Cubic Corp Reports Operating Results (10-K)
Cubic Corporation is the parent company of two major business segments: defense and transportation. The Cubic Defense Applications group is a world leader in realistic combat training systems, mission support services and defense electronics. Cubic Transportation Systems designs and manufactures automatic fare collection systems for public transit authorities. Cubic Transportation Systems designs, manufactures and integrates automatic fare collection systems for public transit projects throughout the world. This includes rail, bus and parking lot systems. The company supplies contactless smart cards; magnetic stripe cards; device software; and transit hardware including gates, ticket machines and card readers. Cubic Defense Applications provides realistic live combat training systems for military forces as well as virtual training systems, constructive simulation support, force modernization, battle command training and education and engineering & technical support. Cubic Corp has a market cap of $1.02 billion; its shares were traded at around $38.03 with a P/E ratio of 18.5 and P/S ratio of 1.1. The dividend yield of Cubic Corp stocks is 0.5%. Cubic Corp had an annual average earning growth of 16.9% over the past 10 years. Highlight of Business Operations: Funded sales backlog of our MSS segment at September 30, 2009 was $207 million compared to $181 million at September 30, 2008. Total backlog, including unfunded customer orders and options under multiyear service contracts, was $856 million at September 30, 2009 compared to $880 million at September 30, 2008. We expect that approximately $554 million of the September 30, 2009 total backlog will not be completed by September 30, 2010.
Our training business is organized into Air Combat and Ground Combat segments. In Air Combat, Cubic was the initial developer and supplier of Air Combat Maneuvering Instrumentation (ACMI) capability during the Vietnam War. The ACMI product line has progressed through several generations of technologies and capabilities. We continue to enjoy a market leadership position based on the competitive award of a 10-year, $525 million indefinite delivery/ indefinite quantity (IDIQ) contract in 2003, called P5, to provide advanced air combat training capability to the U.S. Air Force, Navy and Marine Corps. We also received a $50 million development contract in 2007 to develop an internal version of the P5 system for use on the F-35 Joint Strike Fighter. While most of the latest ACMI systems are designed to operate in a rangeless environment we continue to support a number of legacy, fixed geographic ranges. Many nations employ our ACMI systems for air to air combat training.
Funded sales backlog of CDS at September 30, 2009 was $556 million compared to $412 million at September 30, 2008. We expect that approximately $322 million of the September 30, 2009 backlog will not be completed by September 30, 2010.
Funded sales backlog of CTS at September 30, 2009 and 2008 amounted to $772 million and $481 million, respectively. As mentioned above, in November 2008, TfL awarded us a new three year contract that includes virtually all of the services currently being performed by TranSys through the major shareholders. The term of this contract is for the time period from August 2010 to August 2013, with a base value of approximately $272 million (£170 million). We expect that approximately $501 million of the September 30, 2009 backlog will not be completed by September 30, 2010.
An example of this at CDS is the recent award of a contract to provide the next generation U.S. air combat training system. Starting in 1971 Cubic developed the first generation of Air Combat Maneuvering Instrumentation system, or ACMI, for the U.S. Military for live combat training. In 2003 we were awarded the P5 $525 million ID/IQ contract to deliver the latest technology for rangeless live training to the U.S. and foreign militaries. In 2007 we were awarded a $50.3 million contract to develop the next generation of live training for the F-35 Joint Strike Fighter aircraft using embedded technology. Thus since the initial contract in 1971, we have successfully and continuously supplied the U.S. and foreign militaries with the latest in air combat training technologies.
The cost of company sponsored research and development (R&D) activities was $8.2 million, $12.2 million and $5.2 million in 2009, 2008 and 2007, respectively. We do not rely heavily on internally funded R&D, as most of our new product development occurs in conjunction with the performance of work on our contracts. The amount of contract-required product development activity was $54 million in 2009 compared to $55 million and $66 million in 2008 and 2007, respectively; however, these costs are included in cost of sales as they are directly related to contract performance.
Read the The complete ReportCUB is in the portfolios of Murray Stahl of Horizon Asset Management, Chuck Royce of ROYCE & ASSOCIATES.