Industry Week in Review – May 24, 2013
Over the past week, the Department of Defense (“DoD”) released an addendum to its initial budget request that incorporates updates to the Overseas Contingency Operations (“OCO”) request, which funds military operations in Afghanistan and other activities that primarily support Operation Enduring Freedom. The amendment to the FY 2014 Presidential budget includes $79.4 billion for OCO support, a decline from the initial request’s placeholder of $88.0 billion. Noted in the addendum, the President intends to draw down U.S. forces in Afghanistan to 34,000 by February 2014, a reduction in overall force of about 39%. The President is also seeking to have all troops out of Afghanistan by December 2014 as the U.S. moves into a support role and Afghan forces take the lead. To this end, OCO-funded activities in the addendum include training Afghan instructors, as well as sustaining and equipping a 352,000 person Afghan National Security Force. Although the number of U.S. combat troops in Afghanistan will decline over 2014, military operations in support of the transition to full Afghan responsibility will “continue at a high pace” and certain costs such as Intelligence, Surveillance, and Reconnaissance will grow or remain flat. Furthermore, increased spending is expected for transportation of ships and cargo containers of equipment back to home stations as well as the repair and replacement of equipment and munitions.
Big Movers
Booz Allen Hamilton (Up 12.9%) – Shares were up this week after the company announced that its fiscal fourth-quarter net income rose 8%, helped by lower compensation and infrastructure costs. Revenue remained relatively flat at $1.55 billion, a 0.3% increase over the previous quarter.
OSI Systems, Inc. (Down 12.8%) – Shares are down this week after the company announced that it expects to receive a debarment notice from the Department of Homeland Security related to a long-running controversy with its airport scanner software. In January of this year, the Transportation Security Administration ended its contract with Rapiscan, OSI’s security division, for its full-body scanner machines, which many complained were too revealing.
Relevant Transactions
Air Comm Corporation acquired Meggitt Addison, a manufacturer of air conditioning systems used by military and civil rotorcraft, as well as general aviation fixed wing aircraft. The company, formerly known as Keith Products, also fabricates plastic parts and manufactures hose assemblies. Terms of the deal were not disclosed.
