Cubic’s Chairman Expects ‘Good Year’ for S.D. Company

Despite the recession, a new construction slowdown and further Defense Department spending cuts, Cubic Corp. should enjoy a “pretty darn good year” in 1991, Cubic Chairman and founder Walter J. Zable said at the company’s annual shareholders meeting Tuesday.

Zable cautioned that San Diego-based Cubic probably won’t report a third consecutive year of record-breaking profits and revenues. But he told about 100 shareholders that he remains optimistic for the year, partly because Cubic could snare a $100-million contract to install fare-collection turnstiles for the New York City subway system.

Cubic’s optimism comes despite the expectation that its Defense Systems subsidiary faces declining profit margins and increased competition during coming years as Department of Defense spending shrinks, Cubic Vice President and Treasurer William W. Boyle said Tuesday. The subsidiary has long generated more than half of Cubic’s net profit and revenue.

Moreover, Cubic’s U.S. Elevator subsidiary also faces tougher times given the construction slowdown and the resulting decline in demand for new elevator systems. However, Boyle said the elevator unit has “repositioned” itself so that 70% of its revenue is generated by maintenance and service contracts on existing elevators, Boyle said. In the past, U.S. Elevator relied mainly upon new construction for revenue.

At Tuesday’s meeting, Cubic announced it is raising its semiannual cash dividend to $.265 per share, up from $.24. Nevertheless, Cubic’s stock closed down $.25 at $20 Tuesday in light trading on the American Stock Exchange.

Zable told shareholders gathered at a Mission Valley hotel that Cubic expects a solid year from its Automatic Revenue Collection subsidiary, which manufactures fare collection devices for transit systems and toll roads. The subsidiary recently won a $40-million contract to install a subway system in Australia and recently was the low bidder on a $42-million contract to install fare-collection devices along the Florida Turnpike.

But Cubic is also fighting hard for a $100-million bid to revamp the subway fare-collection system operated by the New York City Transit Authority. That contract probably will be awarded during March, according to Raymond L. deKozan, chief executive of Cubic’s revenue collection subsidiary.

Cubic is one of two bidders for the New York City subway contract. The other bid was made by a consortium led by Alta Technology, a French company. New York’s transit authority, which operates the nation’s largest subway system, last upgraded its turnstiles during the 1930s and 1940s.

Tuesday’s annual meeting was the first since 1988 not to include at least a reference to the company’s involvement in the federal government’s continuing investigation into defense procurement fraud.

Cubic became involved in the “Ill Wind” investigation during the summer of 1988 when agents from the FBI and the Naval Investigative Service searched the offices of former Cubic executive C.C. (Sam) Wellborn.

Wellborn, who subsequently resigned, eventually pleaded guilty to fraud charges. Cubic Defense Systems also pleaded guilty to conspiring to bribe a Pentagon official. Federal investigators subsequently closed their investigation into wrongdoing at Cubic.

The company now is awaiting word on whether it will be banned from seeking Department of Defense contracts because of the Ill Wind investigation. Cubic executives have maintained that Cubic is unlikely to be banned from seeking contracts because the company has established safeguards designed to short-circuit procurement problems.

Zable on Tuesday told shareholders that the company’s line of defense products has proven worthy in the Persian Gulf War.

Zable linked the rescue of a U.S. flier who went down behind enemy lines last week to a Cubic-manufactured homing device that alerts friendly forces to a downed pilot’s location. The classified device, Zable said, emits an emergency signal that helicopter pilots use to hone in on the pilot.

Cubic also is a subcontractor in the “Joint Stars” aerial warning program that uses a complex blend of radars and communications devices to pinpoint the location of enemy ground forces.

The Joint Stars program, which is still in development, was rushed into service because military leaders believed that the program would help ground forces contend with Iraq’s widely dispersed army.

Zable noted that most of the nation’s military pilots have used Cubic-designed and manufactured training systems that simulate battle conditions likely to be found in the Gulf.

Zable, 75, who owns 2.4 million, or 37.3%, of Cubic’s outstanding shares, said Tuesday that he has no plans to retire from the company that he founded in 1951.

Cubic reported a record $23 million in net income and $352 million in revenue for the fiscal year ended Sept. 30, 1990. That compared to $21 million in net income and $349 million in revenue during the previous fiscal year.