Good day and welcome to the ITT Corporation Fourth Quarter 2007 Year End Earnings Conference Call. At this time, all lines have been placed in listen-only mode. After the speakers' remarks there will be a question-and-answer period. [Operator Instructions] It is now my pleasure to turn the call over to Peter Milligan, Director of Investor Relations for ITT. Please go ahead.

Thanks Melissa. Good morning everybody and thanks to for joining us to discuss our fourth quarter and full year 2007 results. With me this morning are Chairman and CEO, Steve Loranger; and our CFO, Denise Ramos. Steve will provide some highlights of the quarter and the full year, Denise will then take us through a detailed financial review including a review of each segment. He will then update our guidance and Steve will sum up before we move to Q&A. I'd like to highlight that this morning's presentation, press release, and all non-GAAP financial measures provided during the call can be found on our website. In addition, let me remind you that our discussion this morning will contain forward-looking statements, which involve risks and uncertainties and that actual results could differ materially from projections. Please refer to our annual report on Form 10-K for a full discussion of these risks. This conference call is being webcast and a replay will be available later today on our website. With that, I'll turn things over to Steve.

Thank you, Peter. And likewise, good morning. We're, again, pleased to report a very strong fourth quarter and yet another record full year for ITT. 2007 has been another great year in the journey on our path to premier driven by a number of key strategic and operational actions. In 2007, we executed significant portfolio enhancements and made a number of important key leadership changes. We were busy executing broad-based footprint realignment and we had a continued focus on the ITT management system throughout the entire organization. These important developments position us well as we look out over the planning horizon and is going to enable our business to continue to deliver similar strong results in the future. Turning to 2007, ITT delivered mid-teens top line growth in addition to operating income and EPS growth, which both exceeded 20%. Organic revenue increased 11% during 2007, marking the fourth straight year of double-digit organic revenue growth. Our organic growth has been fueled by the leading positions we hold in attractive growth markets and the high level of end-market and geographic diversification. And the strength that we saw in 2007 across most of our end-markets and regions is expected to continue as we move through 2008. Within our commercial business, we saw 9% full-year organic sales growth. And as strong as this was orders were even stronger, growing 11% organically for the full year and giving us a solid backlog as we enter 2008. And so, while we are closely watching our leading indicators and monitoring the economic landscape, we remain very confident in the 2008 commercial forecast that we shared with you back in November. On the Defense side, our Defense business also continues to perform exceptionally well because of very strong program win rates and an excellent execution on our…

Thanks, Steve. Starting on slide two. On a consolidated basis, revenues grew 23% in the fourth quarter, 14% organically, driven by continued strength across all of our segments. Higher volumes and increased productivity across the business resulted in improvement in segment operating income. However, margin growth was constrained by the impact of acquisitions and Fx. As a result, EPS for the fourth quarter was $0.94 excluding special items. And this is slightly above the high end of our previous guidance range. In fact, when you exclude the $0.03 of dilution during the quarter from EDO, which closed in late 2007, ahead of our original expectation for an early 2008 close, we exceeded the high end of our guidance range by $0.04. This outperformance was driven by better than expected revenue in the Defense unit, stronger operational performance within Motion & Flow and lower than expected dilution connected to our IMC integration. On a full year basis, EPS grew by 24%, representing another year of very strong earnings growth. Our 2007 free cash flow was $654 million, representing 103% of our net income from continuing operations and allows us to achieve our target of 100% or greater cash flow conversion. Turning to Fluid Technology on slide three. 2007 was a year where the Fluid Technology business experienced a significant amount of strategic progress. Major improvement in the production footprint took place with the opening of four new plants, three in China, and one in Poland. We made an important strategic change by integrating AWT into the flying organization and this will allow us to better leverage our treatment business by giving it access to the flight distribution channel. And our investments in R&D produced excellent new products including outstanding submersible pump motor designs coming out of our FARADYNE joint venture. These…

