**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT**

 

**Pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

 

**For the Quarter Ended December 31, 2004**

 

**1-8931**

**Commission File Number**

 

##### **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** |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months, and (2) has been subject to such filing requirementsfor the past 90 days.

 

Yes ý   No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

Yes ý   No o

 

As of January 28,2005, Registrant had only one class of common stock of which there were26,719,845 shares outstanding (after deducting 8,944,884 shares held astreasury stock).

 

 

----

 

**PART I - FINANCIAL INFORMATION**

ITEM 1 - FINANCIAL STATEMENTS

 

### **CUBICCORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(amounts in thousands, except per share data)

 
| ** **                                   | ** ** | **Three Months Ended  December 31,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
|                                         |       |                                      |       |   |   |
| Net sales                                    |       | $                                         | 189,940    |   | $ | 171,032 |   |
|                                         |       |                                      |       |   |   |
| Costs and expenses:                          |       |                                      |       |   |   |
| Cost of sales                                |       | 152,505                                   |       | 135,047 |   |
| Selling, general and administrative expenses |       | 28,215                                    |       | 23,531 |   |
| Research and development                     |       | 1,647                                     |       | 860 |   |
|                                         |       | 182,367                                   |       | 159,438 |   |
| Operating income                             |       | 7,573                                     |       | 11,594 |   |
|                                         |       |                                      |       |   |   |
| Other income (expenses)                      |       |                                      |       |   |   |
| Interest expense                             |       | (1,329                                    | )          | (1,053 | ) |
| Other income                                 |       | 1,509                                     |       | 825 |   |
| Income before income taxes                   |       | 7,753                                     |       | 11,366 |   |
|                                         |       |                                      |       |   |   |
| Income taxes                                 |       | 2,500                                     |       | 3,900 |   |
|                                         |       |                                      |       |   |   |
| Net income                                   |       | $                                         | 5,253      |   | $ | 7,466 |   |
|                                         |       |                                      |       |   |   |
| Net income per share                         |       | $                                         | 0.20       |   | $ | 0.28 |   |
|                                         |       |                                      |       |   |   |
| Average shares of common stock outstanding   |       | 26,720                                    |       | 26,720 |   |

 

*See accompanying notes.*

 

2

----

 

## **CUBIC CORPORATION**

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 
| ** **                                     | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **2004**              | ** ** | **2004**               | ** ** |
| ** **                                     | ** ** | **(Unaudited)**       | ** ** | **(See note below)**   | ** ** |
| **ASSETS**                                     |       |                  |       |                   |       |
| Current assets:                                |       |                  |       |                   |       |
| Cash and cash equivalents                      |       | $                     | 16,364     |                   | $          | 10,622 |   |
| Marketable securities, available-for-sale      |       | —                |       | 6,200                  |       |
| Accounts receivable                            |       | 340,817               |       | 343,197                |       |
| Inventories                                    |       | 30,491                |       | 23,967                 |       |
| Deferred income taxes and other current assets |       | 26,369                |       | 29,310                 |       |
| Total current assets                           |       | 414,041               |       | 413,296                |       |
|                                           |       |                  |       |                   |       |
| Long-term contract receivables                 |       | 31,700                |       | 33,000                 |       |
| Property, plant and equipment - net            |       | 53,046                |       | 52,359                 |       |
| Goodwill                                       |       | 35,727                |       | 35,173                 |       |
| Other assets                                   |       | 8,954                 |       | 9,096                  |       |
|                                           |       | $                     | 543,468    |                   | $          | 542,924 |   |
|                                           |       |                  |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**  |       |                  |       |                   |       |
| Current liabilities:                           |       |                  |       |                   |       |
| Short-term borrowings                          |       | $                     | 42,602     |                   | $          | 25,048 |   |
| Trade accounts payable                         |       | 17,892                |       | 28,317                 |       |
| Customer advances                              |       | 45,414                |       | 51,182                 |       |
| Other current liabilities                      |       | 43,188                |       | 53,658                 |       |
| Accrued pension liability                      |       | 8,700                 |       | 8,618                  |       |
| Income taxes payable                           |       | 8,569                 |       | 5,908                  |       |
| Current portion of long-term debt              |       | 6,095                 |       | 6,057                  |       |
| Total current liabilities                      |       | 172,460               |       | 178,788                |       |
|                                           |       |                  |       |                   |       |
| Long-term debt                                 |       | 44,932                |       | 50,037                 |       |
| Accrued pension liability                      |       | 10,050                |       | 9,009                  |       |
| Deferred compensation                          |       | 7,686                 |       | 6,323                  |       |
|                                           |       |                  |       |                   |       |
| Shareholders’ equity:                     |       |                  |       |                   |       |
| Common stock                                   |       | 234                   |       | 234                    |       |
| Additional paid-in capital                     |       | 12,123                |       | 12,123                 |       |
| Retained earnings                              |       | 317,634               |       | 312,381                |       |
| Accumulated other comprehensive income         |       | 14,415                |       | 10,095                 |       |
| Treasury stock at cost                         |       | (36,066               | )          | (36,066                | )          |
|                                           |       | 308,340               |       | 298,767                |       |
|                                           |       | $                     | 543,468    |                   | $          | 542,924 |   |

