-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvactLJ0XsmgacmK6CtKWRL9zx1QEfc1y3p3glr1DsE3snMNYbS0LtewDyn99+rJ iqtiu5gqJpkH2kh3bNJ3NA== 0000912057-00-054724.txt : 20001227 0000912057-00-054724.hdr.sgml : 20001227 ACCESSION NUMBER: 0000912057-00-054724 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUBIC CORP /DE/ CENTRAL INDEX KEY: 0000026076 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 951678055 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08931 FILM NUMBER: 795596 BUSINESS ADDRESS: STREET 1: 9333 BALBOA AVE CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 6192776780 MAIL ADDRESS: STREET 1: PO BOX 85587 CITY: SAN DIEGO STATE: CA ZIP: 92186-5587 10-K405 1 a2033823z10-k405.txt 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended September 30, 2000 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 (619) 277-6780 Common Stock American Stock Exchange, Inc. ------------ ---------------------------- Title of each class Name of exchange on which registered Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. Yes X No --- --- The aggregate market value of voting stock held by non-affiliates of the registrant is: $186,268,000 as of November 22, 2000, based on the closing stock price on that date. Number of shares of common stock outstanding as of November 22, 2000: 8,906,689 (after deducting 2,981,554 shares held as treasury stock). Parts I and III incorporate information by reference from the Registrant's definitive proxy statement which will be filed no later than 120 days after the close of the Registrant's year-end, and no later than 30 days prior to the Annual Shareholders' Meeting. Cubic Corporation - SEC Form 10-K Page 2 - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. The Registrant, CUBIC CORPORATION (the Company), was incorporated in the State of California in 1949 and began operations in 1951. In 1984, the Company moved its Corporate domicile to the State of Delaware. The Company, its subsidiaries and divisions design, develop, manufacture, install and service products which are mainly electronic in nature, such as: Equipment for use in customized military range instrumentation, training and applications systems, communications and surveillance systems, HF and VHF/UHF surveillance receivers, transceivers and avionics systems. Automated revenue collection systems, including contactless smart cards, passenger gates, central computer systems and ticket vending machines for mass transit networks, including rail systems and buses. The Company also performs a variety of services, such as computer simulation training, distributed interactive simulation and development of military training doctrine, as well as field operations and maintenance services related to products previously produced and products produced by others. The Company also manufactures replacement parts for its own such products. In addition, it operates a corrugated paper converting facility through its subsidiary, Consolidated Converting Company. Fiscal 2000 represented the Company's third consecutive year of growth in sales, setting a new record high for the Company. This growth came primarily from contracts for combat training systems which have been awarded to the Company in the past few years. The Company was also able to complete two small but strategic acquisitions during the year to augment its defense related business. Progress continued on the PRESTIGE contract to privatize the fare collection system in London, which is the largest contract the Company has been awarded to date. Work continued on other automated revenue collection system contracts in the United States and the Far East as well. During fiscal year 2000, approximately 37 % of the Company's total business was done, either directly or indirectly, with various agencies of the United States government. The remaining 63% of the business is classified as commercial. The Company's products and services are sold almost entirely by its employees. Overseas sales are made either directly or through representatives or licensees. (b) FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS AND CLASSES OF PRODUCTS OR SERVICES. Information regarding the amounts of revenue, operating profit and loss and identifiable assets attributable to each of the Company's industry segments, is set forth in Note 14 to the Consolidated Financial Statements for the year ended September 30, 2000, and follows at Item 14(a)(1) of this filing, on pages 39 through 41. Cubic Corporation - SEC Form 10-K Page 3 - -------------------------------------------------------------------------------- (c) NARRATIVE DESCRIPTION OF BUSINESSES. DEFENSE The defense segment's products include customized military range instrumentation, training and applications systems, communications and surveillance systems, HF and UHF/VHF surveillance receivers, transceivers and avionics systems. Services provided by the segment include computer simulation training, distributed interactive simulation, development of military training doctrine and field operations and maintenance. Cubic Defense Systems, Inc. (CDS) is best known for its combat training systems for military field exercises. These systems use lasers or computer software to simulate "live fire," plus instrumentation to record the force-on-force engagement. When the missions are completed, computer data is replayed on display screens for review by the instructors and personnel involved. Air combat training systems are used by the U. S. Navy, Marine Corps, Air Force and Air National Guard. A new generation of air ranges based on the GPS (Global Positioning System) has also been developed for the Air Force. Instrumented training ranges at the CMTC (Combat Maneuver Training Center) and JRTC (Joint Readiness Training Center) are for use by the U. S. Army. CDS is also building two ground combat training centers for the British Ministry of Defence. In addition, CDS produces the air/ground data link for the Joint STARS (Surveillance Target Attack Radar System) system being built for the Air Force and Army by Northrop Grumman. This subsidiary also builds avionics products, such as the PLS (Personnel Locator System) for helicopters, and a GCAS (Ground Collision Avoidance System) which provides warnings for flight safety, for the U. S. military, aircraft prime contractors and foreign governments. CDS is also producing the Multiple Integrated Laser Engagement System (MILES 2000) for the U.S. Army and Marine Corps, as well as allied forces. MILES is a family of products that uses lasers to realistically simulate weapons firing and detection systems to register hits or kills without endangering the target, in realistic force-on-force combat training exercises. Cubic Applications, Inc. (CAI) is a tactical knowledge-based service company that teaches military commanders to make correct decisions in battle situations by using computer simulation for training. CAI personnel serve with their clients in their actual environment, supporting field exercises and leader development through state-of-the-art educational and multimedia technologies. CAI is active at more than 50 locations worldwide. Cubic Communications, Inc. designs and produces HF and VHF/UHF surveillance receivers and direction finders for the U. S. and foreign military markets and transceivers for use in air traffic control. The company has also become a leader in DSP-based transceiver development. Cubic Worldwide Technical Services, Inc. (CWTS) performs product and logistics support for Cubic products and also has significant business providing operations, maintenance and other technical services for primarily military customers. New Zealand-based Oscmar International, Ltd. was acquired by Cubic in July, 2000. The company provides tactical engagement simulation equipment, similar to CDS' MILES 2000, to governments worldwide. Oscmar and CDS often collaborate to address specific customer requirements for training equipment. Cubic Corporation - SEC Form 10-K Page 4 - -------------------------------------------------------------------------------- RAW MATERIALS: The principal raw materials used by the defense segment are sheet aluminum and steel, copper electrical wire, and composite products. A significant portion of the segment's end product is composed of purchased electronic components and subcontracted parts and supplies. These items are primarily procured from commercial sources. In general, supplies of raw materials and purchased parts are presently adequate to meet the requirements of the segment. BACKLOG: Defense segment sales backlog at September 30, 2000 was $265 million compared to $232 million at September 30, 1999. Backlog does not include unexercised or unfunded options on certain defense contracts. Approximately $118 million of the September 30, 2000 backlog is not expected to be completed by September 30, 2001. COMPETITION: The defense segment competes with concerns of varying size, including some of the largest corporations in the country. It is not possible to predict the extent of competition that present or future activities will encounter, particularly since the defense industry is subject to rapidly changing competitive conditions, customer requirements and technological developments. TRANSPORTATION SYSTEMS The transportation systems segment designs, produces, installs and services electronic and mechanical revenue collection systems for mass transit projects, including railways and buses and is a leader in this industry, worldwide. The segment has been awarded large contracts by cities such as New York, Washington, D.C., San Francisco, Chicago, London, Shanghai and Guangzhou, China and Sydney, Australia. These programs provide a solid base of current business and the potential for additional future business as the programs are expanded. In 1998 a joint venture, in which Cubic has 37.5% ownership, was awarded a contract called "PRESTIGE" to privatize the London Transport fare collection system. This contract is estimated to be worth a total of $1.75 billion over a 17 year period, making it the largest automatic fare collection contract ever awarded. Cubic's share of the work, not including all options, exceeds $500 million over the initial 12 year period of the contract, and if extended for the full 17 year period could total approximately $700 million. There is worldwide demand for automatic revenue management systems in all forms of public mass transit. The Company's transportation systems segment continues to provide the technology and leadership to deliver quality products and services to the world fare collection market, including new innovations such as contactless smart card technology. RAW MATERIALS: Raw materials used in this segment include sheet