Thanks, Denise. Well, as you can see, 2007 was certainly a year where ITT delivered very strong results. On 2008, there’s been a lot of discussions about an economic slowdown. And other than a few areas that Denise highlighted, we're not seeing a broad based slowdown at this point in time. However, we have spent a lot of time looking at what a slowing would mean for our business, and we have planned and forecasted accordingly. We have solid contingency plans in place, within the commercial businesses and we will react quickly if we see trends, which differ, materially from our forecast. And as Denise mentioned, we've already experienced some of the weakness in the small residential segment of Fluid Tech with submersible pumps and within the pool and spa business within Motion & Flow. But these conditions have already been factored into our forecast. So, let me reiterate a point we made in November. We operate strong businesses in attractive markets supported by long-term secular demand trend. And we have committed management teams dedicated to a culture of continuous improvement. Our commercial businesses are well positioned geographically. They have excellent end market diversification and we continue to see a strong order flow. Plus, our Defense business, now with EDO has a fully funded backlog of $5.2 billion, which provides excellent visibility into 2008 and beyond. So, let me be clear about this point. We are very, very confident about our ability to deliver our forecast of strong results in 2008. We're watching the order flow closely and it is showing solid trends that we forecast. In short, our overall portfolio is designed to deliver consistent and predictable results over the long term and this is exactly what we intend to do. The last point, I want to make today before we open this up for questions is, I wanted to mention that Peter Milligan is graduating from the Investor Relations' role. We very much support talent development at ITT and Peter has done an outstanding job leading our Investor Relations effort, earning the right to move up to a significant increase in responsibility. We're proud in his contributions and he will certainly be in a key role as we drive our portfolio to achieve additional value. Peter's new job will be to lead the finance organization in our Electronic Systems Group. And as you may know, much of the EDO business is moving into that... into the Electronic Systems value center, where the revenue will be in excess of $1 billion making it one of the largest value centers in the company. And his leadership capability is well matched to the important growth opportunities that we have in that segment. So, today, we will offer Peter our congratulations for a job well done and wish him well in the further. We will announcing a new Director of Investor Relations in the next few weeks. And so, now let me turn things over to Peter to begin the Q&A session.

Thanks Steve. Thanks for those kind words and Melissa, if you could now introduce the Q&A. Question and Answer

Thank you. [Operator Instructions] Your first question comes from the Nicole Parent with Credit Suisse. Please go ahead.

Good morning.

Good morning Nicole.

Good morning Nicole.

I guess Steve; first question would be for you, when you think about the progress you’ve made on the strategic initiatives that you outlined in November. Could you talk a little bit about what you are most happy with and kind of if there is anything that you think you are behind and what you are really be focusing on for 2008?

Thank you Nicole. We are mostly pleased with a couple of items. First and foremost the structural moves we made to initiate a low cost and emerging market platform are substantially on schedule. Denise and I, and a number of other members of the team just concluded an eight day tour in China visiting these facilities and we were thrilled to see buildings are up, lines are being moved, leadership teams are in place. Sourcing is occurring and this is all the hard work. We clearly have a lot of transition in front of us to fully utilize these facilities but the underling capability that's been put in place by Gretchen McClain, John Williams, and Nick Hill and the whole team is just simply outstanding. Number two; we are thrilled with the acquisitions. Clearly we have a year in front of us of acquisition, integration and creating value. So we have a lot of execution in front of us that really does focus our attention to the matter at hand but as far as the structural architecture of balance capital deployment coming off of switches as divestiture at adding two nice strategic platforms. I would say those two items are the ones that we are most proud of. Clearly in the further, as Denise mentioned, we do still need to continue to drive a substantive treatment strategy, that's something that as Denise mentioned we're a little bit behind on but I am confident that with the water, wastewater team and all of the Fluid Technology teams’ efforts we are going to start seem some nice traction in those technologies because we've done a lot of work last year to put the selling and the technology capability in place.

Super. And just a question for Denise. Could you elaborate on the Controls weakness as it relates to the tax that you cited in the press release?

Yes. Sure Nicole. We've got a process that we go through where we review the internal controls in the tax area and in other areas of the company. And this year, there were really some complex transactions that were taking place within the tax arena. And so, as we were going through that and we were looking at controls around that, we identified a material weakness and it was all around the tax accounting area, our auditors concurred with that. It has resulted in no restatement statement of the financial... of the financials. And so, we are, we feel that, that we've got action steps in place to correct this and to put some additional controls in place in the tax department. And again, we had a lot of complexities this year with some of the dispositions. But, what we feel that, we've got it under control and we'll put the right actions in place to solve the problem.

Super. And lastly Peter best of luck in your new role, it's been a pleasure working with you.

Thank you, Nichole. Same here.

Thank you. Your next question is coming from John Inch with Merrill Lynch. Please go ahead?

Hi, thank you. Good morning.

Good morning John.

Good morning. Hey, Peter congrats.

Thanks.

