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As Defense Cuts Loom, Exelis CEO Says Dividend Is Safe

Stocks in this article: XLS

NEW YORK ( TheStreet) -- Dave Melcher, Exelis was spun off from ITT about a year ago. Over the past year how has the company evolved as an independent company outside of the conglomerate ITT?

Dave Melcher:
We were spun off in October of 2011. We've had a pretty good first year as a defense and aerospace company in what, as you know, Gregg, is a pretty tough industry these days. We've brought a lot of good products to market, a lot of good capabilities for our customers and so far so good.

Gregg Greenberg:
Exelis stock has however remained range bound over the past year. A lot of that is over worries about defense spending cuts. How will that affect your business?

Dave Melcher:
Well, the defense sequestration, which is the current issue that congress and the administration are haggling over, does have a potentially huge impact if enacted on January second. I think all defense CEO's are a little worried about sequestration and all are planning into their guidance for next year what the potential impact of it could be.

Gregg Greenberg:
What about your nonmilitary business, how much of a backlog do you have there?

Dave Melcher:
Actually, we have a pretty good backlog in non DOD business. About thirty percent of our total revenues come from other governmental like the FAA air traffic management program. We run NASA's communications networks and we have about five percent of our revenues from commercial business.

Gregg Greenberg:
You also have a pretty nice dividend. It's about four percent. Do you plan to keep it the same or with these defense spending cuts looming maybe adjust it a little bit? What are you going to do with the dividend?

Dave Melcher:
We really think we're going to hold the dividend. We came into the marketplace with the intent to have a good dividend. Our shareholder base has continued to evolve as you might expect in the first year as a new company. We have a few more income investors, a few more value investors that are a part of that tribe that invest in Exelis so we're going to hold the dividend.

Gregg Greenberg:
Now you spent over three decades in the military before becoming the head of Exelis. From what you know about the military and military spending, which parts of Exelis business - your military business, is the right thing for the Defense Department in your view? What do you think they will hold on to because it's just too vital to cut it out?

Dave Melcher:
Well, we think we're very well aligned with the priorities that have been established by Secretary Panetta going forward even despite these defense cuts. Those include electronic warfare. They include capabilities that support greater emphasis on the Pacific Theater so shipboard capabilities, electronic warfare pods on aircrafts, night vision is still a very important capability going forward. Of course the space payload business that we have that brings imagery and intelligence information to the war fighters. All those are consistent with the Department's priorities. Those are core competencies for us.

Gregg Greenberg:
If Governor Romney wins the election, do you think that the priorities would change under his administration?

Dave Melcher:
I think the priorities pretty much come from the Department of Defense and the uniform leadership and the Secretary of Defense. I think the priorities will remain the same. The spending levels could be a little bit different.

Gregg Greenberg:
Thanks a lot.

Dave Melcher:
Thank you very much, Gregg.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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