steel, composite products, copper electrical wire and castings. A significant portion of the segment's end product is composed of purchased electronic components and subcontracted parts and supplies. All of these items are procured from commercial sources. In general, supplies of raw materials and purchased parts are presently adequate to meet the requirements of the segment. Cubic Corporation - SEC Form 10-K Page 5 - -------------------------------------------------------------------------------- BACKLOG: Transportation systems segment sales backlog at September 30, 2000 was $537 million, compared to $675 million at September 30, 1999. Unexercised options on certain contracts, including the last five years of the PRESTIGE contract, are not included in the backlog amounts. Approximately $350 million of the September 30, 2000 backlog is not expected to be completed by September 30, 2001. COMPETITION: The transportation systems segment is a leading supplier of automatic fare collection systems for transit systems throughout the world. However, the segment competes with large international companies and in many locations encounters significant competition. It is not possible to predict the extent of competition that present or future activities will encounter, particularly since the transportation industry is subject to rapidly changing competitive conditions, customer requirements, political situations and technological developments. OTHER OPERATIONS Consolidated Converting Company converts corrugated paper stock into high-quality packaging and shipping containers and converts paper stock into toilet seat covers. RAW MATERIALS: Raw materials used by Consolidated Converting Company consist of paper products, which are procured from commercial sources. In general, supplies of raw materials are presently adequate to meet the requirements of this business. Paper shortages could delay completion of customer orders in the future. BACKLOG: Consolidated Converting Company had little sales backlog at September 30, 2000 and 1999. The business does not track sales backlog due to the short-term conversion of customer orders into sales and the absence of any significant long-term contracts. COMPETITION: This business competes with concerns of varying size, including some very large companies. It is not possible to predict the extent of the competition which present or future activities will encounter, particularly since the market for this subsidiary's products is subject to rapidly changing competitive conditions. Cubic Corporation - SEC Form 10-K Page 6 - -------------------------------------------------------------------------------- GENERAL The Company pursues a policy of seeking patent protection for its products, where deemed advisable, but it does not regard itself as materially dependent on its patents for the maintenance of its competitive position. The Company does not engage in any significant business that is seasonal in nature. The estimated dollar amounts spent for customer sponsored research activities relating to the development of new products or services was $67 million, $51 million and $64 million in 1999, 1998 and 1997, respectively. The cost of Company sponsored research and development activities was $7.0 million, $7.7 million and $10.8 million in 2000, 1999, and 1998, respectively. The Company must comply with federal, state and local laws and regulations regarding discharge of materials into the environment and the handling and disposal of materials classed as hazardous and/or toxic. Such compliance has no material effect upon the capital expenditures, earnings or competitive position of the Company. There were approximately 3,800 persons employed by the Company and its subsidiaries at September 30, 2000. Typically, the Company's long-term contracts provide for progress or advance payments by its customers, which provide assistance in financing the working capital requirements on those contracts. (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Information regarding foreign and domestic operations and export sales is set forth in Note 14 to the Consolidated Financial Statements for the year ended September 30, 2000, and follows at Item 14(a)(1) of this filing, on page 41. Cubic Corporation - SEC Form 10-K Page 7 - -------------------------------------------------------------------------------- ITEM 2. PROPERTIES. The Company conducts its operations in approximately 1.2 million square feet in both owned and leased properties located in the United States and foreign countries. Approximately 50% of the square footage is owned by the Company, including 425,000 square feet located in the City of San Diego. All owned and leased properties are considered in good condition and adequately utilized. The following table identifies significant properties by business segment:
LOCATION OF PROPERTY OWNED OR LEASED - -------------------------------------------------------------------------------- CORPORATE HEADQUARTERS: San Diego, CA Owned DEFENSE: Alexandria, VA Leased Arlington, VA Leased Auckland, New Zealand Leased Hampton, VA Leased Lacey, WA Leased Leavenworth, KS Leased Orlando, FL Leased San Diego, CA Owned Tijuana, Mexico Leased TRANSPORTATION SYSTEMS: Auburn, NSW Australia Leased Brondby, Denmark Leased Chantilly, VA Leased Chicago, IL Leased Merstham, Surrey, England Owned New York, NY Leased Kowloon Bay, Hong Kong Leased London, England Leased San Diego, CA Owned Tullahoma, TN Owned Wells, Somerset, England Leased OTHER: Whittier, CA Leased
Cubic Corporation - SEC Form 10-K Page 8 - -------------------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS. In 1991, the government of Iran commenced an arbitration proceeding against the Company seeking $12.9 million for reimbursement of payments made for equipment that was to comprise an Air Combat Maneuvering Range pursuant to a sales contract and an installation contract executed in 1977, and an additional $15 million for unspecified damages. The Company contested the action and brought a counterclaim for compensatory damages of $10.4 million. In May 1997, the arbitral tribunal awarded the government of Iran a decision in the amount of $2.8 million, plus simple interest at the rate of 12% per annum from September 21, 1991 through May 5, 1997. In December 1998, the United States District Court granted a motion by the government of Iran confirming the arbitral award. The Company believes the Court avoided authorities previously established by the Ninth Circuit Court in reaching its decision and has appealed. The Company believes that the ultimate outcome of the matter will not have a material effect on its financial statements and, to date, no expense has been accrued. Neither the Company nor any of its subsidiaries are presently a party to any material pending proceedings other than ordinary litigation incidental to the business, the outcome of which will not, in management's opinion, have a materially adverse effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Information regarding submission of matters to a vote of security holders is incorporated herein by reference from the Company's definitive Proxy Statement, which will be filed no later than 30 days prior to the date of the Annual Meeting of Shareholders. Cubic Corporation - SEC Form 10-K Page 9 - -------------------------------------------------------------------------------- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The principal market on which the Company's common stock is being traded is the American Stock Exchange, Inc. The closing high and low sales prices for the stock, as reported in the consolidated transaction reporting system on the American Stock Exchange, Inc. for the quarterly periods during the past two fiscal years, and dividend information for those periods, are as follows. MARKET AND DIVIDEND INFORMATION
Sales Price of Common Shares Dividends per Share ---------------------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- QUARTER ENDED: High Low High Low December 31 $23.04 $18.31 $22.38 $16.50 March 31 26.91 20.15 23.13 15.75 $.19 $.19 June 30 25.03 17.16 26.00 15.75 September 30 26.00 18.59 25.88 22.50 $.19 $.19
On November 22, 2000, the closing price of the Company's common stock on the American Stock Exchange was $35.06. There were approximately 1,500 shareholders of record of the Company's common stock as of November 22, 2000. Cubic Corporation - SEC Form 10-K Page 10 - -------------------------------------------------------------------------------- ITEM 6. SELECTED FINANCIAL DATA. FINANCIAL HIGHLIGHTS AND SUMMARY OF CONSOLIDATED OPERATIONS (Amounts in thousands, except per share data)
Years Ended September 30, 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------- RESULTS OF OPERATIONS: Sales $531,516 $510,759 $414,136 $388,154 $407,621 Cost of sales 451,913 404,144 325,138 296,991 316,293 Selling, general and administrative expenses 74,016 75,725 77,721 66,349 68,066 Interest expense 3,729 4,313 1,962 1,837 3,081 Income taxes (433) 7,482 154 6,598 6,568 Net income 674 14,008 889 12,193 11,063 Average number of shares outstanding 8,907 8,907 8,917 8,975 8,981 PER SHARE DATA: Net income $ 0.08 $ 1.57 $ 0.10 $ 1.36 $ 1.23 Cash dividends 0.38 0.38 0.38 0.38 0.37 YEAR-END DATA: Shareholders' equity $176,023 $182,965 $173,552 $175,320 $167,667 Equity per share 19.76 20.54 19.48 19.60 18.67 Total assets 322,350 330,161 293,991 282,282 266,638 Long-term debt 50,000 50,000 5,000 10,000 15,000