 

*Note: Thebalance sheet at September 30, 2004 has been derived from the auditedfinancial statements at that date.*

*Seeaccompanying notes.*

 

3

----

 

**CUBIC CORPORATION**

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                     | ** ** | **December 31,**  | ** ** |
| ** **                                                                     | ** ** | **2004**               | ** ** | **2003** | ** ** |
| Operating Activities:                                                          |       |                   |       |   |   |
| Net income                                                                     |       | $                      | 5,253      |   | $ | 7,466 |   |
| Adjustments to reconcile net income to net cash used  in operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                  |       | 2,085                  |       | 1,902 |   |
| Changes in operating assets and liabilities                                    |       | (17,884                | )          | (31,798 | ) |
| NET CASH USED IN OPERATING ACTIVITIES                                          |       | (10,546                | )          | (22,430 | ) |
|                                                                           |       |                   |       |   |   |
| Investing Activities:                                                          |       |                   |       |   |   |
| Net additions to property, plant and equipment                                 |       | (1,786                 | )          | (1,616 | ) |
| Acquisitions, net of cash acquired                                             |       | —                 |       | (4,934 | ) |
| Proceeds from sale of marketable securities                                    |       | 6,200                  |       | 3,021 |   |
| NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES                            |       | 4,414                  |       | (3,529 | ) |
|                                                                           |       |                   |       |   |   |
| Financing Activities:                                                          |       |                   |       |   |   |
| Change in short-term borrowings, net                                           |       | 17,135                 |       | 12,369 |   |
| Long-term borrowings                                                           |       | —                 |       | 8,906 |   |
| Principal payment on long-term borrowings                                      |       | (5,592                 | )          | (1,428 | ) |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                      |       | 11,543                 |       | 19,847 |   |
|                                                                           |       |                   |       |   |   |
| Effect of exchange rates on cash                                               |       | 331                    |       | 274 |   |
|                                                                           |       |                   |       |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           |       | 5,742                  |       | (5,838 | ) |
|                                                                           |       |                   |       |   |   |
| Cash and cash equivalents at the beginning of the  period                      |       | 10,622                 |       | 22,370 |   |
|                                                                           |       |                   |       |   |   |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                             |       | $                      | 16,364     |   | $ | 16,532 |   |

 

# *See accompanying notes.*

 

4

----

 

# ***CUBICCORPORATION***

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

December 31, 2004

 

**Note 1 – Basis forPresentation**

 

The accompanyingunaudited consolidated condensed financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. Operatingresults for the quarter ended December 31, 2004 are not necessarilyindicative of the results that may be expected for the year ending September 30,2005. For further information, refer to the consolidated financial statementsand footnotes thereto included in the Company’s annual report on Form 10-K forthe year ended September 30, 2004.

