<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
LOCATION OF PROPERTY OWNED OR LEASED
--------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
Sales Price of Common Shares Dividends per Share
---------------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
QUARTER ENDED: High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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)
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
This summary should be read in conjunction with the related consolidated
financial statements and accompanying notes.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Cubic Corporation - SEC Form 10-K Page 21
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
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
================ ================
</TABLE>
<PAGE>
Cubic Corporation - SEC Form 10-K Page 22
--------------------------------------------------------------------------------
CUBIC CORPORATION
CONSOLIDATED BALANCE SHEETS--continued
<TABLE>
<CAPTION>
September 30,
2000 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
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
================ ===============
</TABLE>
See accompanying notes.
<PAGE>
Cubic Corporation - SEC Form 10-K Page 23
--------------------------------------------------------------------------------
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999 1998
---------------- --------------- ----------------
<S> <C> <C> <C>
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
================ =============== ================
</TABLE>
See accompanying notes.
<PAGE>
Cubic Corporation - SEC Form 10-K Page 24
--------------------------------------------------------------------------------
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Additional
Comprehensive Retained Comprehensive Treasury Paid-in Common
(in thousands) Income Earnings Income Stock Capital Stock
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
============== ==================== ============== ============= ============
</TABLE>
See accompanying notes.
<PAGE>
Cubic Corporation - SEC Form 10-K Page 25
--------------------------------------------------------------------------------
CUBIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999 1998
------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
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
============= ============= =============
</TABLE>
See accompanying notes.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C>
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
============= ============
</TABLE>
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
-----------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
STATEMENTS OF INCOME:
Sales $ 228 $ 127 $ 10
Operating profit $ - $ - $ -
Net income $ - $ - $ -
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 2000 1999
-------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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
================= ================
</TABLE>
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.
<PAGE>
Cubic Corporation - SEC Form 10-K Page 32
--------------------------------------------------------------------------------
NOTE 6--INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999
-------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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
================= ================
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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
================= ================
</TABLE>
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.
<PAGE>
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):
<TABLE>
<S> <C>
2001 $ 3,485
2002 3,179
2003 2,111
2004 1,671
2005 730
Thereafter 2,384
--------------
$ 13,560
==============
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
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
============== ============== ==============
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 2000 1999
-------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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
=============== ===============
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
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
=============== =============== ==============
</TABLE>
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:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
-----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
United States $ (14,781) $ 7,763 $ 11,007
Foreign 15,022 13,727 (9,964)
----------------- --------------- ----------------
Total $ 241 $ 21,490 $ 1,043
================= =============== ================
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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%
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
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%
</TABLE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
============= ============= ============
</TABLE>
<PAGE>
Cubic Corporation - SEC Form 10-K Page 42
--------------------------------------------------------------------------------
CUBIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE 14--BUSINESS SEGMENT INFORMATION--Continued
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
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
============= ============ ============
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
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
</TABLE>
