
| **Operating income (loss):** |   |                            |   |                              |   |   |   |   |   |
| Transportation  systems      |   | $                               | 12.4   |                              | $      | 9.6 |   | $ | 6.5 |   | $ | 5.4 |   |
| Defense                      |   | 9.3                             |   | 8.0                               |   | 4.8 |   | 4.3 |   |
| Corporate  and other         |   | (0.7                            | )      | (0.4                              | )      | (0.4 | ) | (0.4 | ) |
| Total  operating income      |   | $                               | 21.0   |                              | $      | 17.2 |   | $ | 10.9 |   | $ | 9.3 |   |

 

7

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### **Note 8 – LegalProceedings**

Duringthe quarter ended March 31, 2003, a former subcontractor to the Company on thePrestige project in London filed a claim against the Company under arbitrationprovisions of the subcontract, alleging wrongful termination, in an amount yetto be determined. The Company had previously notified the subcontractor of itsintention to file a claim against the subcontractor for failure to perform. TheCompany intends to file a defense and counterclaim with the arbitrator duringthe quarter ending June 30, 2003. The Company believes that the subcontractor’sclaim is without merit and will vigorously pursue its defense and counterclaim.The Company believes it will ultimately be able to recover the damages it hasincurred due to the subcontractor’s failure to perform, but has not anticipatedrecovery in its calculation of profits under its contract with Transys becausethe conditions required by accounting principles generally accepted in theUnited States have not yet been achieved.

 

8

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###  

###### **CUBIC CORPORATION**ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

 

March 31, 2003

 

###### **Forward-LookingStatements**

Inaddition to historical matters, this report contains forward-lookingstatements. They can be identified by words such as *may, likely*, *anticipate,hope, estimate, plan, potential, promising, feel, expect, should*,and *confident*.These forward-looking statements are made pursuant to the safe harborprovisions of the Securities Litigation Reform Act of 1995. Investors arecautioned that forward-looking statements involve risks and uncertainties whichmay affect our business and prospects. These include the effects of politics onnegotiations and business dealings with government entities, reductions indefense budgets, economic conditions in the various countries in which we do orhope to do business, competition and technology changes in the defense andtransportation industries, and other competitive and technological factors.

 

**Results of Operations**

Salesfor the quarter ended March 31, 2003 increased by 21 percent compared to thesame quarter in the previous year as sales grew in both the transportation anddefense segments. Sales for the first six months of the fiscal year were up by20 percent over last year, with the biggest increase coming from thetransportation segment. Net income increased 75 percent in the second quartercompared to last year, due to improved operating income from all segments anddue to a gain on the sale of real estate in San Diego County that was no longerused by the Company. The gain from the sale was approximately $3.7 million,after applicable income taxes, or about 14 cents per share. Without this realestate gain, earnings for the quarter would have been 28 cents per sharecompared to 24 cents per share in the second fiscal quarter last year.

 

Forthe first six months of the year, net income was up 48 percent compared to lastyear. Without the real estate gain net income would have been up by 17 percent,due to improved operating income in both major segments. Operating income wasup by 17 percent for the quarter and by 22 percent for the six-month period,compared to last year.

 

TRANSPORTATIONSEGMENT

Transportationsegment sales increased by 32 percent compared to last year’s second quarterdue primarily to a higher level of activity on the Prestige contract in London.This higher sales volume as well as higher profits on contracts in NorthAmerica resulted in an increase in operating income of 20 percent for thesegment compared to the second quarter of last year. The increase in operatingincome was not proportional to the sales increase because profit marginsrecorded on the Prestige contract continue to be at a lower level than weexpect ultimately to achieve. As has been discussed in previous reports, thissituation resulted from work we are performing in place of a subcontractor thatwas terminated in fiscal 2002. As disclosed in Note 8 to the financialstatements, we expect to ultimately recover the additional costs incurred fromthe subcontractor, but cannot anticipate recovery in our calculation of profitson the contract at this time because the conditions required by generallyaccepted accounting principles have not yet been achieved.