 

The preparation of thefinancial statements in conformity with U. S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

### **Note 2– Balance Sheet Details**

 

Thecomponents of accounts receivable are as follows (in thousands):

 
| ** **                                | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                | ** ** | **2004**              | ** ** | **2004**               | ** ** |
| Trade and other  receivables              |       | $                     | 8,757      |                   | $          | 29,771 |   |
| Long-term  contracts:                     |       |                  |       |                   |       |
| Billed                                    |       | 92,961                |       | 85,056                 |       |
| Unbilled                                  |       | 271,684               |       | 262,230                |       |
| Allowance for  doubtful accounts          |       | (885                  | )          | (860                   | )          |
| Total accounts  receivable                |       | 372,517               |       | 376,197                |       |
| Less estimated  amounts not currently due |       | (31,700               | )          | (33,000                | )          |
| Current accounts  receivable              |       | $                     | 340,817    |                   | $          | 343,197 |   |

 

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 December 31,2004. This amount relates primarily to the Prestige contract in the UnitedKingdom.

 

5

----

 

Inventories consist of the following (in thousands):

 
| ** **                       | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|----------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                       | ** ** | **2004**              | ** ** | **2004**               | ** ** |
| Finished products                |       | $                     | 624        |                   | $          | 510 |   |
| Work in process                  |       | 20,536                |       | 16,491                 |       |
| Raw material and purchased parts |       | 9,331                 |       | 6,966                  |       |
| Total inventories                |       | $                     | 30,491     |                   | $          | 23,967 |   |

 

**Note 3 – Comprehensive Income**

 

Comprehensive income is as follows (in thousands):

 
| ** **                                                                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                    | ** ** | **December 31,**  | ** ** |
| ** **                                                                                    | ** ** | **2004**               | ** ** | **2003** | ** ** |
|                                                                                          |       |                   |       |   |   |
| Net income                                                                                    |       | $                      | 5,253      |   | $ | 7,466 |   |
| Foreign currency translation adjustments                                                      |       | 4,957                  |       | 6,738 |   |
| Reclassification adjustment for gain on sale of  marketable securities included in net income |       | —                 |       | (160 | ) |
| Net unrealized gains (losses) from cash flow hedges                                           |       | (637                   | )          | 378 |   |
| Comprehensive income                                                                          |       | $                      | 9,573      |   | $ | 14,422 |   |

 

### **Net income forthe quarter ended December 31, 2004 includes a foreign currencytransaction gain of $1.0 million, before applicable income taxes, which isincluded in other income.  This gain wasthe result of the settlement of a short-term intercompany loan between theCompany’s U.S. and UK transportation systems subsidiaries at a more favorableexchange rate than was recorded at September 30, 2004.**

 

6

----

 

### **Note 4– Segment Information**

 

Business segment financial data is as follows (in millions):

 
| ** **                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------|------------|------------------------|------------|
| ** **                   | ** ** | **December 31,**  | ** ** |
| ** **                   | ** ** | **2004**               | ** ** | **2003** | ** ** |
|                         |       |                   |       |   |   |
| **Sales:**                   |       |                   |       |   |   |
| Transportation systems       |       | $                      | 63.9       |   | $ | 63.1 |   |
| Defense                      |       | 122.0                  |       | 104.0 |   |
| Corporate and other          |       | 4.1                    |       | 3.9 |   |
| Total sales                  |       | $                      | 190.0      |   | $ | 171.0 |   |
|                         |       |                   |       |   |   |
| **Operating income (loss):** |       |                   |       |   |   |
| Transportation systems       |       | $                      | 1.9        |   | $ | 4.0 |   |
| Defense                      |       | 6.6                    |       | 8.6 |   |
| Corporate and other          |       | (0.9                   | )          | (1.0 | ) |
| Total operating income       |       | $                      | 7.6        |   | $ | 11.6 |   |

 

### **Note 5– Financing Arrangements**

 

As of December 31,2004, the Company had $42.6 million outstanding under its various unsecuredshort-term borrowing arrangements in the U.S., UK, Canada and New Zealand at anaverage rate of 3.8%. The total borrowing availability of these facilities isapproximately $98 million.  The terms ofthese arrangements require repayment on demand.

 

The $60 million revolvingline of credit in the U.S. has been extended to expire March 10,2005.  The Company is in the process ofnegotiating a revised and expanded borrowing facility.  The Company anticipates finalizing the newfacility prior to the expiration date of the current facility.