This summary should be read in conjunction with the related consolidated financial statements and accompanying notes. Cubic Corporation - SEC Form 10-K Page 11 - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FISCAL 2000 COMPARED TO FISCAL 1999 Fiscal 2000 represented the Company's third consecutive year of growth in sales, setting a new record high for the Company. Defense segment sales increased by nearly 23%, while sales in the transportation segment decreased by 11%. The increase in defense sales came primarily from combat training range contracts won in recent years, and also reflected continued growth in the computerized battlefield simulation business. The decrease in transportation systems sales came primarily from European operations. Fiscal 1999 had seen a peak of activity as the PRESTIGE project got underway, with a significant amount of bus and underground gating equipment installed. In addition, there had been growth in sales of gating systems, in fiscal 1999, to train operating companies that service the London area. Although revenues from these activities continued strong in 2000, they decreased from the 1999 level. Net income decreased from $14 million in 1999 to less than $1 million in 2000 due to a loss provision made in the fourth quarter on the MILES contract with the U.S. government. Although the Company expects to recover some or all of this amount from its customer, an after tax charge of $18 million was recorded on this contract. We had reported in quarterly reports for the previous two quarters that increases in estimated costs at completion had been identified and that recovery was being pursued. In the fourth quarter, the Company became aware of a decision by the United States Court of Claims involving an unrelated company, under similar circumstances, which caused the Company to revise its strategy for this recovery. Management continues to believe, based on advice from its legal counsel, that it will recover some or all of the additional costs. However, due to this change in strategy, which will require considerable time for documentation, it is management's assessment that the information currently available does not meet the criteria set forth in AICPA Statement of Position 81-1 to record estimated recoverable amounts as a receivable. Any amounts recoverable in the future to offset these costs will be recognized as revenue either upon realization of such amounts or satisfaction of the criteria of SOP 81-1, whichever comes earlier. The charge for the MILES contract described above resulted in an operating loss of $23.6 million in the defense segment for the year. Lower sales volume from the profitable JSTARS product line also contributed to lower profit margins in the Cubic Defense Systems subsidiary. The lower JSTARS sales were more than offset by higher sales from combat training range systems, however, at lower profit margins. The rest of the defense segment generated modestly increased operating profits for the year. Operating profits in the transportation systems segment increased by 20% over the 1999 level. Profits from customer service activities and contracts in the Far East increased, while mature installations such as New York and Washington D.C. continued to provide a solid base of revenues and operating profits. Operating profits from the Company's European operations also increased modestly. The discontinuance of the video E-mail segment in the fourth quarter of fiscal 1999 accounted for the segment operating losses in fiscal 1999 not being repeated this year. Cost of sales as a percentage of sales increased from 79% in 1999 to 85% in 2000. This increase is attributable to the loss provision recorded on the MILES contract, as described above. Interest expense decreased due to a reduction of short-term borrowings and a scheduled payment made against long-term borrowings. At the same time, interest and dividend income increased, due to higher levels of cash and cash equivalents available for investment in 2000. Cubic Corporation - SEC Form 10-K Page 12 - -------------------------------------------------------------------------------- Selling, general and administrative (SG&A) expenses in 2000 decreased modestly from 1999 as a result of the elimination of certain SG&A expenses related to promotion of the compressed video product, which was discontinued. Selling costs in the transportation systems segment were modestly higher, as proposal and selling activities related to new business prospects increased over the prior year. Defense segment SG&A expenses also increased modestly due primarily to higher legal fees resulting from the MILES contract situation. SG&A expenses as a percentage of sales for 2000 dropped to 13.9% compared to 14.8% in 1999. Net operating loss (NOL) carryforwards, which arose in the United Kingdom, were reduced from approximately $12.8 million at September 30, 1999 to $11.8 million at September 30, 2000, while the associated deferred tax asset decreased from $4.0 million to $3.5 million at those same dates. Other than the amount offset by a valuation allowance, the Company expects to continue to generate taxable income in the future, sufficient to realize the benefit of the remaining NOL carryforwards. FISCAL 1999 COMPARED TO FISCAL 1998 Sales in fiscal 1999 increased by 23% over the 1998 level. The PRESTIGE contract to privatize the London Transport fare collection system, awarded in the fourth quarter of 1998, accounted for sales of more than $100 million, resulting in a sales increase of 42% in the transportation systems segment. The defense segment also recorded a modest increase in sales of 6% from fiscal 1998. Operating profits in the defense segment were 10% lower than in 1998 due primarily to cost growth encountered in the MILES 2000 production program. The J-STARS Data Link product line continued to generate significant operating profits. Together with other Tactical Electronic Products, such as Personnel Locator Systems, this product line accounted for approximately 24% of the defense segment sales in 1999 and, after covering losses from MILES, contributed 65% of defense segment profits. The balance of this segment's operating profits were contributed by the computerized battlefield simulations group which supports the training of military leaders for the execution of their operational missions. A turnaround was effected in the transportation segment as all but one of the Asian contracts related to the acquisition of Thorn Transit Systems International were substantially completed and the maintenance business acquired continued to perform profitably. Together with other customer service in this segment, the maintenance and repair business accounted for over 60% of this segment's profits in 1999. The PRESTIGE program, mentioned above, contributed modestly to operating profits as the program was in its early stages of completion. The balance of profits in this segment was generated by rail revenue collection projects in the U.S., U.K. and China. In August 1999, the Company merged its Cubic VideoComm subsidiary into a new entity, established by subsidiary management and outside investors. The new company continued development of the digital live surveillance product line. Losses of $4.8 million in fiscal 1999 resulted primarily from severely competitive conditions in the retail market for the video E-mail product. This product was discontinued and the Company anticipates no further expenses related to this venture. The Company has taken a preferred minority equity position in the new company and will receive royalty payments if the new company is successful with the digital surveillance product. Selling, general and administrative (SG&A) expenses for the year ended September 30, 1999 decreased by four percentage points compared to the previous year, from 18.8% to 14.8%. This experience, due primarily to the surge in sales generated by the PRESTIGE project, also reflects a reduction in SG&A spending of almost $2 million. Reductions in SG&A were experienced as consolidation of administrative activities occurred in the transportation segment, promotion for the compressed video product was cut back and bid and proposal expenses for new order opportunities were reduced. Cubic Corporation - SEC Form 10-K Page 13 - -------------------------------------------------------------------------------- FINANCIAL POSITION AND LIQUIDITY In fiscal 2000, the Company continued to experience positive cash flows from operations, with over $40 million generated by the transportation systems segment. In addition to the profits it realized, the transportation segment was also able to reduce both accounts receivable and inventories. The defense segment encountered modestly negative cash flows due to the cost growth on the MILES contract, described above. However, the negative cash flows from this contract were largely offset by reductions in inventories and in accounts receivable related to other contracts. Investing activities for the year reflect the acquisitions of Applied Data Technology and Oscmar, made by the defense segment, along with normal capital expenditures. Due to positive cash flows generated by the United Kingdom operations of the transportation segment, financing activities reflect the repayment of short-term borrowings in that country. The Company also made a scheduled payment on its long-term debt and paid dividends to its shareholders. The Company's net deferred tax asset increased from $9.9 million at September 30, 1999 to $19.4 million at September 30, 2000. This increase was primarily the result of differences in tax and financial accounting for the loss recorded on the MILES contract. It is expected that the Company will generate sufficient taxable income in the future such that this net deferred tax asset will be realized. The Company experienced a decrease in shareholders' equity of $4.8 million in 2000 due to the strength of the U.S. Dollar in relation to the British Pound, Danish Kroner and the New Zealand Dollar. This amount is reflected in Accumulated Other Comprehensive Income on the Balance Sheet. The Company had approximately $30 million in net assets denominated in these foreign currencies as of September 30, 2000. The Company considers these amounts to be indefinitely invested in the respective foreign countries and expects that the currencies will recover their value in the future, reversing the decreases experienced in 2000, although there is no assurance when, or if, that will occur. At September 30, 2000 the Company had working capital of $158 million and a current ratio of 2.7 to 1. The company expects that cash on hand and its unused debt capacity will be adequate to meet its short and long-term financing needs. FORWARD LOOKING STATEMENTS In addition to historical matters, this report contains forward-looking statements. They can be identified by sentences that contain words such as ANTICIPATE, HOPE, ESTIMATE, PLAN, POTENTIAL, FEEL, EXPECT, SHOULD, and CONFIDENT. These forward-looking statements are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements involve risks and uncertainties which may affect the Company's business and prospects. These include the effects of politics on negotiations and business dealings with government entities, reductions in defense budgets, economic conditions in the various countries in which the Company does or hopes to do business, competition and technology changes in the defense and transportation industries, and other competitive and technological factors. Cubic Corporation - SEC Form 10-K Page 14 - -------------------------------------------------------------------------------- ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE RISK The Company invests in money market instruments and short-term marketable debt and equity securities that are tied to floating interest rates being offered at the time the investment is made. The Company maintains a short-term borrowing arrangement in the United Kingdom (U.K.), which is