Want to start-off with the Defense guidance. Now, I think in November you'd said it was $4.35 billion to $4.4 billion. And I thought EDO added about $1.8 billion. So, that would sort of put the number at 615 to 62 yet you are guiding to $6 billion at the high-end. What, is there sort of a revised view of EDO or some of the other businesses may be a little color?

Let me comment on the number. For EDO, we've included $1.6 billion for EDO. Okay, it wasn't $1.8 billion it is the $1.6 billion.

Thanks. Since you've got purchased EDO has anything changed in the mix of the outlook?

No, John. Not at all. Not at all, let me articulate it this way. As you know, there were a variety of different analysts forecasts as well as other communications throughout the third and fourth quarter. Let me remind you that we did a very, very significant amount of due diligence and had a great deal of insight into the EDO business. And what we are forecasting at $1.6 billion is precisely according to all of the crew numbers nice base business growth and it's consistent with our model. So, that's where we have been all along and it's also consistent, of course, with the valuation of the company. So, we feel very good about it, although I recognize your point that there were other forecasts out there.

Yes, that's fair. Steve, could you remind us or perhaps just call out what you are sort of seeing in your municipal Fluid businesses today just... I guess that's an area where... presuming that we are in a recession or moving into one, there is question sort of surrounding municipal budgets. Just can you remind us, sort of, what you're seeing and then kind of how you are thinking about that business in that context?

On the municipal budgets, I think we're continuing to see moderate to strong growth. We don't see a dramatic slowdown, although there has been some slowing here in the US, but remember that we actually had nice fourth quarter strength in municipal and we’ve also seen continued emerging strength on that side. Clearly, in the residential market, we are definitely seeing a slowdown in the United States primarily and that has been factored into our forecast. So, we feel like that is adequately covered. But, keep in mind; even in the residential that we have about 40%, 50% of our participation is aftermarket. So, our installed base gives us a hedge against the slowdown. On the industrial side, we all know that industrials are cyclical, so we're watching it closely. We are looking at project businesses; we are looking the after-market installation. But, at the end of the day, we have seen actually strong international sales driven in part by the weak dollar and by just this huge demand for global infrastructure and commodities. So, right now, on the industrial side, we are looking solid for 2007, we are not expecting any downturn in that area, simply because despite its cyclicality, it is a very long cycle business trend. And then finally on the commercial, the large-scale commercial side, I would say that we had a nice fourth quarter, up about 6% in the domestic and about 10%. And we expect that to moderate slightly in the balance of the year. All in, we think we will see another good year in Fluid with all these things... with all these ins and outs.

John, let me just add something on the IP side of the business too. IP, as I said, grew extremely strongly in 2007. We had 17% growth in that business, 20% in the fourth quarter. So, we are not forecasting those kind of growth rates for 2008, but it will still be a good growth rates.

Thanks very much.

Thanks John.

Thank you. Your next question is coming from Jeff Sprague with Citigroup Investments. Please go ahead.

Could you give us a little bit of color on, how EDO actually performed in the quarter? Kind of the trends in their orders and backlog and any thoughts on kind of this downward look now on MRAP demand looking into '09?

Let me speak to what happened in the quarter and then Steve can talk going forward. In the quarter, for EDO, we acquired them on December 20th, we had 10 days worth of revenues, it was about $50 million for the quarter. We took a slight hit on that, because we have cost associated with that, and so that hit us for about $4 million in Q4. Steve, do you want to comment on 2008?

Jeff, let me just add that current bookings on EDO with respect to the crew program are precisely on track, there has been no change. The backlog that we saw are coming in actually Q2, Q3, Q4 of last year is essentially the same backlog that we have today. Again to refresh everyone, that's in the 78,000 crew unit range, which is what we thought would happen in Q3, Q4 and that is what we are planning for, that's in our numbers. So 2008 it is a year all about execution, we do recognize, Jeff that the U.S. Government has... is evaluating MRAP production. But at this point in time, based on the gap between the needs of the U.S. Military and that vehicle, we do not see any impact to our '08 nor our '09 backlog on crew.

Okay. And Steve could you also just address on the services side. Obviously, that has been a big part of the story. You did have this GAO report that was critical and [inaudible]. What do you do to address that and was that the management problem on that particular program or just some color on what's going on there.

