ITT Corp. looks across the oceans for growth

ITT by the numbers

ITT Corp.

Based: White Plains, N.Y.

Chairman, pesident and CEO: Steve Loranger

URL: www.itt.com

Employees: 45,000

2005 revenue: $7.4 billion

2005 net earnings: $359.5 million

Top 100 ranking: 16


ITT Defense Electronics & Services

Based: McLean, Va.

President: Steven Gaffney

Employees: 15,000

Revenue: $3.2 billion

"[ITT's] job is to figure out with them, where and what capabilities are needed tomorrow, and focus our resources on not what we have today so much, but where we need to be tomorrow in support of the global war on terror," Steven Gaffney said.

Rick Steele

New and expanded international offices are only one element in ITT Corp.'s strategy to capture more business overseas, company officials said.

The war on terrorism and plans laid out in the Defense Quadrennial Review are among the major drivers of ITT's initiatives, said Steven Gaffney, corporate vice president and president of the company's defense electronics and services segment.

"Our job is to figure out with them, where and what capabilities are needed tomorrow, and focus our resources on not what we have today so much, but where we need to be tomorrow in support of the global war on terror," he said.

ITT's defense sector constitutes 43 percent of the company's business. ITT has opened new offices in Korea and Warsaw, Poland, and expansions are under way in Dubai and the United Kingdom, he said. Another office has been moved from Australia to Singapore.

ITT's defense sector is also eight months into a restructuring set for completion by year's end, Gaffney said. By merging its Gilfillan radar group in Van Nuys, Calif., with its avionics division in Clifton, N.J., to create an electronic systems group, the defense sector reduced from seven to six the number of its divisions.

This restructuring will help the defense sector reach between 6 percent and 9 percent annual growth from 2006 to 2009, Gaffney told Washington Technology in his first interview since becoming president of the company's defense electronics and services segment in October. The corporation expects annual overall growth of 7 percent to 9 percent during this time.

Headquartered in McLean, Va., ITT's defense segment employs about 15,000 of the company's 41,000 workers, and brought in $3.2 billion in revenue in 2005. This year, it expects to bring in almost $3.7 billion, with 40 percent from services and the rest product-based. Gaffney's sector is one of ITT's four management organizations. The other three are fluid technology, motion and flow control, and electronic components.

About 7,000 of the defense sector's employees work outside the United States on American contracts. The split of domestic work and international work is about 95 percent to 5 percent, Gaffney said, adding that he would like to see the international work grow over the next three years to comprise 20 percent.

The company's defense services, including operations and management for communications and other technical and support services, are primarily what take them overseas, Gaffney said. ITT has a large group of employees in the Middle East supporting the global war on terrorism and is probably the Army's main communications operations and management support provider for the Army Network Enterprise Technology Command/9th Army Signal command, he said.

Nigel Coe, a research analyst at Deutsche Bank Securities Inc. in New York, wrote in a July 31 report that he was concerned that recent volatility in Defense Department orders could slow down ITT's top line growth in 2007.

Spending concerns

But not all industry analysts agree. "We believe concerns over exposure to defense spending could be exaggerated," Nicole Parent, a research analyst at Credit Suisse Securities LLC in New York, wrote in a July 31 report on ITT. The company's defense business likely will remain strong for the next two to three years, even with possible cuts in defense spending and an Iraq pullout, she said.

Despite the anticipated downturn in the U.S. defense market in the coming years, ITT's defense sector continues to turn in double-digit growth. In the second quarter of 2006, it had 18 percent revenue growth, all organic. ITT expects total defense revenue growth of 14 percent to 15 percent for 2006.

The defense segment is also considering combining the company's products from different divisions into more comprehensive groups, all part of Gaffney's "One Team, One Mission" approach. For example, ITT is considering how to use its radar and communications linking capabilities from its communications business to produce a total systems solution for soldiers, he said.

It also is considering how to combine the visual information from its night vision devices used on battlefields with networking capabilities from its tactical communications product line to transmit the information to command operations centers, Gaffney said.

The defense sector's growth will come from a combination of organic growth and acquisitions to gain capabilities it would take too long to develop organically, said Gaffney, who has been with ITT since 1998. So far though, the defense sector has relied on organic growth augmented by a few acquisitions over the past years.

"Those companies that grow from the core are pretty much the most successful companies," Gaffney said. "We want to do that."

ITT's defense business is a prime contractor on about 73 percent of its business and has an even split between cost-plus awards and fixed-price contracts. ITT is No. 16 on Washington Technology's Top 100 list with nearly $865.4 million in 2005 prime contracting revenue.

"Sometimes we're prime to the U.S. government ? but at the same time we still like to be considered the go-to provider for systems and services" for companies like Boeing Co., Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co., Gaffney said.

In August, ITT won a $152 million Army contract to support communications systems, including the Global Information Grid and the Defense Red Switch Network in Europe.

In March, the company won a $407 million order from the Army's Communications Electronics Command for a Single Channel Ground and Airborne Radio
Systems, used for battlefield communications.

But Gaffney was mum on the subject of contracts that ITT's defense sector is going after.

"There's a strategy: Don't let them see you coming," he said.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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