also tied to a floating interest rate (the U.K. base rate). The Company also has senior unsecured notes payable to insurance companies that are due in annual installments. These notes have fixed coupon interest rates. See Note 8 to the Consolidated Financial Statements for more information. Interest income earned on the Company's short-term investments is affected by changes in the general level of U.S., U.K. and Danish interest rates. These income streams are generally not hedged. Interest expense incurred under the short-term borrowing arrangement is affected by changes in the general level of interest rates in the U.K. The expense related to these cost streams is usually not hedged since it is either revolving, payable within three months and/or immediately callable by the lender at any time. Interest expense incurred under the long-term notes payable is not affected by changes in any interest rate because it is fixed. However, the Company has in the past, and may in the future, use an interest rate swap to essentially convert this fixed rate into a floating rate for some or all of the long-term debt outstanding. The purpose of the swap is to tie the interest expense risk related to these borrowings to the interest income risk on the Company's short-term investments, thereby mitigating the Company's net interest rate risk. The Company believes that it is not significantly exposed to interest rate risk because of these activities. FOREIGN CURRENCY EXCHANGE RISK In the ordinary course of business, the Company enters into firm sale and purchase commitments denominated in many foreign currencies. The Company has a policy to hedge those commitments greater than $20,000 by using foreign currency exchange forward and option contracts that are denominated in currencies other than the functional currency of the subsidiary responsible for the commitment, typically the British Pound, German Mark, Hong Kong Dollar and Australian Dollar. These contracts are effective hedges regardless of the direction or magnitude of any foreign currency exchange rate change because they result in an equal and opposite income or cost stream that offsets the change in the value of the underlying commitment. See Note 1 to the Consolidated Financial Statements for more information on the Company's foreign currency translation and transaction accounting policies. The Company also uses balance sheet hedges to mitigate foreign exchange risk. This strategy involves incurring British Pound denominated debt (See Interest Rate Risk above), and having the option of paying off the debt using U.S. Dollar or British Pound funds. The Company believes that it is not significantly exposed to foreign currency exchange rate risk because of these activities. The Company's investments in its foreign subsidiaries in the U.K., Denmark, Australia, New Zealand, Singapore and Hong Kong are not hedged because they are considered to be invested indefinitely. In addition, the Company has control over the timing and amount of earnings repatriation and expects to use this control to mitigate foreign currency exchange risk. Cubic Corporation - SEC Form 10-K Page 15 - -------------------------------------------------------------------------------- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. The following consolidated financial statements of the Company and its subsidiaries, for the year ended September 30, 2000, are attached hereto, marked Pages 16 and 20 through 42. Report of Ernst & Young LLP, Independent Auditors See Page 16 Consolidated Balance Sheets September 30, 2000 and 1999 See Pages 21 and 22 Consolidated Statements of Income Years ended September 30, 2000, 1999 and 1998 See Page 23 Consolidated Statements of Changes in Shareholders' Equity Years ended September 30, 2000, 1999 and 1998 See Page 24 Consolidated Statements of Cash Flows Years ended September 30, 2000, 1999 and 1998 See Page 25 Notes to Consolidated Financial Statements September 30, 2000 See Pages 26 through 42 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Cubic Corporation - SEC Form 10-K Page 16 - -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Cubic Corporation We have audited the accompanying consolidated balance sheet of Cubic Corporation as of September 30, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cubic Corporation at September 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP San Diego, California November 28, 2000 Cubic Corporation - SEC Form 10-K Page 17 - -------------------------------------------------------------------------------- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information regarding directors and executive officers is incorporated herein by reference from the Company's definitive Proxy Statement, which will be filed no later than 30 days prior to the date of the Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation is incorporated herein by reference from the Company's definitive Proxy Statement, which will be filed no later than 30 days prior to the date of the Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's definitive Proxy Statement, which will be filed no later than 30 days prior to the date of the Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information regarding "Certain Relationships and Related Transactions" is included in Note 12 to the Consolidated Financial Statements for the year ended September 30, 2000, and follows at Item 14(a)(1) of this filing, on page 38. Cubic Corporation - SEC Form 10-K Page18 - -------------------------------------------------------------------------------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this Report: (1) The following consolidated financial statements of Cubic Corporation and subsidiaries, as referenced in Item 8: Consolidated Balance Sheets September 30, 2000 and 1999 Consolidated Statements of Income Years ended September 30, 2000, 1999 and 1998 Consolidated Statements of Changes in Shareholders' Equity Years ended September 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows Years ended September 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements September 30, 2000 (2) The following consolidated financial statement schedules of Cubic Corporation and subsidiaries, as referenced in Item 14(d): None Schedules, for which provision is made in the applicable accounting rules and regulations of the Securities and Exchange Commission, are not required under the related instructions or are not applicable and, therefore, have been omitted. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. (c) Exhibits: 21. List of Subsidiaries 27. Financial Data Schedule (d) Financial Statement Schedules None Cubic Corporation - SEC Form 10-K Page 19 - -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: (Registrant) CUBIC CORPORATION December 20, 2000 /s/ Walter J. Zable - ---------------- -------------------------- Date WALTER J. ZABLE, President - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: December 20, 2000 /s/ Walter J. Zable - ---------------- --------------------------- Date WALTER J. ZABLE, President, Chief Executive Officer and Chairman of the Board of Directors December 20, 2000 /s/ Walter C. Zable - ---------------- --------------------------- Date WALTER C. ZABLE, Vice President and Vice Chairman of the Board of Directors December 20, 2000 /s/ Raymond E. Peet - ---------------- --------------------------- Date RAYMOND E. PEET, Director December 20, 2000 /s/ William W. Boyle - ---------------- --------------------------- Date WILLIAM W. BOYLE, Director, Vice President and Chief Financial Officer December 20, 2000 /s/ Thomas A. Baz - ---------------- --------------------------- Date THOMAS A. BAZ, Vice President and Corporate Controller, Principal Accounting Officer Cubic Corporation - SEC Form 10-K Page 20 - -------------------------------------------------------------------------------- ITEM 8, ITEM 14(a)(1) AND (2),(c) AND (d) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA EXHIBITS Cubic Corporation Year Ended September 30, 2000 San Diego, California Cubic Corporation - SEC Form 10-K Page 21 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
September 30, 2000 1999 ---------------- --------------- (in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 69,753 $ 61,540 Marketable securities, available-for-sale 3,586 1,802 Accounts receivable: Trade and other receivables 12,063 7,722 Long-term contracts--Note 5 111,804 125,855 Allowance for doubtful accounts (457) (325) ---------------- ---------------- 123,410 133,252 Inventories--Note 6 29,499 36,400 Deferred income taxes--Note 10 18,818 9,974 Prepaid expenses and other current assets 4,677 6,566 ---------------- ---------------- TOTAL CURRENT ASSETS 249,743 249,534 ---------------- ---------------- PROPERTY, PLANT AND EQUIPMENT Land and land improvements 12,838 12,936 Buildings and improvements 23,671 23,805 Machinery and other equipment 77,140 75,444 Leasehold improvements 2,803 2,916 Allowance for depreciation and amortization (77,983) (72,125) ---------------- ---------------- 38,469 42,976 ---------------- ---------------- OTHER ASSETS Deferred income taxes--Note 10 595 1,373 Goodwill, less amortization 23,193 23,273 Miscellaneous other assets 10,350 13,005 ---------------- ---------------- 34,138 37,651 ---------------- ---------------- TOTAL ASSETS $ 322,350 $ 330,161 ================ ================
Cubic Corporation - SEC Form 10-K Page 22 - -------------------------------------------------------------------------------- CUBIC CORPORATION CONSOLIDATED BALANCE SHEETS--continued
September 30, 2000 1999 ---------------- --------------- (in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings--Note 7 $ - $ 6,457 Trade accounts payable 18,749 13,761 Customer advances 29,976 23,460 Salaries and wages, and amounts withheld from employees' compensation 18,519 17,757 Other current liabilities 17,767 20,219 Income taxes payable 6,265 4,671 Current portion of long-term debt--Note 7 - 5,000 ---------------- --------------- TOTAL CURRENT LIABILITIES 91,276 91,325 ---------------- --------------- LONG-TERM DEBT, less current portion--Note 7 50,000 50,000 OTHER LIABILITIES Deferred income taxes--Note 10 - 1,408 Deferred compensation 5,051 4,463 ---------------- --------------- 5,051 5,871 ---------------- --------------- COMMITMENTS AND CONTINGENCIES--Notes 8, 9 and 13 SHAREHOLDERS' EQUITY--Note 7 Common stock, no par value: Authorized--20,000,000 shares Issued--11,888,243 shares 234 234 Additional paid-in capital 12,123 12,123 Retained earnings 203,637 206,347 Accumulated other comprehensive income (loss) (3,908) 317 Treasury stock at cost: 2000 -- 2,981,554 shares 1999 -- 2,981,239 shares (36,063) (36,056) ---------------- --------------- 176,023 182,965 ---------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 322,350 $ 330,161 ================ ===============
