Cubic Corp. to restate earnings for past 3 years
Cubic Corp. to restate earnings after review turns up accounting errors; Potential upside seen
SAN DIEGO (AP) -- Cubic Corp. said on Wednesday that it will restate earnings for the past three fiscal years after a review discovered errors in how the electronics company accounted for revenue from long-term development contracts as well as certain service contracts.
Based on a preliminary review, the changes are expected to increase revenue and net income over the three years, Cubic said.
The San Diego-based company said the audit committee of its board consulted with its outside accounting firm, Ernest & Young LLP. It will amend its statements as soon as practicable.
The company's review found that financial statements for the fiscal years ending Sept. 30 in 2009, 2010 and 2011 and the quarters ended March 31, 2012 and Dec. 31, 2011, can no longer be relied upon.
Cubic's management recommended that adjustments be made due to errors in calculating revenue on certain long-term fixed-price development contracts, and on certain long-term service contracts with non-U.S. government customers.
The company has historically recognized development contract sales and profits using a "cost-to-cost percentage-of-completion" accounting method, with a modification that Cubic called a "formulary adjustment."
Using that method, sales and profits are based on the ratio of costs incurred to estimated total costs at completion of the contract. Cubic said the formulary adjustment had the effect of deferring a portion of the revenue and profits on contracts until later in the contract period.
"Cubic believed that this methodology was an acceptable variation" of the cost-to-cost percentage-of-completion method as described in accounting standards, the company said.
But Cubic now believes that generally accepted accounting principles don't support use of the formulary adjustment.
Cubic's products are used in combat training systems and defense electronics. It also provides automated fare collection systems and services for public transit agencies.
Shares of Cubic fell 29 cents to $48.08 in morning trading. The stock had traded in a range of $36.71 to $51.92 over the past 12 months.