 

7

----

 

### **Note 6– Pension Plans**

 

The components of netperiodic pension benefits costs are as follows (in thousands):

 
| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **December 31,**  | ** ** |
| ** **                     | ** ** | **2004**               | ** ** | **2003** | ** ** |
| Service cost                   |       | $                      | 1,877      |   | $ | 1,698 |   |
| Interest cost                  |       | 1,997                  |       | 1,616 |   |
| Expected return on plan assets |       | (2,061                 | )          | (1,514 | ) |
| Amortization of:               |       |                   |       |   |   |
| Prior service cost             |       | 8                      |       | 1 |   |
| Actuarial (gain) loss          |       | 413                    |       | 555 |   |
| Administrative expenses        |       | 25                     |       | 16 |   |
| Net pension cost               |       | $                      | 2,259      |   | $ | 2,372 |   |

 

8

----

 

### **CUBICCORPORATION**

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

December 31, 2004

 

Our two primary businesses are in the defense and transportation industries. These are high technology businesses that design, manufacture and integrate complex systems and provide essential services to meet the needs of various federal and regional government agencies in the U.S. and other nations around the world.

 

Cubic Defense Applications is a diversified supplierof constructive, live and virtual military training systems, services andcommunication products to the U.S. Department of Defense, other governmentagencies and allied nations. We design instrumented range systems for fighteraircraft, armored vehicle and infantry force-on-force live training; weaponseffects simulations; laser-based tactical engagement and virtual simulationsystems; and precision gunnery solutions. Our services are focused on trainingmission support, computer simulation training, distributed interactivesimulation, development of military training doctrine, force modernizationservices for NATO entrants and field operations and maintenance. Ourcommunications products are aimed at intelligence, surveillance, and search andrescue markets.

 

Cubic Transportation Systems develops and deliversinnovative fare collection systems for public transit authoritiesworldwide.  We provide hardware, softwareand multi-agency, multimodal transportation integration technologies andservices that allow the agencies to efficiently collect fares, manage theiroperations, reduce shrinkage and make using public transit a more convenientand attractive option for commuters.

 

**ConsolidatedOverview**

Sales for the quarterended December 31, 2004 were $190 million, an increase of 11% over salesof $171 million for the quarter ended December 31, 2003. Sales growth cameprimarily from the defense segment, with transportation systems segment sales upslightly from the first fiscal quarter last year. Defense sales in the firstquarter were up to $122 million from $104 million, an increase of 17% over thesame quarter last year. Transportationsystems sales were $64 million for the quarter compared to $63 million in thefirst quarter last year. See the segment discussions following for furtheranalysis of segment sales.

 

Despite the increase insales, operating income decreased from $11.6 million in last year’s firstquarter to $7.6 million in the first quarter of fiscal 2005. Defense operatingincome decreased from $8.6 million in the first quarter of 2004 to $6.6 millionin the first quarter of 2005, and transportation operating income in the firstquarter decreased to $1.9 million this year compared to $4.0 million last year.See the segmentdiscussions following for further analysis of operating income by segment.

 

Net income decreased inthe first quarter to $5.3 million this year (20 cents per share) from $7.5million last year (28 cents per share), due primarily to the decrease inoperating income. In addition, interest expense was higher this year because ofan increase in short-term borrowings. Included in other income for the first quarter of 2005 was a gain from aforeign currency transaction of approximately $1.0 million ($0.6 million, afterapplicable income taxes),

 

9

----

 

representingabout $.02 per share. This gain was the result of the settlement of ashort-term intercompany loan between the Company’s U.S. and UK transportationsystems subsidiaries at a more favorable exchange rate than was recorded at September 30,2004.

 

Selling, general andadministrative (SG&A) expenses grew by $4.7 million from last year’s firstquarter and increased from 13.8% to 14.9% of sales with the increase coming primarilyfrom the defense segment. This was the result of increased selling expenses inpursuit of new contracts primarily in the communications and training systemsbusiness units. Transportations systems incurred legal fees in the firstquarter this year at about the same level as last year due to the wrap-up ofthe claim settlement with a former subcontractor during the quarter, which has beendiscussed in previous reports.

 

Research and developmentactivities increased in the first quarter of 2005 over the same quarter in 2004for several projects in the defense segment related to communications andtraining systems.