Okay. Thank you, for those of you who are not familiar with Jeff's question is we have a GMASS IDIQ contract for five years to essentially maintain vehicles in the Middle East. And we have had some cost issues that was recently highlighted with respect to our performance on the contract. These cost issues really had to do with some issues in terms of how the vehicles were being cleaned, and in terms of how we could straighten the frames out and get second... and get either straitened frames or new frames from the vehicle. Additionally there were some supply chain material shortages. These were inherent in some of the contract structure and not exclusively associated with ITT performance, I will say. But, we've been coordinating with the US Government with respect to resolving these issues and we feel that with the attention that we put in terms of the cleaning, some alternative sources for frame straightening, and with respect to new standards to the inspection process, that we will be back on track. We do not see any long-term impact in this contract. So, we recognize the challenges and we think that our team, Steve Gaffney and Pete McGeeney [ph] and the team have been up to the challenge and are on a good corrected path.

Thanks, Denise, could you just give us a little more color on what you think the EDO dilution is in the first quarter, we are talking a couple of pennies or..?

EDO for Q1 is about $0.02 to $0.03 dilution.

Thank you very much.

Thank you. Your next question is coming from Mike Schneider with RW Baird. Please go ahead. Michael Schneider - Robert W. Baird & Co., Inc.: Good morning.

Good morning. Michael Schneider - Robert W. Baird & Co., Inc.: First just on Fluid. If we could focus on incremental margins, you called out that FX was about a 30 basis point hit in the quarter and that explains why margins were flat year-over-year. But, even if we back that out, I guess, it seems like it's been number of quarters now where we've just not seen any leverage on the organic growth that has been pushed in your double-digits for the segment. Can you give us a view as to, I guess, how much has been spent on some of the initiatives during '07 and then if '08 is the year where we begin to se some true leverage out of the organic growth. And just by my calculations, incremental margins, for example, in Q4, if you back out currency, were only about 17% versus the 14.7% reported?

Sure. Let me address that. So, when you look at Q4 Fluid margins, we indicated that their margins were flat on a year-over-year basis, and 30 basis points is related to FX. Also within that, we have mentioned that we are making investment in Fluid and we are. The two that I would point to is, we mentioned the number of new facilities that we put in place in 2007. So, that was three of them in China and one in Poland. And as Steve mentioned, we over there a couple of weeks ago and looking at them. So, we have costs associated with that. Frankly, we've got to ramp up those China facilities in 2008. So, we will continue to have some cost associated with that. So, that's one portion of it. Another portion has to do on the treatment side of the business. AWT is now integrated into the flight organization. There are costs associated with the integration of those businesses, it has to do with retraining of sales forces, it has to do with some footprint changes and other things. So those are cost that we also saw in Q4 and some of those we will begin seeing in 2008. Now when you look at 2008 when you look at a Fluid Technology margin on an organic basis, we are planning on growing those margins about 50 basis points and we think that's a good number. We want to continue to invest in this business it is important to us, we want to make the right investment so that we can continue to have positive growth. So 50 basis points I think is a good number for 2008 and it does allow us to make the investments that we need to make into the business. The other thing that I will mention is we also have created tech centers, one in India and one in China and that will also help us as we get into these markets and we create new products for these markets, to be able to drive growth in the business. Michael Schneider - Robert W. Baird & Co., Inc.: Okay. And just drilling into AWT, you did call out that orders were up mid-teens but for the year revenue was down mid-teens, is this a case now, we’ve all been waiting for the turn in this business, I think for two years. Is this a case or just comparisons or that easy, or did you see a meaningful productivity improvement out of the sales force at AWT, give some color as to whether this is a true turn in the direction of the business?

Yes, hi Mike this is Steve. It's a little bit of both. We are seeing some enhancements as a result of some of the selling and R&D integration Denise outlined, and at the same type there is still a couple of easier comparison. So I will reiterate that we are still not... we're not only pleased with the progress that we are making on the treatment front, undaunted we are continuing to make sure that our leadership teams continue to execute various strategies in terms of both R&D and expanding their selling capability. So, we are starting to see a little positive but it's not up to our expectations yet. Michael Schneider - Robert W. Baird & Co., Inc.: Okay. And just one quick one, on IMC, I realize did known it last year but what was the organic growth of IMC year-over-year, if you look at the reported revenue of the former owner?

It's about 13%. Michael Schneider - Robert W. Baird & Co., Inc.: Okay. Thank you.

Thank you your next question is coming from Scott Davis with Morgan Stanley. Please go ahead.

Hi, Good morning everybody.

Hi Scott.

