Question: How does ITT practice social responsibility?
Steve Loranger: Our vision is that we do essential things in extraordinary ways. So not only do we work on mission critical and enduring needs that the world’s population needs, whether it is, you know, safety, fresh water, returning home in a reliable way. But we do so by having the right value structure. So when we are describing to our employees the kind of culture that we want and the kind of environment, we have elevated corporate responsibility, social responsibility, good citizenship, and environmental stewardship as a central strategy that is as important as value creation from an economic sense. So, absolutely. When we’re talking about getting into new businesses, we’re always thinking about how can we can migrate the portfolio into more valuable areas of environment and social responsibility. We think this is an important dimension of the advancement of human society, but it’s also an important recognition of the role of corporations. And it’s not only something that’s essential for society but it makes employees feel good.
We drive for innovation. And the way we do that is we, first and foremost, listen to our customers. We’re trying to meet their needs. And we do know that energy efficiency, an environmental responsibility is growing in a very big way, particularly in the world of water. So when you think about how you drive innovation, you drive innovation with inspired employees who feel good about what they’re doing and they feel good about the environment that they’re in. So if we can create a positive feeling with our employees because of our social responsibility, that, in and of itself, is an enabler to innovation and customer satisfaction. And so, our vision of creating economic value with the right values is a symbiotic vision. And it’s one that we find is really inspirational for our employees.
Question: Is defense contracting about creating new technology or protecting military personnel?
Steve Loranger: It’s both. We tend to operate in two dimensions in the defense industry. First, we are a high technology supplier of electronics. And these are in areas such as night vision, electronic warfare, cyber warfare, intelligent systems, and tactical communication systems. So most of those are equipment based. We also have an advanced engineering and systems component that is servicing the troops around the world. And think about that as an engineering and system support. And it’s highly tied to personnel.
Question: How has ITT evolved with the American military?
Steve Loranger: When we’ve looked for years, in the past few years, thinking about where can we migrate our defense portfolio into those areas that are more valuable. Not surprisingly, we’ve migrated into areas that are around projecting our troops, projecting capability in the isometric threat, which is, essentially, the global war on terrorism and to project our capability in areas where we think is going to be more vital, information technology, sensing technology. Even though we certainly have a need for, you know, strategy bombers and large scale equipment that sort of fought the years, fought the wars of the past, the fact is that in this world, information technology is everything. And so, we’ve been migrating our portfolio into the areas that I’ve mentioned. Secretary Gates’ announcement of rebalancing the mix of defense priorities, essentially, plays into our hand. Because we do participate in those areas that we think are more vital to defending freedom in the future than in the past. And so, as a consequence, this rebalancing is going to be somewhere between a neutral to, hopefully, a slight positive for us.
Question: What is ITT’s role in Afghanistan?
Steve Loranger: Well, in Afghanistan, let me stand, let me step back and talk a little bit about supported troops. We do have a number of US contracts where we support troops both from the communication systems and operations and maintenance of some of the vehicles. As an example, today in Iraq, we do manage all of the communication capabilities for the US army, in fact, not only in Iraq but at the entire Southwest Asia, including Afghanistan. So as the conflict maybe moving into Afghanistan, we would expect to increase our participation. ITT today has several thousand employees in the Middle East, operating under contract for communications and operations and maintenance support for the US military. And we’re going to see some migration into Afghanistan as the troops increase. Additionally, we also have contracts to build new US military installations. And as the US military is going to be expanding their footprint in Afghanistan, we would expect to be doing some work related to construction and installation of new US facilities.
Question: How are you reacting to a shrinking military budget?
Steve Loranger: There’s no question that the defense industry has, historically, had cycles of spending. Not always tied to economics cycles but if you look at conflict cycles and whatnot, you see an up and down from World War II, Vietnam, correction, Korea, Vietnam, the Reagan buildup, and then, most recently, in the Middle East. So, I think, we agree with your premise that, over time, we could be going into a defense cycle that would be going down rather than up as it has for the last decade. But a couple of things change and I think this really, it really highlights why this strategy, according to Secretary Gates, is so important to us. First and foremost, we want to be in those areas that are most essential. You know, I mentioned that. But additionally, we also want to be able to have the capacity to use our technologies in a much, much broader area. And so, I’m pleased to say that we’re now working on contracts with the FAA, the Department of Energy, NASA, and many other… Department of Homeland Security, and many other organizations that are non-military related. So our job is to make sure that we are continuing to migrate our technologies in areas that are most valuable from a business standpoint and, also, in those areas where we can parlay breadth across new customers to maintain an overall defense or defense related technology growth in our business.
Question: What does ITT do to protect military secrets?
Steve Loranger: Well, this is central to doing business with the Department of Defense. As you can imagine, we do have a lot of classified contracts based on the kind of things that I’m talking about. And so, information security is in the front of our minds. We obviously have a significant amount of government required protection and information security and that’s both physical and cyber. But it’s an area that we are always working on to make sure that we are compliant with all the regulations around classified material but also the regulations around the export in terms of the ITARs and customs regulations as well. So all I can say, as like all other defense contractors, we work extremely hard in ensuring that we don’t ever compromise those technologies which are vital to our nation’s success.
Recorded on: May 13, 2009