 

Salesfor the first six months increased by 37 percent in the transportation segmentcompared to last year, while operating income increased 29 percent. As has beendiscussed in previous reports, we

## ** **

## **9**

## ****

##  

expensedapproximately $0.9 million for a facility closure in the first half of fiscal2002. Without this provision last year, operating income would have been $10.5million in the six months ended March 31, 2002 and the increase year over yearwould have been 18 percent. Again, operating margins did not increase inproportion to sales because of the lower margins on the Prestige project, whichwas the contract that contributed virtually all of the increase in sales forthe first half of the fiscal year. We expect that the system installation phaseof the Prestige project, including work performed in place of the terminatedsubcontractor, will be completed in the fourth quarter of the fiscal year,resulting in a decreased level of activity on the contract next year. However,in addition to the ongoing maintenance of the system, we anticipate expansionof the system in future years and we have already received several contractmodifications.

 

DEFENSESEGMENT

Defense segment saleswere up by 14 percent in the second quarter compared to last year. Sales in thetraining systems businesses increased, while government services sales wereabout the same as last year and communications and electronics sales were downsomewhat from last year. We were successful in our bid for strategicallysignificant new communications business during the quarter and anticipate salesgrowth in the next several quarters for this business area. Training systemssales were up due to increased sales generated by air and ground combattraining system contracts we won last year.

 

Operatingincome for the quarter in the defense segment increased by 12 percent over lastyear. Profit improvement came from ground combat training systems and from the battlefieldsimulation business. An earlier strategicdecision to invest in new communications technology resulted in the award ofnew business, as mentioned above. We expect to spend approximately $3 millionmore than the value of the new contract for the engineering development portionof the project and have recorded an expense provision in the second quarter,which is included in cost of sales on the income statement. We believe that thenew products developed from this investment will provide the opportunity forsubstantial ongoing business in this product line for years to come. Operatingincome in the quarter was also impacted by cost growth of nearly $3 million ona contract which includes the development of new ground combat trainingtechnology for an overseas customer. This new product development, whencompleted, will add important additional capability to our ground combattraining systems. Approximately offsetting this expense provision within thetraining systems business was the reversal of the remaining balance of areserve we had established in fiscal 2000 for the estimated costs to completethe original MILES 2000 development and production contract. During the quarter,we worked with the customer to resolve all remaining contractual and financialissues related to this contract without expenditure of the approximately $3million balance of the reserve; therefore, it is no longer required.

 

Forthe first six months of the fiscal year operating income in the defense segmentwas up by about 16 percent over last year, while sales were up 11 percent.Higher operating income came from the training systems business, whilegovernment services operating income was about the same as for

 

10

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thefirst six months of last year. Operating income in communications andelectronics was less than last year because of the expense provision for thenew contract described above. We anticipate increased operating income again inthe next two quarters as operating income from the training systems businesscontinues to improve.

 

GENERAL

Selling,general and administrative expenses were up slightly in the first half of theyear but were down from 15.2 percent of sales to 13.1 percent. Higher sellingcosts were incurred in both segments due to an increase in contract proposalactivities; however, this increase in costs was partially offset by a decreasein legal costs in the defense segment.

 

Otherincome was lower in the quarter ended March 31, 2003 than in the same quarterof the previous year, as lower interest rates and a decrease in cash reducedinterest income. In addition, other income was lower due to decreased rentalincome because we lost our tenant last fiscal year from the real estate thatwas sold in the second quarter. We had owned this property for more than 30years and had previously used it in operations, but have held the property asan investment for the past ten years. Net proceeds from the sale were $7million, which generated a pretax gain of $6.2 million or a net gain of $3.7million (14 cents per share) after applicable income taxes of $2.5 million.

 

Significantnew contract bookings in the quarter ended March 31, 2003 resulted in asubstantial increase in our backlog as of that date compared to September 30,2002. The increase came from the defense segment, primarily due to new trainingsystems and communications contracts.

 

|                    |   | **March 31,  2003** |       | **September 30,  2002** |   |
|-------------------------|--------|---------------------|------------|-------------------------|--------|
|                    |   | **(in millions)**   | ** ** |
| **Total backlog**       |   |                |       |                    |   |
| Transportation  systems |   | $                   | 659.4      |                    | $      | 672.1 |   |
| Defense                 |   | 683.8               |       | 493.1                   |   |
| Total                   |   | $                   | 1,343.2    |                    | $      | 1,165.2 |   |
| **Funded backlog**      |   |                |       |                    |   |
| Transportation  systems |   | $                   | 532.4      |                    | $      | 545.0 |   |
| Defense                 |   | 397.0               |       | 231.8                   |   |
| Total                   |   | $                   | 929.4      |                    | $      | 776.8 |   |

 

Indefense, the difference between total backlog and funded backlog representsoptions under multi-year service contracts. Funding for these contracts comesfrom annual operating budgets of the U.S. government and the options arenormally exercised annually. Options for the purchase of additional systems orequipment are not included in backlog until exercised.