I want to get back to Fluid Tech and your guidance for '08, and it strikes me as slightly odd that you’ve got revenues decelerating a bit down in the 5% level and of course maybe being a little conservative there, but margins up 105 BPs. I didn't really get from the answer you gave to Mike, the confidence level, is it more of a function of past restructuring or actually getting incrementals off of that 5% that’s driving that confidence or is it mix. You probably going to have currency going down again at least for the first half of the year, so you're going to have that headwind on margin, so maybe a little bit more clarification there.

Sure. Let me clarify the margin. When you look at where we ended '07 and the mid point of the guidance that we've given you, full year for Fluid for revenue, we're seeing an increase of 105 basis points in the margin. Now, about 55 basis points of that has to do with lower restructuring in '08 than what we took in '07. So, when I was referencing the 50 basis points, I was excluding that restructuring component.

Okay.

Right. So, that helps to explain the margin piece of it. Steve, do you want to talk about the top line?

On the top line, I think if you follow through my comments, what we are really seeing on the top line is that we are hedging slightly as a result of uncertainty in the economy. We got about 5% growth, I can assure you our internal plans exceed that and… so to your point, we're just being slightly conservative in that regard. Remember that we had a nice order intake rate, and that kind of guidance on the top line coupled with the operating improvements including the investment of the overall growth for the long-term vision of global water leadership, we think, will be an outstanding year for Fluid Technology. Just remember that we are... we do see a wonderful growth platform for the long, long-term future, which is why in addition to the operating improvements, which is really quite high in terms of operating productivity that to some degree is offset by research and development investments, new growth areas, the transition to the new sites as Denise mentioned as well as some additional cost in emerging markets with respect to selling and marketing. So, all in all we think it's a great balance plan.

Okay. Fair enough. And then, moving down to Defense, not being defense analyst, I don't really know as much about EDOs, I would to, but can you talk a little bit about the contract mix when you add EDO in and compare maybe your contract mix, fixed price maybe the percent, total fixed price versus... in '08 versus '07 so just to get an indication of where your opportunities might be there for some leverage?

All in Scott, it's actually about the same. One of the nice comp… one of the nice features of this strategic combination is that, their portfolio well, represented some different technologies and different customer positions, had a lot of the same architectural similarities as ours. So, fixed-price versus costs plus or about the same, they're little stronger on the hardware side or product side versus services than we are, but we've got a nice platform from which to grow. So, the other nice piece of about it is that, we do see a broader distribution of customer, our relationships with EDO as well as a fact that there is a number of technologies that would represent an early life cycle in terms of the programs. So, we're seeing more emerging products that we think would give substantial leg to portfolio in the future. And that's just a relative comparison of the legacy ITT.

Okay. And then lastly, just a quick one for you Denise. The cash balance at the end of year almost a couple of billion dollars. I know you took on a fair amount of short-term debt for EDO. Is there any method to that manners that you wanted to keep a higher cash balance to get more aggressive in share repurchases or other transactions that might be out there or is this just a timing issue and you will pay off some of that short-term debt.

Right. The cash balance that you're seeing, part of that is related to the repatriation that we did, remember we said with a we're going to bring some cash home from Europe and --.

Right.

Pay for the EDO transaction. That part of what you're seeing up there. If you looked at it today, you wouldn't have seen that high of a cash balance, it would be down by about $1 billion.

Okay. And now, one to pay off the short-term revolver?

That is correct.

Okay. Great, thank you.

Thanks Scott.

Thank you. Your next question is coming from John Baliotti with Ftn Midwest Securities. Please go ahead.

Hi, good morning.

Hi, John.

Hi, Steve. Just a couple of questions about the portfolio and some of the actions you've taken may be, I know Denise, if you can, is there any way to put numbers around, obviously doing the plant work that you've done moving to, adding some new plants and getting the efficiency out of that has a short-term impact. Is there any way to quantify, what you think that was and may be when you start to get some tail wind from that? In terms of… Fluid side?

You are just talking about on the Fluid side?

Well, I guess over all, but yes more specifically.

Just give him the commercial numbers.

Yes. When we look at Fluid and we think about 2008 for Fluid, we are looking at savings associated with the restructuring that have taken place. And in our plan, we've got roughly about $20 million associated with that for 2008. And then we've got a little bit in Motion & Flow also, but that's what Fluid Tech is.

And that would carry through roughly about $30 million on a sustaining basis in '09 and beyond. So, the IRRs or the paybacks on these investments are reasonably good.