See accompanying notes. Cubic Corporation - SEC Form 10-K Page 23 - -------------------------------------------------------------------------------- CUBIC CORPORATION CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share data)
Years Ended September 30, 2000 1999 1998 ---------------- --------------- ---------------- Revenues: Sales $ 531,516 $ 510,759 $ 414,136 Interest and dividends 3,819 1,602 2,145 Other income 3,890 3,160 2,520 ---------------- --------------- ---------------- 539,225 515,521 418,801 Costs and expenses: Cost of sales 451,913 404,144 325,138 Selling, general and administrative expenses 74,016 75,725 77,721 Research and development 6,999 7,727 10,776 Goodwill amortization 2,327 2,122 2,161 Interest 3,729 4,313 1,962 ---------------- --------------- ---------------- 538,984 494,031 417,758 ---------------- --------------- ---------------- Income before income taxes 241 21,490 1,043 Income taxes (benefit)--Note 10 (433) 7,482 154 ---------------- --------------- ---------------- Net income $ 674 $ 14,008 $ 889 ================ =============== ================ Net income per common share $ 0.08 $ 1.57 $ 0.10 ================ =============== ================ Average number of common shares outstanding 8,907 8,907 8,917 ================ =============== ================
See accompanying notes. Cubic Corporation - SEC Form 10-K Page 24 - -------------------------------------------------------------------------------- CUBIC CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Other Additional Comprehensive Retained Comprehensive Treasury Paid-in Common (in thousands) Income Earnings Income Stock Capital Stock - ------------------------------------------------------------------------------------------------------------------------------------ October 1, 1997 $198,213 $ (557) $ (34,693) $12,123 $ 234 Comprehensive income: Net income $ 889 889 Foreign currency translation adjustment 2,084 2,084 ------------- Comprehensive income $ 2,973 ============= Cash dividends paid -- $.38 per share of common stock (3,378) Treasury stock purchases (1,363) -------------- -------------------- -------------- ------------- ------------ September 30, 1998 195,724 1,527 (36,056) 12,123 234 Comprehensive income: Net income $ 14,008 14,008 Unrealized holding gains on marketable securities 150 150 Foreign currency translation adjustment (1,360) (1,360) ------------- Comprehensive income $ 12,798 Cash dividends paid -- $.38 per share of common stock (3,385) -------------- -------------------- -------------- ------------- ------------ September 30, 1999 206,347 317 (36,056) 12,123 234 Comprehensive income (loss): Net income $ 674 674 Unrealized holding gains on marketable securities-- net of applicable income tax of $390,000 575 575 Foreign currency translation adjustment (4,800) (4,800) ------------- Comprehensive loss $ (3,551) ============= Cash dividends paid -- $.38 per share of common stock (3,384) Treasury stock purchases (7) -------------- -------------------- -------------- ------------- ------------ September 30, 2000 $203,637 $ (3,908) $ (36,063) $12,123 $ 234 ============== ==================== ============== ============= ============
See accompanying notes. Cubic Corporation - SEC Form 10-K Page 25 - -------------------------------------------------------------------------------- CUBIC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 2000 1999 1998 ------------- ---------------- ---------------- (in thousands) Operating Activities: Net income $ 674 $ 14,008 $ 889 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 11,378 10,236 11,142 Deferred income taxes (9,760) 1,636 (3,277) Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable 13,930 15,270 (40,240) Inventories 10,828 2,798 (18,264) Prepaid expenses 2,043 (366) (882) Accounts payable and other current liabilities 414 6,899 1,580 Customer advances and contract performance obligation 5,701 (3,346) (3,980) Income taxes 1,390 3,347 1,136 Other items - net 2,040 (1,151) 647 ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 38,638 49,331 (51,249) ------------- ------------- ------------- Investing Activities: Acquisition of businesses, net of cash acquired (11,738) - - Sale of marketable securities 21 434 315 Purchases of property, plant and equipment (4,505) (11,511) (8,859) Other items - net 97 1,778 (521) ------------- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (16,125) (9,299) (9,065) ------------- ------------- ------------- Financing Activities: Change in short-term borrowings (6,118) (23,463) 20,187 Long-term borrowing - 50,000 - Principal payments on long-term debt (5,000) (5,000) (5,000) Purchases of treasury stock (7) - (1,363) Dividends paid to shareholders (3,384) (3,385) (3,378) ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,509) 18,152 10,446 ------------- ------------- ------------- Effect of exchange rates on cash 209 (144) 111 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,213 58,040 (49,757) Cash and cash equivalents at the beginning of the year 61,540 3,500 53,257 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 69,753 $ 61,540 $ 3,500 ============= ============= =============
See accompanying notes. Cubic Corporation - SEC Form 10-K Page 26 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF THE BUSINESS: Cubic Corporation (the Company) designs, develops and manufactures products which are mainly electronic in nature and provides services related to products previously produced and products produced by others. The Company's principal lines of business are defense electronics and transportation fare collection systems. Principal customers for defense products and services are the United States and foreign governments. Transportation fare collection systems are sold primarily to large local government agencies in the United States and worldwide. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Cubic Corporation and its majority-owned subsidiaries. All significant intercompany balances and transactions are eliminated. The consolidation of foreign subsidiaries requires financial statement translation in accordance with FASB Statement No. 52. Assets and liabilities are translated into U.S. dollars at year-end exchange rates. Statements of income and cash flows are translated at the average exchange rates for each year. As of September 30, 2000, the effects of foreign currency translation have reduced shareholders' equity by approximately $4.6 million, due to the strength of the U.S. Dollar in relation to the British Pound, Danish Kroner and the New Zealand Dollar, while the impact on the Company's results of operations and cash flows has not been significant. CASH EQUIVALENTS: The Company considers highly liquid investments with maturity of three months or less when purchased to be cash equivalents. CONCENTRATION OF CREDIT RISK: The Company has established guidelines pursuant to which its cash and cash equivalents are diversified among various money market instruments and funds. These guidelines emphasize the preservation of capital by requiring minimum credit ratings assigned by established credit organizations. Diversification is achieved by specifying maximum investments in each fund type and issuer. The majority of these investments are not on deposit in federally insured accounts. FAIR VALUE OF FINANCIAL INSTRUMENTS: Financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, are carried at cost, which management believes approximates the fair value because of the short-term maturity of these instruments. MARKETABLE SECURITIES, AVAILABLE-FOR-SALE: Marketable securities are classified as available-for-sale and are stated at fair market value. The difference between cost and fair market value at September 30, 2000 and 1999 is included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheet and amounted to $725,000 at September 30, 2000, net of applicable income taxes. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined using primarily the first-in, first-out (FIFO) method, which approximates current replacement cost. Work in process is stated at the actual production and engineering costs incurred to date, including applicable overhead, and is reduced by charging any amounts in excess of estimated realizable value to cost of sales. Although costs incurred for certain government contracts include general and administrative costs, the amounts remaining in inventory at September 30, 2000 and 1999 were immaterial. Cubic Corporation - SEC Form 10-K Page 27 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at cost. Depreciation is provided in amounts sufficient to amortize the cost of the depreciable assets over their estimated useful lives. Straight-line and accelerated methods are each used for approximately one-half of the depreciable plant and equipment. Provisions for depreciation of plant and equipment amounted to $9,045,000, $8,037,000, and $8,874,000 in 2000, 1999 and 1998, respectively. GOODWILL: Goodwill is amortized on a straight-line basis over periods ranging from 3 to 15 years. Accumulated amortization at September 30, 2000 and 1999 was $11,064,000 and $9,037,000, respectively. IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with FASB Statement No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount REVENUE RECOGNITION: Sales under long-term contracts are recognized as costs are incurred and fees are earned on cost-plus-fee contracts, and as costs are incurred and estimated profits are earned on long-term, fixed price contracts. Such estimated profits are computed by applying the various percentages of completion of the contracts to the estimated ultimate profits. Provisions are made on a current basis to fully recognize any anticipated losses on contracts. DERIVATIVE FINANCIAL INSTRUMENTS: The Company's use of derivative financial instruments is limited to hedging foreign currency exchange and interest rate risk through the use of forward and option contracts. Foreign exchange forward and option contracts are used to hedge significant, firm contract sales and purchase commitments that are denominated in currencies other than the functional currency of the subsidiary responsible for the commitment. Gains and losses from hedging activities are recognized when the hedged sale or purchase commitment is settled and the hedge is closed out. At September 30, 2000, the Company had foreign exchange contracts with a notional value of $24.2 million outstanding. The net amount of deferred gains and losses at that date was immaterial. NEW ACCOUNTING PRONOUNCEMENTS: Effective October 1, 1999, the Company adopted Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. The SOP requires the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. To date, adoption of SOP 98-1 has not materially affected the results of operations or financial position of the Company, as no significant new software development projects for internal use were undertaken in the year ended September 30, 2000. Cubic Corporation - SEC Form 10-K Page 28 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED): In June 1998, the Financial Accounting Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Company adopted the statement effective October 1, 2000, which in subsequent periods will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Currently, the Company's use of derivative financial instruments is limited to hedging foreign currency exchange risk through the use of forward and option contracts. Although it is not possible to determine with certainty what affect the adoption of Statement No. 133 will have on the earnings and financial position of the Company, its effect is expected to be immaterial. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES: The Company is subject to the normal risks and uncertainties of performing large, multi-year, often fixed-price contracts. In addition, certain contracts provide the customer with fixed-price options which, if exercised, could result in losses to the Company upon performance. The Company's subcontract with Transys is the largest the Company has been awarded to date. A portion of the subcontract obligates the Company to produce and install, over a four-year period, equipment which is generally similar to that previously provided to London Transport (the ultimate customer). Under the terms of the subcontract, the revenue to be realized, and therefore the ultimate profitability of this portion of the subcontract, could vary substantially if the Company fails to meet the delivery and installation schedule. To date, the Company has met the delivery and installation schedule of the contract and believes it has the capability to continue to meet these performance requirements and to realize the expected profits from this subcontract. Cubic Corporation - SEC Form 10-K Page 29 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 2--ACQUISITIONS On March 31, 2000, the Company acquired all of the outstanding shares of Applied Data Technology, Inc. and its affiliate, ADT Global Services, Inc., for approximately $4.6 million cash (net of cash acquired) in a transaction accounted for as a purchase. Goodwill resulting from the acquisition totaled approximately $1.2 million and is being amortized over a period of three years. The acquired companies provide defense-related products and services including military simulation and air combat training, as well as operation and maintenance services, and were integrated into the Company's defense segment. On July 31, 2000 the Company acquired all the outstanding common shares of Oscmar International, Ltd. (Oscmar), a New Zealand company, for approximately $7.1 million cash (net of cash acquired) in a transaction accounted for as a purchase. Goodwill resulting from the acquisition of Oscmar totaled approximately $2.5 million and is being amortized over a period of ten years. Oscmar provides tactical engagement simulation systems for use in military training for customers around the world. The Company will continue to operate Oscmar as a separate subsidiary, which is included in the defense segment. Assuming these acquisitions had occurred at the beginning of the fiscal year, they would not have had a material impact on sales, net income or net income per share amounts. NOTE 3--DISCONTINUED PRODUCT LINE In August 1999, the Company discontinued the video and audio electronic mail and intra-net based training business, which had been marketed under the Company's Cubic VideoComm subsidiary. Also, in August 1999, the Company entered into an agreement to merge the subsidiary, including its live surveillance product line, into a new company named C Video, Inc. (CVI). CVI retained the services of some former employees of the Company and is being operated by an independent investor group, which is led by CVI management. The Company retained a preferred stock minority interest in CVI, which is carried on the Company's Balance Sheet at no value. No cash consideration was involved in the transaction. The sale agreement includes a provision for the Company to realize contingent royalty income based on the success of the new company. Cubic Corporation - SEC Form 10-K Page 30 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 4--INVESTMENT IN UNCONSOLIDATED SUBSIDIARY The Company owns 37.5% of the common stock of Transys, an unconsolidated joint venture company in the United Kingdom. This joint venture was formed to bid on a contract called "PRESTIGE" (Procurement of Revenue Services, Ticketing, Information, Gates and Electronics), the purpose of which is to privatize the London Transport fare collection system. In August 1998, Transys was awarded the contract and began operations. Through September 30, 2000, over $530 million of the work to be performed by Transys has been subcontracted to the Company as a part of the joint venture arrangement. The long-term debt of Transys is non-recourse to Cubic. Summarized financial information for this unconsolidated joint venture is as follows:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------ (In millions) BALANCE SHEETS: Current assets $ 27.7 $ 34.4 Non-current unbilled contract accounts receivable 153.1 90.6 ------------- ------------ Total Assets $ 180.8 $ 125.0 ============= ============ Current liabilities $ 13.4 $ 12.3 Long-term debt 167.4 112.7 Equity - - ------------- ------------ Total Liabilities and Equity $ 180.8 $ 125.0 ============= ============
Years ended September 30, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (In millions) STATEMENTS OF INCOME: Sales $ 228 $ 127 $ 10 Operating profit $ - $ - $ - Net income $ - $ - $ -
The terms of Transys' subcontracts with the Company and other parties to the joint venture provide for the pass-through of virtually all revenues from London Transport. As a result, Transys has operated on a break-even basis and is expected to continue to do so. Cubic Corporation - SEC Form 10-K Page 31 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 5--ACCOUNTS RECEIVABLE The components of accounts receivable under long-term contracts are as follows:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------- (in thousands) U.S. Government Contracts: Amounts billed $ 17,904 $ 15,892 Recoverable costs and accrued profits on progress completed--not billed 26,567 27,340 ----------------- ---------------- 44,471 43,232 Commercial Customers: Amounts billed 23,544 41,828 Recoverable costs and accrued profits on progress completed--not billed 43,789 40,795 ----------------- ---------------- 67,333 82,623 ----------------- ---------------- $ 111,804 $ 125,855 ================= ================
A portion of recoverable costs and accrued profits on progress completed is billable under progress payment provisions of the related contracts. The remainder of these amounts is billable upon delivery of products or furnishing of services, with an immaterial amount subject to retainage provisions of the contracts. It is anticipated that substantially all of the unbilled portion of receivables will be billed under progress billing provisions of the contracts or upon completion of performance tests and/or acceptance by the customers during 2001. Cubic Corporation - SEC Form 10-K Page 32 - -------------------------------------------------------------------------------- NOTE 6--INVENTORIES Inventories are classified as follows:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------- (in thousands) Finished products $ 1,239 $ 1,515 Work in process 17,699 22,926 Materials and purchased parts 10,561 11,959 ----------------- ---------------- $ 29,499 $ 36,400 ================= ================
Cubic Corporation - SEC Form 10-K Page 33 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 7--FINANCING ARRANGEMENTS Long-term debt consists of the following:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------ (in thousands) Unsecured notes payable to a group of insurance companies, with annual principal payments of $4,000,000 commencing November 2004. Interest at 6.31% is payable semi-annually in November and May. $ 40,000 $ 40,000 Unsecured note payable to an insurance company, with annual principal payments of $1,429,000 commencing November 2002. Interest at 6.11% is payable semi- annually in November and May. 10,000 10,000 Unsecured note payable to an insurance company - 5,000 ----------------- ---------------- 50,000 55,000 Current portion - (5,000) ----------------- ---------------- $ 50,000 $ 50,000 ================= ================
The terms of the notes payable include provisions that require and/or limit, among other financial ratios and measurements, the permitted levels of working capital, debt and tangible net worth and coverage of fixed charges. The Company has also provided certain performance guarantees to various parties related to the PRESTIGE contract and the Transys joint venture. As consideration for the performance guarantee, the Company has agreed to certain financial covenants including limits on working capital, debt, tangible net worth and cash flow coverage. At September 30, 2000, the most restrictive covenant under these agreements leaves consolidated retained earnings of $17.2 million available for the payment of dividends to shareholders, purchases of the Company's common stock and other charges to shareholders' equity. If the Company violates any of these covenants it may be required to provide collateral for the guarantees. To date, there have been no such violations and the Company believes it will be able to meet the covenant financial performance obligations described above. The Company maintains a short-term borrowing arrangement totaling 10 million British Pounds (equivalent to approximately $14.7 million) with a United Kingdom financial institution to help meet the short-term working capital requirements of its subsidiary, Cubic Transportation Systems Ltd. Any outstanding balances are guaranteed by Cubic Corporation and are repayable on demand. At September 30, 2000, there was no amount outstanding under this borrowing arrangement. Maturities of long-term debt for each of the five years in the period ending September 30, 2005, are as follows: 2001--$0; 2002--$0; 2003--$1,429,000; 2004--$1,429,000; 2005--$5,429,000 ; thereafter--$41,713,000 . Interest paid amounted to $3,806,000, $3,262,000, and $1,992,000 in 2000, 1999, and 1998, respectively. Cubic Corporation - SEC Form 10-K Page 34 