Litton-TASC Eyes Broader Intelligence Role, Acquisitions

Litton-TASC Eyes broader Intelligence Role, Acquisitions<@VM>Litton-TASC Inc.

Jim Frey

By Nick Wakeman

Information assurance, intelligence work and acquisitions will be the keys to growth for Litton-TASC Inc., as the Chantilly, Va., company pursues new customers in the government marketplace.

Recent victories, such as earning a spot on the General Services Administration's engineering services schedule and an engineering management offering later this year, will help the company boost growth rates above 10 percent annually, said Jim Frey, who became president in August 1999 of the subsidiary of Litton Industries Inc., Woodland Hills, Calif.

TASC, which provides high-end engineering, information technology and management consulting services to the federal government, had about $500 million in 1999 revenue. The 3,000- plus employee company should hit that number in 2000 despite the recent sale of a unit that chipped in $40 million in revenue last year, Frey said.

Although 50 percent of TASC's revenue now comes from intelligence agencies, this area still is ripe for growth, especially among agencies such as the Central Intelligence Agency, the National Imaging and Mapping Agency and the National Security Agency, according to Frey. The National Reconnaissance Office is TASC's biggest intelligence customer.

Acquisitions also will play a role in TASC's growth strategy, but the company plans to focus on deals of less than $50 million, Frey said. TASC has not made any acquisitions since being acquired by Litton in April 1998.

"A good acquisition for us is one that is compatible with our current capabilities but opens channels into new market areas," Frey said. "We'll do smaller acquisitions that set the stage for internal growth."

During the past two years, TASC's growth rate has been in the high single digits, Frey said. But to get solid double-digit growth, "we have to grow in other federal sectors," he said.

Boosting growth also is important to TASC's parent, which has struggled recently. Litton said Feb. 7 that its second-quarter earnings would be lower than expected because of problems with two contracts in its defense electronics division.

As a result, Litton's stock dropped to $36.25 from $41.75 per share Feb. 6. Litton's stock was trading at $29.94 Feb. 29.

In addition to TASC, Litton Industries' Information Systems Group includes Litton-PRC Inc., McLean, Va., and Litton Data Systems Inc., Agoura Hills, Calif. As a group, they contributed $1.6 billion to Litton's $4.8 billion in 1999 revenue. One year earlier, these three units brought in $1.2 billion of Litton's $4.4 billion in overall revenue.

"Litton sees the Information Systems Group as its best growth business," Frey said.

"They certainly have been pursuing an expansion of that area," said Paul Nisbet, an analyst with the investment firm JSA Research of Newport, R.I. "So far it has paid off for them."

He and some other analysts said that Litton took a bigger hit than it deserved with its recent earnings warning.

"Litton is being dragged down by problems at Lockheed Martin and Raytheon," said Nisbet, citing other defense and IT contractors plagued by earnings and performance woes.

TASC, which was founded in 1966, will not move away from its intelligence roots, but it must leverage those experiences to new markets, Frey said.

By year's end, TASC plans to unveil an Integrated Systems Engineering and Management Process offering that will have a catchier brand name at the time of the release, Frey said.

"We are taking all that we have learned in our management of programs around the country, and building a process for managing complex programs from their inception to their deployment," he said.

The offering will have tools and processes for concept development, requirements allocation, requirements development, management of costs and schedules and verification of systems, he said. The tools and process will be Web-enabled.

The GSA engineering services schedule, which was awarded in November 1999 and could be worth more than $100 million over five years to TASC, also will be a key vehicle for selling TASC's capabilities to new customers, Frey said.

"That contract is going to allow us to sell the services we provide our core customers to a far broader array of customers," he said. "It is a contract vehicle that lets new customers get to us and engage our services."

Before GSA began the engineering services schedule in the fall, agencies had to go through a long procurement cycle even for simple tasks. "This vehicle streamlines the process," Frey said. The GSA schedule will help broaden TASC's base among the intelligence agencies and win defense and civilian customers, he said.

Today, TASC has 28 initiatives under review, but "not all of those will pass muster," Frey said. Among the more promising ones are initiatives in information assurance, boosting business with the National Security Agency and bringing more Web-based applications to intelligence agencies, such as the National Imaging and Mapping Agency and the National Reconnaissance Office.

TASC also is on a team led by TRW Inc. of Cleveland that is chasing a $500 million Air Force Distributed Mission Training (DMT) Operations and Integration Program. The contract, expected to be awarded in April, would create a network of flight simulators that would allow pilots in different locations to fly training missions together.

CACI International Inc. of Arlington, Va., Computer Sciences Corp. of El Segundo, Calif., and Science Applications International Corp. of San Diego also are leading teams vying for that effort.

"We are bringing some of our unique technology to manage complex data over distributed networks and applying that to the DMT program," Frey said.

TASC also is keeping an eye out for technologies developed for government customers that have commercial applications, Frey said.

In February, TASC sold its commercial weather information division, Weather Services International, to Landmark Communications Corp. of Norfolk, Va., for $120 million. That unit got its start from weather work TASC was doing for intelligence agencies.

"We think we have developed a model that will allow us to incubate and spin off viable commercial businesses," Frey said.

Under consideration are commercial applications for TASC's information assurance capabilities and partnering with NIMA to distribute maps and other geographical data to commercial users via the Internet.

The commercial spinoff model has worked well for other defense companies, especially Titan Corp. of San Diego, according to Thomas Meagher, vice president of equity research for the investment banking firm BB&T Scott and Stringfellow in Vienna, Va.

Titan has parlayed technology developed for the military into a promising food pasteurization business. Subsidiary of Litton Industries Inc.

Location: Chantilly, Va.

Business: Systems engineering,
systems integration and
management consulting, mostly
for intelligence agencies

Founded: 1966

Employees: 3,000

1999 Revenue: $500 million

Web Site:

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