 

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Intransportation systems, the difference between total backlog and funded backlogrepresents extension of the service portion of the Prestige contract for thefinal five years of the seventeen year contract. We have treated this portionof the contract as unfunded until we complete the system installation phase ofthe contract, which is expected to occur in the fourth quarter of this fiscalyear. Options for the purchase of additional systems or equipment are notincluded in backlog until exercised.

 

**New Accounting Pronouncement**

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (FAS 146), *Accountingfor Costs Associated with Exit or Disposal Activities*. The standardrequires companies to recognize costs associated with exit or disposalactivities when they are incurred rather than at the date of a commitment to anexit or disposal plan. The principal effect of applying FAS 146 is on thetiming of recognition of these costs. Had the statement been in effect duringthe first half of fiscal 2002, our net income for the six-month period endedMarch 31, 2002 would have been higher by approximately $500,000 ($.02 pershare). The new standard became effective as of December 31, 2002 and will beapplied prospectively to exit or disposal activities initiated after that date.

 

**Liquidity and Capital Resources**

## **Cash flows from operations improvedby nearly $5 million in the quarter ended March 31, 2003, due primarily to adecrease in inventories from the previous quarter. For the first six months ofthe fiscal year cash flows from operations were negative due to growth inlong-term contract accounts receivable.**

## ** **

## **The Prestige contract in Londoncontinued to be the largest contributor to negative cash flows for the firstsix months of fiscal 2003. Of the $74 million total increase in accountsreceivable during that period, approximately $43 million was from the Prestigeproject. The payment terms on this contract were established nearly five yearsago and the customer is making payments in accordance with those terms.However, due to the termination of the subcontractor described above, we haveincurred approximately $32 million in costs during the six months ended March31, 2003 that were not originally planned and will be included in our claimagainst the subcontractor. We expect to recover these costs late next fiscalyear through the adjudication process; however, the timing cannot be predictedwith any certainty and may take longer. If we are not able to recover our costsfrom the subcontractor, it may take several years for cash flows from thiscontract to recover the additional costs expended this year. As described inthe operating section above, all of these costs have been taken intoconsideration in our profit recognition for this contract.**

## ** **

## **Unfavorablecontract payment terms provided to the customer in a competitive situation** on a transportation systems contract and growth inboth defense and transportation systems sales volume also contributed to thegrowth in accounts receivable for the six-month period. We do anticipatepositive cash flows from both major segments for the remaining two quarters ofthe year. However,

## ** **

## **12**

## ****

##  

## **we anticipate that cash flows fromoperations are likely to be somewhat negative for the total year due to thePrestige contract situation and overall growth in sales volume.**

 

## **During the six months ended March31, 2003 cash was used to purchase fixed assets, including the outfitting ofour new European transportation systems headquarters south of London. Inaddition, we made a scheduled debt payment, paid a semi-annual dividend toshareholders and borrowed approximately $5 million under our short-termborrowing arrangement in the United Kingdom to meet working capitalrequirements in that country.**

 

Accumulated Other Comprehensive Income (Loss) improved by$2.1 million for the first six months of fiscal 2003 because of favorableforeign currency translation adjustments. This leaves a negative balance of $8million in Accumulated Other Comprehensive Income (Loss) as of March 31, 2003.Pension plan accounting generated an accumulated charge in previous years of$11.2 million, which is partially offset by accumulated positive adjustments of$3.2 million, mostly relating to foreign currency translation. Based on currentstock market and interest rate conditions, we believe we may be required torecord an additional charge to Accumulated Other Comprehensive Income (Loss) atthe end of fiscal 2003 because of the under funded position of our pensionplans. The amount cannot be determined at this time because it depends primarilyon conditions as of September 30, 2003. We do not believe that this potentialadjustment will have a material impact on the Company’s financial condition asof that date.