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 7--FINANCING ARRANGEMENTS--Continued As of September 30, 2000 the Company had letters of credit and bank guarantees outstanding totaling $27.7 million, which guarantee either the Company's performance or customer advances under certain contracts. In addition, the Company had financial letters of credit outstanding totaling $5.2 million as of September 30, 2000, which guarantee the Company's payment of certain self-insured liabilities. Management believes self-insurance liabilities recorded on the balance sheet as of September 30, 2000 are adequate to meet the underlying obligations. The Company has never had a drawing on a letter of credit instrument, nor are any anticipated; therefore, the fair value of these instruments is estimated to be zero. NOTE 8--COMMITMENTS The Company leases certain office, manufacturing and warehouse space and miscellaneous computer and other office equipment under non-cancelable operating leases expiring in various years through 2009. These leases, some of which may be renewed for periods up to 10 years, generally require the lessee to pay all maintenance, insurance and property taxes. Several leases are subject to periodic adjustment based on price indices or cost increases. Rental expense, net of sublease income, for all operating leases amounted to $3,777,000, $4,172,000, and $3,808,000 in 2000, 1999, and 1998, respectively. Future minimum payments, net of minimum sublease income, under non-cancelable operating leases with initial terms of one year or more consist of the following at September 30, 2000 (in thousands): 2001 $ 3,485 2002 3,179 2003 2,111 2004 1,671 2005 730 Thereafter 2,384 -------------- $ 13,560 ==============
Cubic Corporation - SEC Form 10-K Page 35 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 9--CONTINGENT GAIN In the quarter ended September 30, 2000, the Company recorded a charge of $18.2 million, after applicable income taxes of $11.6 million, due to growth in estimated costs to complete its Multiple Integrated Laser Engagement System (MILES) contract with the U.S. government. The Company believes that this growth in costs was the result of contract changes and delays caused by the government and is pursuing recovery from the customer. Management believes that the contract provides a legal basis for a claim and that it may ultimately recover some or all of this amount. However, due to the complexity of the contract and the inherent uncertainties in the claims resolution process, it is not possible to reliably estimate the amount of recovery at this time. Therefore, in accordance with AICPA Statement of Position 81-1, the Company has not recorded revenues that are contingent upon the collection of claims. The Company will continue to pursue recovery of the costs through contract variations, equitable adjustments and/or claims. Any amounts recoverable in the future to offset these costs will be recognized as revenue and profits either upon realization of such amounts or satisfaction of the criteria of SOP 81-1, whichever comes earlier. NOTE 10--INCOME TAXES Significant components of the provision (benefit) for income taxes are as follows:
Years ended September 30, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- (in thousands) Current (credit): Federal $ 4,821 $ 3,885 $ 2,463 State (84) 1,355 750 Foreign 4,590 606 218 -------------- -------------- -------------- Total current 9,327 5,846 3,431 -------------- -------------- -------------- Deferred (credit): Federal (8,543) (2,911) 327 State (1,241) (116) (40) Foreign 24 4,663 (3,564) -------------- -------------- -------------- Total deferred (9,760) 1,636 (3,277) -------------- -------------- -------------- Total income tax expense (benefit) $ (433) $ 7,482 $ 154 ============== ============== ==============
Cubic Corporation - SEC Form 10-K Page 36 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 10--INCOME TAXES--Continued Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Significant components of the Company's deferred tax assets and liabilities are as follows:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------- (in thousands) Deferred tax assets: Accrued employee benefits $ 3,120 $ 2,701 Inventory reserves and long-term contract accounting 13,679 7,756 Self-insurance reserves 705 893 Deferred compensation 1,850 1,687 Foreign net operating loss carryforwards 3,526 3,966 Other 3,073 2,470 --------------- --------------- Total deferred tax assets 25,953 19,473 Valuation allowance for deferred tax assets (1,770) (2,042) --------------- --------------- Net deferred tax assets 24,183 17,431 --------------- --------------- Deferred tax liabilities: Tax over book depreciation 471 644 Leveraged lease accounting 1,335 2,831 Intangible asset amortization 95 1,745 State taxes 1,043 321 Other 1,826 1,951 --------------- --------------- Total deferred tax liabilities 4,770 7,492 --------------- --------------- Net deferred tax assets $ 19,413 $ 9,939 =============== ===============
Net operating loss (NOL) carryforwards, which arose in the United Kingdom, amounted to approximately $11.8 million and $12.8 million at September 30, 2000 and 1999, respectively, and have no expiration date. The Company expects to generate future taxable income sufficient to realize the benefit of these NOL carryforwards, as the result of profitable U. K. contracts currently in backlog, except for the portion of the these NOL carryforwards for which a $1.8 million valuation allowance has been provided. If in the future it becomes clear that this portion of the NOL carryforwards will be utilized, the tax benefit would first reduce any unamortized balance of goodwill related to the Thorn Transit Systems business acquired in 1997, with any remaining benefit credited to tax expense. Cubic Corporation - SEC Form 10-K Page 37 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 10--INCOME TAXES--Continued The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows:
Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Tax at federal statutory rate $ 84 $ 7,522 $ 355 State income taxes, net of federal tax benefit (805) 805 469 Tax exempt interest and dividend income (469) (36) (297) Foreign sales corporation (374) (530) (404) Non-deductible expenses 1,912 427 557 Effect of change in tax rates on deferred tax asset 321 (176) 176 Tax effect from foreign subsidiaries (545) (386) 123 Change in deferred tax asset valuation allowance - - (435) Tax credits and other (557) (144) (390) --------------- --------------- -------------- $ (433) $ 7,482 $ 154 =============== =============== ==============
The Company made income tax payments, net of refunds, totaling $7,782,000, $2,513,000, and $2,290,000 in 2000, 1999, and 1998, respectively. Income (loss) before income taxes include the following components:
Years ended September 30, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (in thousands) United States $ (14,781) $ 7,763 $ 11,007 Foreign 15,022 13,727 (9,964) ----------------- --------------- ---------------- Total $ 241 $ 21,490 $ 1,043 ================= =============== ================
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $23.4 million at September 30, 2000. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries but would also be able to offset unrecognized foreign tax credit carryforwards. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, the Company does not believe the amount would be material. Cubic Corporation - SEC Form 10-K Page 38 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 11--PENSION, PROFIT SHARING AND OTHER RETIREMENT PLANS The Company and certain of its subsidiaries have profit sharing and other defined contribution retirement plans that provide benefits for participating employees. An employee is eligible to participate in these plans after six months to one year of service, and may make additional contributions to the plans from their date of hire. These plans provide for full vesting of benefits over five years. A substantial portion of Company contributions to these plans is discretionary with the Board of Directors. Company contributions to the plans aggregated $7,422,000, $7,225,000 and $7,001,000 in 2000, 1999 and 1998, respectively. The Company also maintains a defined benefit pension plan covering substantially all non-union U.S. employees of certain of its subsidiaries. The following table sets forth changes in the benefit obligation and plan assets for this plan and the net amount recognized in the Consolidated Balance Sheet:
September 30, 2000 1999 - ------------------------------------------------------------------------------------------------------------------ (in thousands) CHANGE IN BENEFIT OBLIGATION: Net benefit obligation at the beginning of the year $ 46,773 $ 49,656 Service cost 1,822 2,256 Interest cost 3,784 3,353 Actuarial (gain) loss 1,285 (7,454) Gross benefits paid (1,418) (1,038) --------------- --------------- Net benefit obligation at the end of the year 52,246 46,773 --------------- --------------- CHANGE IN PLAN ASSETS: Fair value of plan assets at the beginning of the year 54,330 47,908 Actual return on plan assets 5,537 7,525 Employer contributions - - Gross benefits paid (1,418) (1,038) Administrative expenses (63) (65) --------------- --------------- Fair value of plan assets at the end of the year 58,386 54,330 --------------- --------------- NET AMOUNT RECOGNIZED: Funded status 6,140 7,557 Unrecognized net actuarial gain (7,094) (7,301) Unrecognized prior service cost (5) (8) Unrecognized net transition asset - - --------------- --------------- Asset (liability) recognized in the Consolidated Balance Sheet $ (959) $ 248 =============== =============== Major assumptions as of the end of the plan year: Discount rate 7.8% 7.7% Expected return on plan assets 8.5% 8.5% Rate of compensation increase 5.0% 4.5%
Cubic Corporation - SEC Form 10-K Page 39 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 11--PENSION, PROFIT SHARING AND OTHER RETIREMENT PLANS--Continued The components of net periodic pension cost for this plan are as follows:
Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Service cost $ 1,822 $ 2,256 $ 1,807 Interest cost 3,784 3,353 3,042 Expected return on plan assets (4,520) (3,992) (3,709) Amortization of: Transition asset (2) (21) (52) Prior service cost (35) (3) (3) Administrative expenses 158 196 157 ---------------- --------------- -------------- Net pension cost $ 1,207 $ 1,789 $ 1,242 ================ =============== ============== Major assumptions as of the beginning of the plan year: Discount rate 7.7% 6.5% 7.2% Expected return on plan assets 8.5% 8.5% 8.5% Rate of compensation increase 4.5% 4.5% 4.5%
