Cubic stays on independent course

Back in 1959, the electronic and aerospace industry in San Diego was dominated by giant General Dynamics. That year a small “black box” manufacturer took the leap to go public.

Walter J. Zable and a small group of talented engineers started in a Point Loma garage, moved to small quarters in Roseville in 1951, and then expanded to a lonely shop on a country road called Kearny Villa.

Thus began an evolution into a major defense contractor and a specialist in automated transportation tracking equipment called Cubic Corp.

Walter J. Zable died in June 2012 at age 97 after 60 years of absolute control of his company that had grown to annual sales of $1.38 billion. I was there in 1959 when the fledging company sold its first stock to the public and became a legendary home-grown industry that was never gobbled up by a bigger fish.

The stock offering was $1.2 million priced at $12 a share. It was my first initial public offering audit to be filed with the Securities and Exchange Commission. Start-up companies offering stock 54 years ago in San Diego were rare.

In contrast, the stock market today is rife with IPOs, about 59 in the U.S. so far this year. Two of those with San Diego links were high profile — SeaWorld (NYSE: SEAS) and Receptos (Nasdaq: RCPT). Cubic traded early on the American Stock Exchange, before Nasdaq, and was listed on the New York Stock Exchange in 2009.

Now for the first time, control of the company will probably pass from the Zable family after the sale of stock to settle estate taxes. The founder’s holdings through various trusts amounted to 40 percent, but that was enough to call the shots in company management. The sales of an estimated $125 million of Zable stock will reduce the family stake by about 3 million shares, based on current market value.

With this potential major shift in management and control of Cubic Corp. in mind, I attended the April annual shareholders’ meeting to learn what the company has in mind for the future. It was the first meeting without Walter J.’s imposing presence.

There wasn’t much disclosed about the future control of the company. Officers and board members remain the same, led by Chairman Walter C. Zable, the founder’s son.

The PowerPoint charts showed remarkable growth over the last five years. Optimism in Cubic’s transportation system sales and advanced training for pilot technology seemed to offset concerns about cutbacks in military spending.

Investment by a larger firm looking for a gateway into Cubic’s niche industry will bring more of a Wall Street image to the company, something Walter J. Zable never welcomed, local financial scribes noted. The company has been a target for big defense contractors for years, but the store was not for sale as long as Zable was in charge.

Cubic was run in such a conservative style that it was recently necessary to amend three years of prior SEC filings to restate higher earnings. With the pending defense spending cuts in the federal budget, Cubic offers a more diversified future in its niche business that shows a current backlog of $3.1 billion.

Some of Cubic’s products include mass-transit ticketing and fare collection systems, electronic sports scoreboards and missile tracking antennas. Another key contract providing 90 percent market share is the “Top Gun” air combat training system developed by the company and continually expanding.

Financial analysts speculate on the future of the home-grown company with a diversified product market doing business with the U.S. government and global public agencies. Some consider the company to be worth more if valued as the sum of its parts.

That might attract a corporate raider or a private-equity firm looking for a quick turnaround profit by breaking up the company. The veteran management team — supported by a loyal core of local stockholders, including many retired employees — will probable resist any hot-shot takeover bid.

Examples of Cubic’s diversity include cybersecurity appliances for government programs under its own brand name. An expanded office in Hyderabad, India, to support Cubic’s growing transportation system contracts for that nation. New York Metropolitan Transportation Authority has a $27 million contract to integrate bus schedules with Internet browsers on a GPS-based platform.

Cybersecurity is a good place to be with the current outbreak of foreign hacking of U.S. government and military computer systems. The Associated Press reports that China is using its cybercapabilities to collect intelligence on U.S. diplomatic, economic and defense programs.

A Cubic Corp. brochure features the company’s solutions to provide cybersecurity. Not long ago, the threat from cyberattacks was widely acknowledged but not talked about publicly, the report admits.

However, cyberthreats by the numbers reveal 5.5 billion attacks were blocked in 2011, an 81 percent increase over 2010. Yet 1.1 million systems were compromised in 2011.

With such diversity, the company may not be endangered by military cuts under the sequester and can remain independent.

Ford is a freelance writer in San Diego. He can be reached at

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