 

Our projected effectivetax rate for fiscal 2005 is 32% of pretax income, which is reflected in theprovision recorded in the first quarter. The projected rate is less than lastyear’s rate of 34% because more of the income is expected to come from the UK,where rates are lower than in the U.S. This effective rate could be affectedby, among other factors, the mix of business between the U.S. and foreignjurisdictions, our ability to take advantage of available tax credits andaudits of our records by taxing authorities.

 

**DefenseSegment**

 
| ** **                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **December 31,**  | ** ** |
| ** **                       | ** ** | **2004**               | ** ** | **2003** | ** ** |
| ** **                       | ** ** | **(millions)**         | ** ** |
| Defense Segment Sales            |       |                   |       |   |   |
| Communications and electronics   |       | $                      | 13.3       |   | $ | 15.5 |   |
| Training systems                 |       | 47.3                   |       | 46.5 |   |
| Government services              |       | 61.4                   |       | 42.0 |   |
|                             |       | $                      | 122.0      |   | $ | 104.0 |   |
|                             |       |                   |       |   |   |
| Defense Segment Operating Income |       |                   |       |   |   |
| Communications and electronics   |       | $                      | 0.1        |   | $ | 2.2 |   |
| Training systems                 |       | 3.3                    |       | 5.2 |   |
| Government services              |       | 3.2                    |       | 1.2 |   |
|                             |       | $                      | 6.6        |   | $ | 8.6 |   |
|                                  |            |                        |            |  |  |  |  |  |  |

 

Defensesegment sales increased to $122 million in the first fiscal quarter this year from$104 million in the first quarter of fiscal 2004, a 17% increase. The increasecame primarily from the government services business due to increased supportof training activities related to the conflict in Iraq and due to newgovernment services contracts won last year. Training systems generated highersales from ground training system projects, which more than offset lower aircombat training system sales. We have received about $35 million in ordersunder the large air combat training contract won in 2003; however, work underthis contract is still in the early stages of completion 

 

10

----

 

andis not yet generating a significant amount of sales volume. Reduced sales of radiosand receivers resulted in a decline in communications and electronics businessunit sales in the first quarter this year compared to last year’s firstquarter, while data link and avionics sales were about the same as last year.

 

Operating incomein the defense segment declined in the first quarter this year to $6.6 millioncompared to $8.6 million in the first quarter last year. Operating income inthe communications and electronics business declined by $2.1 million due to aloss of $900 thousand from the radio and receiver business and due to thecompletion of a data link contract last year. This completed data link contracthad generated profits of $1.4 million last year, while the most significant datalink contract we are working on this year was bid at no profit margin two yearsago in a strategic move to expand our data link business over the long term.Training systems operating income was also down this year compared to lastyear. Lower air combat training sales, in addition to lower margins from groundcombat training systems were contributing factors. Higher sales volume fromgovernment services contracts resulted in an improvement in operating incomefrom this business unit. In addition, improved performance from the operationsand maintenance business helped to bolster government services operatingprofits.

 

In December 2004,we entered into a 50/50 joint venture arrangement with the U.S. subsidiary of Rafael,an Israeli company, to manufacture certain of their products for sale to the U.S.and Israeli defense forces. The joint venture is a strategic move for bothparties and holds promise to significantly expand Cubic’s product and customerbase. Although we could receive significant orders in the near term, we do notexpect to generate operating income from the venture for the first two to threeyears and may incur modest operating losses in the first two years to get thebusiness started. In entering into the arrangement, we have also committed toinvest up to $15 million of equity during the next three years. We arecurrently conducting an analysis of this arrangement to determine if Cubic isthe primary beneficiary of the venture, as defined in FIN 46 “*Consolidationof Variable Interest Entities.*”  If Cubic is determined to be the primarybeneficiary, we will consolidate this joint venture. To date, no investment hasbeen made.

 

**TransportationSystems Segment**

Transportation segmentsales remained essentially unchanged, at $64 million for the first quarter thisyear compared to $63 million in the first quarter last year. Sales from thePRESTIGE contract in London declined by $3 million from last year’s firstquarter, but this decrease was more than offset by higher sales from otherEuropean service contracts. Sales from contracts in North America were downslightly this year compared to the first quarter last year, while sales from acontract in Australia increased.