NOTE 12--RELATED PARTY TRANSACTION In October 1992, a trust established by Mr. and Mrs. Walter J. Zable entered into an agreement with the Company whereby the Company agreed to make advances of premiums payable on a split-dollar life insurance policy purchased by the trust on the life of Mrs. Zable. The agreement is so designed that if the assumptions made as to mortality experience, policy dividends and other factors are realized, at the death of Mrs. Zable the Company will recover all of its insurance premium payments as well as other costs associated with the policy. The advances are secured by a collateral assignment of the policy to the Company. The agreement is intended to prevent the possibility of a large block of the Company's common shares being put on the market, to the detriment of the share price, in order for the beneficiaries to pay estate taxes. The Company may cause the agreement to be terminated and the policy to be surrendered at any time. The difference between policy premiums and other payments, and the increase in the cash surrender value of the policy has been expensed or added to income in the year incurred. The amount added to income in 2000 and 1999 was $45,000 and $254,000, respectively, while in 1998, $85,000 was expensed. Should the policy be held for ten years, the Company estimates that the cash surrender value will exceed all payments made and should the policy be held to maturity, all payments advanced to carry the policy will be returned. Cubic Corporation - SEC Form 10-K Page 40 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 13--LEGAL MATTER In 1991, the government of Iran commenced an arbitration proceeding against the Company seeking $12.9 million for reimbursement of payments made for equipment that was to comprise an Air Combat Maneuvering Range pursuant to a sales contract and an installation contract executed in 1977, and an additional $15 million for unspecified damages. The Company contested the action and brought a counterclaim for compensatory damages of $10.4 million. In May 1997, the arbitral tribunal awarded the government of Iran a decision in the amount of $2.8 million, plus simple interest at the rate of 12% per annum from September 21, 1991 through May 5, 1997. In December 1998, the United States District Court granted a motion by the government of Iran confirming the arbitral award. The Company believes the Court avoided authorities previously established by the Ninth Circuit Court in reaching its decision and has appealed. The Company believes that the ultimate outcome of the matter will not have a material effect on its financial statements and, to date, no expense has been accrued. NOTE 14--BUSINESS SEGMENT INFORMATION DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH REPORTABLE SEGMENT DERIVES ITS REVENUES: The Company has two primary business segments: transportation systems and defense, and one segment, software development, which is reportable due to the significance of losses incurred in 1998 and 1999. The transportation systems segment designs, produces, installs and services electronic and mechanical revenue collection systems for mass transit projects, including railways and buses. The defense segment consists of five operating units that perform work under U.S. and foreign government contracts relating to electronic defense systems and equipment, computer simulation training, development of training doctrine and field operations and maintenance. Products include customized range instrumentation and training systems, communications and surveillance systems, avionics systems, transceivers and receivers. The software development segment had developed high-speed video and audio compression software for applications including electronic mail and surveillance. As discussed in Note 3, the Company discontinued this business in 1999 and does not expect significant revenues or expenses to be generated by it in the future. MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS: The Company evaluates performance and allocates resources based on total segment operating profit or loss. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are immaterial. FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS: The Company's reportable segments are business units that offer different products and services. The reportable segments are each managed separately because they develop and manufacture distinct products with different customer bases. Cubic Corporation - SEC Form 10-K Page 41 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 14--BUSINESS SEGMENT INFORMATION--Continued Business segment financial data is presented below:
Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- REVENUES: Transportation systems $ 243.8 $ 274.1 $ 192.3 Defense 271.7 219.5 207.0 Software development - 1.8 0.7 Other 16.0 15.4 14.3 ------------- ------------- ------------ Total segment revenues 531.5 510.8 414.3 Other 7.7 4.7 4.5 ------------- ------------- ------------ Total consolidated revenues $ 539.2 $ 515.5 $ 418.8 ============= ============= ============ OPERATING PROFIT (LOSS): Transportation systems $ 21.5 $ 17.9 $ (2.6) Defense (23.6) 9.7 10.6 Software development - (4.8) (6.6) Other 1.3 1.2 0.9 ------------- ------------- ------------ Total segment operating profit (loss) (0.8) 24.0 2.3 Other 4.7 1.8 0.7 Interest expense (3.7) (4.3) (2.0) ------------- ------------- ------------ Income before income taxes $ 0.2 $ 21.5 $ 1.0 ============= ============= ============ ASSETS: Transportation systems $ 91.6 $ 125.5 $ 133.9 Defense 131.2 121.4 135.1 Software development - 0.2 1.0 Other 3.1 3.6 3.0 ------------- ------------- ------------ Total segment assets 225.9 250.7 273.0 Other 96.5 79.3 21.0 ------------- ------------- ------------ Total consolidated assets $ 322.4 $ 330.0 $ 294.0 ============= ============= ============ DEPRECIATION AND AMORTIZATION: Transportation systems $ 5.4 $ 4.5 $ 5.3 Defense 5.3 4.8 4.8 Other 0.1 0.2 0.2 ------------- ------------- ------------ Total segment depreciation and amortization 10.8 9.5 10.3 Other 0.6 0.7 0.8 ------------- ------------- ------------ Total consolidated depreciation and amortization $ 11.4 $ 10.2 $ 11.1 ============= ============= ============
Cubic Corporation - SEC Form 10-K Page 42 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 14--BUSINESS SEGMENT INFORMATION--Continued
Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ (in millions) EXPENDITURES FOR LONG-LIVED ASSETS: Transportation systems $ 2.4 $ 5.0 $ 5.0 Defense 1.6 5.9 3.4 Other 0.3 0.1 0.3 ------------- ------------ ------------ Total segment expenditures 4.3 11.0 8.7 Other 0.2 0.5 0.2 ------------- ------------ ------------ Total consolidated expenditures for long-lived assets $ 4.5 $ 11.5 $ 8.9 ============= ============ ============ GEOGRAPHIC INFORMATION: Revenues (a): United States $ 281.8 $ 259.3 $ 252.1 United Kingdom 166.4 183.6 74.5 Far East 36.4 43.0 69.0 Other foreign countries 46.9 29.6 23.2 ------------- ------------ ------------ Total consolidated revenues $ 531.5 $ 515.5 $ 418.8 ============= ============ ============ (a) Revenues are attributed to countries or regions based on the location of customers. Long-lived assets: United States $ 54.4 $ 59.8 $ 59.1 United Kingdom 14.2 19.0 19.4 Other foreign countries 3.4 0.4 0.6 ------------- ------------ ------------ Total consolidated long-lived assets $ 72.0 $ 79.2 $ 79.1 ============= ============ ============
Defense segment revenues include $197.2 million, $168.6 million and $178.3 million in 2000, 1999 and 1998, respectively, of sales to United States Government agencies. Transportation systems revenues include $91.3 million and $104.5 million of sales to Transys in 2000 and 1999, respectively. No other single customer accounts for 10% or more of the Company's revenue. Cubic Corporation - SEC Form 10-K Page 43 - -------------------------------------------------------------------------------- CUBIC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued NOTE 15--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended September 30, 2000 and 1999:
Quarter Ended ---------------------------------------------------------------------- December 31 March 31 June 30 September 30 ----------- -------- ------- ------------ (in thousands, except per share data) FISCAL 2000 Net sales $ 115,398 $ 144,933 $133,064 $ 138,121 Gross profit (loss) 27,186 28,211 27,343 (3,137) Net income (loss) 4,127 4,556 4,714 (12,723) Net income (loss) per share .46 .51 .53 (1.42) FISCAL 1999 Net sales $ 98,758 $ 139,644 $129,289 $ 143,068 Gross profit 21,680 27,403 24,989 32,543 Net income 2,665 3,230 3,741 4,372 Net income per share .30 .36 .42 .49
EX-21 2 a2033823zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARY CORPORATIONS OF CUBIC CORPORATION PLACE OF INCORPORATION AND PERCENTAGE OWNED
PLACE OF PERCENTAGE SUBSIDIARY INCORPORATION OWNED ADT GLOBAL SERVICES, INC. San Diego, California Delaware 100% APPLIED DATA TECHNOLOGY, INC. San Diego, California California 100% CONSOLIDATED CONVERTING CO. Whittier, California California 100% CUBIC APPLICATIONS, INC. Lacey, Washington California 100% CUBIC COMMUNICATIONS, INC. San Diego, California California 100% CUBIC DATA SYSTEMS, INC. San Diego, California California 90% CUBIC DEFENSE SYSTEMS, INC. San Diego, California California 100% CUBIC FOREIGN SALES, INC. St. Thomas San Diego, California U.S. Virgin Islands 100% CUBIC LAND, INC. San Diego, California California 100% CUBIC MICROCHIP DEVELOPMENT CORPORATION San Diego, California California 100% CUBIC TRANSPORTATION SYSTEMS, INC. San Diego, California California 100% CUBIC TRANSPORTATION SYSTEMS FAR EAST LIMITED Hong Kong, China Hong Kong 100% CUBIC TRANSPORTATION SYSTEMS LIMITED London, England England 100% * * (100% owned subsidiary of Cubic (UK) Limited)
SUBSIDIARY CORPORATIONS OF CUBIC CORPORATION--CONTINUED
PLACE OF PERCENTAGE SUBSIDIARY INCORPORATION OWNED CUBIC TRANSPORTATION SYSTEMS (AUSTRALIA) PTY LIMITED New South Wales, Australia Australia 100% * * (50% owned subsidiary of Cubic Corporation and 50% owned subsidiary of Cubic Transportation Systems, Inc.) CUBIC (UK) LIMITED London, England England 100% CUBIC WORLDWIDE TECHNICAL SERVICES, INC. San Diego, California Delaware 100% NAVSAT CORPORATION San Diego, California California 100% OSCMAR INTERNATIONAL LIMITED Auckland, New Zealand New Zealand 100% SCANPOINT TECHNOLOGY A/S Brondby, Denmark Denmark 100%* * (100% owned subsidiary of Cubic Transportation Systems, Inc.)
EX-27 3 a2033823zex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-2000 SEP-30-2000 69,753 3,586 123,867 457 29,499 249,743 116,452 77,983 322,350 91,276 0 0 0 234 175,789 322,350 531,516 539,225 451,913 451,913 83,342 0 3,729 241 (433) 674 0 0 0 674 0.08 0.00
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