Kodak Acquisition Paying Off for ITT

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Based on the early returns he is seeing from the company’s acquisition of Eastman Kodak’s remote sensing unit, ITT’s top executive is counting on strong revenue growth in his space business for the next several years.

That deal, which was completed in August, created a space manufacturing unit at ITT that now provides a wide array of satellite payloads and image-processing systems for the U.S. government’s national security and science programs.

“ITT wants to play in attractive markets, and we think space is a very attractive market. We like the space business and the growth platform we have today,” said Steve Loranger, ITT’s chairman, president and chief executive officer.

The combined space business, dubbed the Space Systems Division, accounted for about $750 million in revenue in 2004, not including space-related revenue from ITT’s switching business.

“The primary purpose of the acquisition was to grow,” Loranger said April 7 during an interview at the 21st National Space Symposium in Colorado Springs, Colo. “We can commit to 7 to 8 percent growth over the next several years and we plan to do better.”

The space business, part of the Defense Electronics & Services group, now accounts for about 12 percent of ITT’s overall revenue. In 2004, ITT, headquartered in White Plains, N.Y., reported total revenue of $6.8 billion, up from $5.6 billion in 2003.

“The pieces of space that we play in are becoming more important, such as battlefield awareness and environmental monitoring,” Loranger said. “We think those are attractive areas of growth. There are also other programs we are on that have long lifecycles, so we see an opportunity to perform upgrades.”

The expansion of its space business has made ITT one of the major subcontractors to space industry primes such as Boeing, Lockheed Martin and Northrop Grumman, and ITT hopes to expand that role, Loranger said.

There also are opportunities to expand ITT’s role on the defense side by integrating the space capabilities with other ITT strengths such as radio frequency technology, Loranger said.

“There are opportunities for us to think more broadly by connecting defense with space,” he said. “It may be a long way out, but it’s there.”

Brian Langenberg, the principal of Langenberg & Company LLC of Oak Park, Ill., said in an interview that he was less than enthusiastic about the acquisition when it was announced in February 2004 but has become more receptive of the combination, especially following ITT’s win of a $359 million contract from NASA to build the primary imaging sensor for the Geostationary Operational Environmental Satellite (GOES) R series of weather forecasting spacecraft.

The “contract win highlights ITT’s strengthened position in remote sensing, which was bolstered by the acquisition of Eastman Kodak’s business,” Langenberg said in a September note to investors.

The increased capability in the imaging area also should allow ITT to play a larger role in the information processing side of the satellite imagery business, Loranger said. “We play a substantial role in information processing and that could give us a great opportunity for commercial applications,” he said. “We don’t want to supply information directly to users, but we could supply it to third parties for resale.”

While ITT is content to focus on organic growth for now, the success of the Kodak acquisition could lead to future space acquisitions, but ones that fit in well with ITT’s core space capabilities, Loranger said.