 

Operatingincome in transportation systems decreased to $1.9 million in the first quarterthis year from $4.0 million in the first quarter last year. Profit margins onseveral contracts in North America were unfavorably affected by costs that arenow expected to grow by $6 million more than we had previously anticipated,related to the development of new software technologies for common farecollection solutions. This software integration effort is ongoing and we havere-assessed the costs to complete these projects, resulting in the recording ofoperating losses of approximately $6 million on these contracts for the quarter.This situation has also resulted in further delays in meeting projectmilestones. The losses from these projects were partially offset by higherprofit margins from European service contracts. In addition, legal fees of$1.0 million related to the wrap-up of the contract dispute with the formersubcontractor on the PRESTIGE 

 

11

----

 

project further impactedoperating income in the first quarter this year. This compares to $1.2 millionin legal fees incurred for this matter in the first quarter last year.

 

**Backlog**

As reflected in the tablebelow, both funded and total backlog increased by about $100 million at December 31,2004 compared to the beginning of the fiscal year. The increase came from boththe defense and transportation systems segments.

 

In defense, thedifference between total backlog and funded backlog represents options undermultiyear service contracts. Funding for these contracts comes from annualoperating budgets of the U.S. government and the options are normally exercisedannually. Options for the purchase of additional systems or equipment are notincluded in backlog until exercised nor are indefinite delivery, indefinitequantity (IDIQ) contracts until an order is received.

 
| ** **                     | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|--------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                     | ** ** | **2004**              | ** ** | **2004**               | ** ** |
| ** **                     | ** ** | **(in millions)**     | ** ** |
| **Total backlog**              |       |                  |       |                   |       |
| Transportation systems         |       | $                     | 786.2      |                   | $          | 733.9 |   |
| Defense:                       |       |                  |       |                   |       |
| Communications and electronics |       | 64.7                  |       | 61.5                   |       |
| Training systems               |       | 323.9                 |       | 317.6                  |       |
| Government services            |       | 417.8                 |       | 377.0                  |       |
| Total defense                  |       | 806.4                 |       | 756.1                  |       |
| Total                          |       | $                     | 1,592.6    |                   | $          | 1,490.0 |   |
|                           |       |                  |       |                   |       |
| **Funded backlog**             |       |                  |       |                   |       |
| Transportation systems         |       | $                     | 786.2      |                   | $          | 733.9 |   |
| Defense:                       |       |                  |       |                   |       |
| Communications and electronics |       | 64.7                  |       | 61.5                   |       |
| Training systems               |       | 323.9                 |       | 317.6                  |       |
| Government services            |       | 96.4                  |       | 72.7                   |       |
| Total defense                  |       | 485.0                 |       | 451.8                  |       |
| Total                          |       | $                     | 1,271.2    |                   | $          | 1,185.7 |   |
|                                |            |                       |            |                        |            |  |  |  |  |

 

###### **Liquidity and Capital Resources**

Cash flows fromoperations were negative for the first quarter by $10.5 million compared to anegative $22.4 million in the first quarter last year. Operating cash flowsfrom the defense segment were negative due to growth in accounts receivable primarilycaused by delayed funding to a prime contractor, for administrative reasons,which has delayed payment to us. Payment on this contract is expected to be receivedin the second quarter. Cash flows from the transportation systems segment werepositive for the quarter due to an $18.2 million settlement payment receivedfrom a former subcontractor on the PRESTIGE project. The delays in meetingpayment milestones on several North American contracts, as mentioned in thetransportation segment section above, continued to negatively impact cashflows from the segment. We expect this situation to improve in the second halfof fiscal 2005 as the milestones are reached, triggering payments from thecustomers. Foreign currency translation also caused accounts receivable to increaseby approximately $9 million in the quarter.

 

12

----

 

Investing activitiesincluded $1.8 million used for normal capital expenditures and $6.2 million generatedby the sale of marketable securities at no significant gain.

 

We made scheduledpayments on long-term debt of $5.6 million during the quarter and borrowed $17.1million on a short-term basis to meet working capital needs.

 

Accumulated Other ComprehensiveIncome grew by $4 million in the first quarter because of favorable foreigncurrency translation adjustments. This brings the balance of Accumulated OtherComprehensive Income up to $14 million as of December 31, 2004.

 

Our financial conditionremains strong with working capital of $242 million and a current ratio of 2.4to 1 at December 31, 2004. We expect that cash on hand and our ability toaccess the debt markets will be adequate to meet our working capital requirementsfor the foreseeable future.

