Archive for December, 2010

Raytheon To Acquire Applied Signal

December 21, 2010

Defense player, Raytheon Company (RTNAnalyst Report) has entered into an agreement to acquire a major provider of communications signals, Applied Signal Technology Inc. (APSGSnapshot Report). The agreement has been approved by the boards of directors of both the companies.

Under the terms of the agreement, Raytheon will commence a tender offer to purchase all of the outstanding shares of Applied Signal Technology common stock. The deal was fixed at a price of $38 per share in cash and an aggregate purchase price of approximately $490 million. Raytheon expects to close the transaction in the first quarter of 2011.

Applied Signal’s tactical signals and communications intelligence systems, data fusion and information operations/information assurance products, is a very good strategic fit with Raytheon’s sensor technology, program management, mission support and system integration capabilities.

The acquisition will boost the intelligence, surveillance and reconnaissance (ISR) of the company. Following successful completion of the transaction, Applied Signal will be integrated into Raytheon’s Space and Airborne Systems (SAS) business.

Raytheon’s order backlog is quite diversified, consisting of more than 15,000 contracts. A diversified revenue base hedges Raytheon against cancellation, curtailment or deferment of programs. Raytheon ended the third quarter 2010 with an order backlog of approximately $35.7 billion.

Raytheon‘s strong balance sheet provides financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. As of September 26, 2010, with a low long-term debt-to-capitalization of 18.5% (Zacks industry average was 92.2%); total debt was $2.3 billion along with cash holdings of $2.1 billion and a credit facility close to $1.5 billion.

Also, total debt was in the form of fixed rate instruments with coupon rates ranging from 4.4% to 7.2%. During fiscal 2009, the company repurchased 25.8 million shares for $1.2 billion. As of now, a repurchase authorization of $1.7 billion worth of shares is pending.

Raytheon is slated to release its fourth quarter results of fiscal 2010 on January 24, 2011. The Zacks Consensus Estimate for the quarter is currently $1.15, lower than the year-ago quarterly earnings of $1.29.

We continue to view Raytheon as one of the best positioned companies among the large-cap defense primes due to its non-platform-centric focus, strong order bookings and order backlog, healthy cash flow generation and focus on shareholder value. Its prime competitors are FLIR Systems Inc. (FLIRAnalyst Report), and Herley Industries Inc. (HRLYSnapshot Report).

However in the near-term, we do not expect any upside since we feel all these positives have been factored in the current market price of the Raytheon stock. Thus we maintain our ‘Neutral’ recommendation on the Zacks #3 Rank (hold) stock.

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Pyxis> AST, Seismic > AST, AST > Raytheon.

WikiLeaks Documents Place Firms In Classified Jeopardy – Darkreading

December 17, 2010
Following WikiLeaks’ massive leak of diplomatic memos from the U.S. State Department, the Office of Management and Budget warned federal agencies earlier this month that access to classified documents, even leaked documents, violates U.S. policy and, likely, federal law.

The warning worried federal contractors, who stand to lose contracts if employees read any classified documents. As a result, security firms that focus on network-event analysis, content inspection, and data analysis saw a spike in requests to block the WikiLeaks documents, says Kurt Bertone, vice president of strategic alliances for Fidelis Security Systems.

“We are getting a lot of calls from our existing customers,” Bertone says. “They are really afraid of consuming information made public by WikiLeaks.”

In late November, WikiLeaks released nearly 250,000 confidential American diplomatic cables, exposing U.S. thoughts on the eventual collapse of North Korea, corruption in the Afghan government, and cyberattacks from China, among other topics.

The federal government told companies doing business with the United States — as well as students hoping to one day work in the government — that they should keep their eyeballs to themselves. Columbia University’s School of International and Public Affairs, for example, warned students not to post comments about the documents on social networks.

“Federal agencies collectively, and each federal employee and contractor individually, are obligated to protect classified information pursuant to all applicable laws, as well as to protect the integrity of government information technology systems,” reads a memo to federal agencies from the Office of Management and Budget.

The same applies for employees of federal contractors. Firms must have systems in place to limit employees’ access to the documents, says Marc Maiffret, CTO for eEye Digital Security.

“It is a good reminder of the need to be able to control content coming in and out of a business,” Maiffret says. “There are too many businesses which still manage their security in such an open way there is not much difference in what users can do at work versus on their own time at home. That is not good for business or security.”

In many cases, however, network analysis and content inspection equipment can be just as big a danger, Fidelis’ Bertone says.

“If you have a forensics system that records all information coming in before analyzing it, you could be polluting the system with classified data,” he says. “These agencies are really, really concerned about that — so much so that some of them are turning off their forensics systems because of it.”

Companies need to ensure their forensics systems and network monitoring systems are blocking classified documents before caching them, Bertone says. Only the metadata describing the document should be stored.

“You can store metadata that describes the cable and not capture the content,” Bertone says. “We can analyze it and then decide what to store.”

Content filtering solutions also can be configured to block out WikiLeaks documents and not be polluted by the content, eEye’s Maiffret says.

“There are ways to configure content filtering solutions where they can be blocking based on given keywords and types of data while not logging or storing the content that is being blocked,” he says. “This is a very standard option, and usually default setting, of most content filtering type of devices.”

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