 

Theunder funded pension situation will also result in an increase to our pension expenseand minimum funding requirements for fiscal 2003. Pension expense is expectedto increase from $6 million in fiscal 2002 to approximately $8.7 million infiscal 2003. This higher level of expense accrual is reflected in the resultsfor the six-month period ended March 31, 2003. Company contributions to theplans have been $3 million during the first half of the year and minimumfunding requirements for the second half will be approximately $4.5 million. Inaddition, we plan to contribute another $3 to $5 million to improve the fundingposition of the plans.

 

The Company’s financial condition remains strong withworking capital of $189 million and a current ratio of 2.5 to 1 at March 31,2003. We expect that cash on hand and our ability to access the debt markets will be adequate to meet our workingcapital requirements for the foreseeable future.

 

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**Critical Accounting Policies, Estimates and Judgments**

The Company’s financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management continually evaluates its estimates and judgments, the most critical of which are those related to revenue recognition, costs to complete contracts, pension costs, valuation of goodwill and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Eventual results may differ from these estimates.

 

 

ITEM 4 - STATEMENT ON DISCLOSURE CONTROLS AND PROCEDURES.

 

Under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer and Chief Financial Officer,an evaluation was performed of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures within 90 days prior to thefiling of this quarterly report. Based on that evaluation, the Company’smanagement, including the Chief Executive Officer and Chief Financial Officer,concluded that, as of the evaluation date, the Company’s disclosure controlsand procedures were effective in ensuring that all material informationrelating to the Company and its consolidated subsidiaries is made known to themby others within those entities, particularly during the period in which thisquarterly report was prepared. There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectinternal controls subsequent to the date of their evaluation.

 

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**CUBICCORPORATION**

** **

**PART II - OTHERINFORMATION**

 

ITEM 1 – LEGAL PROCEEDINGS

 

Duringthe quarter ended March 31, 2003, a former subcontractor to the Company on thePrestige project in London filed a claim against the Company under arbitrationprovisions of the subcontract, alleging wrongful termination, in an amount yetto be determined. The Company had previously notified the subcontractor of itsintention to file a claim against the subcontractor for failure to perform. TheCompany intends to file a defense and counterclaim with the arbitrator duringthe quarter ending June 30, 2003. The Company believes that the subcontractor’sclaim is without merit and will vigorously pursue its defense and counterclaim.The Company believes it will ultimately be able to recover the damages it hasincurred due to the subcontractor’s failure to perform, but has not anticipatedrecovery in its calculation of profits under its contract with Transys becausethe conditions required by accounting principles generally accepted in theUnited States have not yet been achieved.

 

 

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

 

(a)The following exhibits are included herein:

 

15— Independent Accountants’ Review Report

99.1 — CEO and CFO Certification

 

(b)No reports on Form 8-K were filed during the quarter.

 

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   |         |   | CUBIC  CORPORATION             |
|--------|--------------|--------|--------------------------------|
|   |         |   |                           |
|   |         |   |                           |
| Date   | May  1, 2003 |   |                           | /s/ W. W. Boyle |   |
|   |         |   | W. W. Boyle                    |
|   |         |   | Vice  President and CFO        |
|   |         |   |                           |
|   |         |   |                           |
| Date   | May 1, 2003  |   |                           | /s/ T. A. Baz |   |
|   |         |   | T.  A. Baz                     |
|   |         |   | Vice  President and Controller |
|        |              |        |                                |  |  |  |

 

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**CERTIFICATIONof CEO**

 

I, Walter J. Zable, certify that:

 

1)                   I have reviewed this quarterly report on Form10-Q of Cubic Corporation;

 

2)                   Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3)                   Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4)                   The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)                   designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)                  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of March 31, 2003 (the“Evaluation Date”); and

 

c)                   presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5)                   The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                   all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6)                   The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| May 1, 2003                           |   |
|---------------------------------------|--------|
|                                  |   |
|                                  |   |
| /s/   W. J. Zable                |   |
| W. J. Zable                           |
| President and Chief Executive Officer |

 

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**CERTIFICATIONof CFO**

 

I, William W. Boyle, certify that:

 

1)                   I have reviewed this quarterly report on Form10-Q of Cubic Corporation;

 

2)                   Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3)                   Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4)                   The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)                   designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)                  evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of March 31, 2003 (the“Evaluation Date”); and

 

c)                   presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5)                   The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                   all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6)                   The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| May 1, 2003             |
|-------------------------|
|                    |
|                    |
| /s/ W. W. Boyle         |   |
| W. W. Boyle             |
| Chief Financial Officer |

 

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