 

Our committed short-termcredit facility in the U.S. expires in March 2005 and we are in theprocess of renegotiating the agreement with a group of financial institutions. Thecurrent facility totals $60 million, of which $35 million was utilized as of December 31,2004.  We anticipate finalizing the new facilityprior to the expiration date of the current facility.

 

**Critical Accounting Policies, Estimates and Judgments**

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us 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. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition, income taxes, valuation of goodwill and pension costs. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

 

Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.

 

For further information,refer to the consolidated financial statements and notes thereto included inthe Company’s annual report on Form 10-K for the year ended September 30,2004.

 

13

----

 

**CAUTIONARYSTATEMENT ABOUT FORWARD-LOOKING INFORMATION**

 

This report, includingthe documents that we incorporate by reference, contains forward-lookingstatements within the meaning of Section 21E of the Securities ExchangeAct of 1934, as amended, that are subject to the “safe harbor” created by thosesections. Any statements about our expectations, beliefs, plans, objectives,assumptions or future events or our future financial and/or operatingperformance are not historical and may be forward-looking. These statements areoften, 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 orphrases or the negatives of these words or phrases.  These statements involve estimates,assumptions and uncertainties, including those discussed in “Risk Factors” inthe Company’s annual report on Form 10-K for the year ended September 30,2004, and throughout this filing that could cause actual results to differ materiallyfrom those expressed in these statements.

 

Because the risk factors referred to above could cause actual resultsor outcomes to differ materially from those expressed in any forward-lookingstatements made by us or on our behalf, you should not place undue reliance onany forward-looking statements.  Inaddition, past financial and/or operating performance is not necessarily areliable indicator of future performance and you should not use our historicalperformance to anticipate results or future period trends.  Further, any forward-looking statement speaksonly as of the date on which it is made, and we undertake no obligation toupdate any forward-looking statement to reflect events or circumstances afterthe date on which the statement is made or to reflect the occurrence ofunanticipated events. New factors emerge from time to time, and it is notpossible for us to predict which factors will arise. In addition, we cannotassess the impact of each factor on our business or the extent to which anyfactor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements.

 

ITEM 4 - STATEMENT ON DISCLOSURE CONTROLS AND PROCEDURES.

 

Withinthe 90 days prior to the date of filing this Quarterly Report on Form 10-Q, theCompany carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures pursuant to theSecurities and Exchange Act of 1934 Rules 13a-15 and 15d-15. Based upon thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat, as of the end of the three month period ended December 31, 2004, theCompany’s disclosure controls and procedures are effective in timely alertingthem to material information relating to the Company (including itsconsolidated subsidiaries) required to be included in the Company’s periodicSEC filings.

 

14

----

 

**CUBIC CORPORATION**

 

**PART II - OTHER INFORMATION**

 

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

 

(a) The followingexhibits are included herein:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                               |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i) —     |       | Articles of  Incorporation. Incorporated by reference from form 10-Q (Exhibit 3(i)) for  the quarter ended December 31, 2003, commission file No. 1-8931 |
| 3(ii) —    |       | Bylaws.  Incorporated by reference from form 10-K (Exhibit 3(ii)) for the fiscal year  ended September 30, 2004, commission file No. 1-8931              |
| 15 —       |       | Report of  Independent Registered Public Accounting Firm                                                                                                      |
| 31.1 —     |       | Certification of  CEO                                                                                                                                         |
| 31.2 —     |       | Certification of  CFO                                                                                                                                         |
| 32.1 —     |       | CEO and CFO  Certification                                                                                                                                    |

 

(b)No reports on Form 8-K were filed during the quarter ended December 31,2004:

 

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   | CUBIC  CORPORATION             |
|--------|--------------------------------|
|   |                           |
|   |                           |
| Date   | February 7, 2005          |   | /S/ W. W. Boyle |   |
|   | W. W. Boyle                    |
|   | Senior Vice  President and CFO |
|   |                           |
| Date   | February 7,  2005         |   | /S/ Mark A. Harrison |   |
|   | Mark A. Harrison               |
|   | Vice President  and Controller |
|        |                                |  |  |  |  |

 

15

----