Cubic's products and services fit in squarely with the global defense and transportation industries. With business divided into three main segments, it provides mission support services, which include actual combat rehearsal exercises prior to deployment, to national militaries and US security forces and their allies. It manufactures air and ground combat instrumentation systems for live and virtual training, as well as communications, global asset tracking, and cyber security equipment for the defense market. Thirdly, it provides automated fare collection (AFC) management systems and services for mass transit (including bus, light rail, ferry, and parking) worldwide.
Mission support services (MSS), 37% of sales, operates from more than 130 sites in 20+ nations and provides services for three of the Army's Combat Training Centers, the Joint Coalition Warfare Center, and the Korea Battle Simulation Center. The segment has driven all Marine Corps simulation-based exercises since 1998. Cubic transportation systems (CTS, 32% of sales) has worked on more than 400 projects in 40 major markets, including the US, Canada, Australia, Germany, Sweden, the UK. The segment's services include system design, central computer systems, equipment design, software development, and retail point of sale network management.
Defense systems, 31% of sales, is divided into training systems, communications, global asset tracking, and cyber security. Training systems is divided into air combat and ground combat groups. Communications provides Common Data Link (CDL) products for ships, unmanned aerial vehicles, and remote video terminals. Global asset tracking is focused on the US Department of Defense (DoD) supply chain. Cyber security is built on the recent acquisitions of Safe Harbor Holdings and Abraxas. The segment maintains market leadership under a 10-year, $525 million competitive contract awarded in 2003 to provide an advanced air combat training system called P5 to the US Air Force, US Navy, and Marine Corps. More than half of Cubic's total business is conducted with various agencies of the US government. The remainder of its revenue comes from local, regional, and foreign governments and agencies.
Sales grew 8% in 2011 vs. 2010. Organic growth accounted for 50% of the company's revenue uptick while the rest was the result of the 2010 acquisition of Abraxas. Net income attributable to Cubic weighed in at $84.8 million in 2011 compared to $70.6 million in 2010. The improvement is the result of a jump in operating income, as well as a lower tax rate and a favorable currency exchange rate between the dollar and the pound.
By segment, MSS sales headed up 7% in 2011 compared to 2010 thanks to the contribution of newly acquired Abraxas, a contract for homeland security, and flight simulators. CTS sales rose 8% in 2011 vs. 2010 due to strong demand in Europe and Australia. More specifically, a contract with Transport for London (TfL) and contracts with Sydney and Brisbane, Australia, as well as a new contract with Vancouver, Canada, contributed to the increase.
In the defense systems segment, training systems sales surged 14% in 2011 compared with 2010 as a result of more demand for air combat training in the US and Far East, ground combat training in the UK, and Multiple Integrated Laser Engagement Simulation equipment. Communications fell 33% however due in part to lower demand for data links and power amplifiers. The two other groups in the segment, global asset tracking and cyber security, were recently added as the result of acquisitions. The company invested in developing and marketing these groups' products.
Cubic's strategy for growth includes leveraging long-term relationships. The company's CTS segment already has a strong track record for long-term relationships, starting in 1978, when the company began a trial of magnetic ticketing and gating for TfL and has serviced the company with fare collection equipment and systems ever since.
Expanding services is another part of the company's strategy. Counting 52% of its sales from services, the company has positioned CTS to offer more services to meet the growing technical complexities of electronic fare collection systems. MSS is also developing new services to meet the demands of additional work for its US Air Force Research Laboratories contract and a new contract with the US Army Training and Doctrine Command Future Warfare Studies Program.
Another prong in Cubic's general strategy is diversifying business. Relying directly and indirectly on the US government for 56% sales, the company notes that this government business fulfills needs for a wide variety of government agencies. The company aims to maintain the diverse mix of business attendant on serving a variety of customer needs.
Growing internationally is another goal. The CTS segment recently expanded in Australia through a contract for Sydney's Electronic Ticketing System. The defense systems segment received a contract to supply the Saudi Arabian National Guard with the Engagement skills Trainer.
In 2011 Cubic acquired XIO Strategies, a deal that increased Cubic's proficiency at supply chain management, especially in regard to work performed for DoD. In late 2010 the company acquired Virginia-based Abraxas Corp., a provider of national security and cyber security services. The $124 million deal bolstered the capacity of Cubic's MSS division and widened its customer base in the homeland security, law enforcement, and national security markets.
The defense systems division in 2010 acquired Safe Harbor Holdings, a supplier of hardware and software for intelligence and cyber defense applications. Safe Harbor formed a new subsidiary called Cubic Cyber Solutions, which fueled Cubic's move into the cyber security marketplace. Prior to that it expanded into the global asset management market with the 2010 purchase of Impeva Labs. Now called Cubic Global Tracking Solutions, the subsidiary provides devices that monitor and track high-value assets for the DoD.