Okay. And then just overall, Steve, if you've looked at the portfolio you've inherited when you came on and the changes you've made since that and the market you are looking at today, is there a way to characterize your comfort? Obviously, you are a conservative company, I think people have learned that over the last couple years, but is there a way how you characterize your visibility combined with operations today with the market versus when you inherited it?

Well, yes. I think the thing that we are most comfortable with is our leadership teams in the ITT management system. In other words, independent of the portfolio, when we’ve taken some of our great processes such as the PRM value based management, etcetera. We really have migrated inside our portfolio to more attractive spaces. That said, we feel like we are in a better strategic position. Keep in mind that the divestitures that we conducted got rid of a number of very volatile short cycle, poorly strategic, bad market position businesses that despite the fact that we are trying to run them as well as we could, and some of them arguably run very well, they ultimately did not represent the value creation opportunity that we had in rest of the portfolio. We have substituted some nice strategic opportunities in things such as a number of smaller Fluid Tech acquisitions throughout dewatering and throughout some of the treatment components, as well as, of course, the IMC in Motion, in energy and the EDO in our Defense technologies. So, I would say we feel like our portfolio has a better strategic positioning with respect to providing a response to what we call secular drivers as opposed to short cycle economics. And that coupled with the fundamentals we have with our leadership team in the ITT management systems is what's really giving us the confidence for the future.

Okay. Thanks very much.

Thanks, John.

Thank you. Your next question is coming from Deane Dray with Goldman Sachs. Please go ahead.

Thank you good morning.

Good morning, Deane.

I would like to revisit a couple of the specifics around your '08 guidance, and first of all, the fact that you reaffirmed the guidance that you gave back in November 13, given the kind of uncertain outlook is a positive unto itself, but specifically on the restructuring, and that you are going to include restructuring in your guidance, is that still $0.15 for '08, about $40 million, is that still the plan?

Yes we are still planning on the same restructuring in '08 as what we indicated to you back in November.

Good and then for '07 if you finish up about $60 million.

We actually finished up restructuring at about $66 million, we had guided on $50 million to $60 million and so we came in slightly higher than that and the reason for it is because we took some impairment charges and that was about $5 million of it and then the rest of it is, we accelerated some restructuring in some of our businesses because we wanted to very quickly get the advantages of the productivity and cost savings associated with that.

Got it. So that $66 million compares to an estimate of $ 40 million for '08. This last restructuring....

Yes that is correct.

Okay and then just because we are going to be new for this in guidance in the first quarter. Can you give us a sense of how much restructuring you want to do in the first quarter?

Yes. In the first quarter we've got about $6 million to $7 million.

Great. Okay and then, with regard to organic growth, back in November you had set a very specific target of 7.5%, I mean it's awfully precise but it was not included or addressed in the update this morning. Are you going to reaffirm that or how you are feeling about organic growth now?

Yes, let me just say that the numbers that we gave you in November, we've not changed those numbers. So we have all the same topline revenue numbers that we had back in November, now the math changed and the math changed because we came in much stronger in Q4 than what we thought at the time that we gave you those numbers in November, but we've captured the numbers where they were back then so, what that does is that changes the growth rate down because we ended up in such a strong position at the end of the year. But even saying that, we are still forecasting the mid-single digit growth rate, we think that is a good growth rate, we build within our guidance some moderation on the IP side of the business that I referenced before which grew at 17% in '07 and it is going to be lower than that. Most Flow [ph] our smaller segment, but it frankly includes some of the more cyclical businesses that we have, those trends develop quickly. So overall, I tell you that we are being a little bit prudent in the forecast that we have but what you are referencing is really a math issue.

Just to help your cause here, but what is interesting on the math it might imply lower organic revenue growth but the math also implies… your earnings growth back in November the math [inaudible] 15% and 19% and now it is a percentage point higher to 16% to 20%?

Right that is correct.

Well, thank you Deane, that point didn't escape, we're pretty proud of mid-single digit growth and taking it to the bottom line about 15%. So, we're getting very nice drop and I think that just underscores the operational performance we have in the business.

Okay. And then just on this quarter, 14% organic revenue growth would put you among the sector highest. Do you have a sense and maybe you take us through by segment. What that split is between volume and price? Can you address qualitatively how price has been working and how much price is part of your growth equation for '08?

Yes. I would say that between volume and price, probably about half of it is volume... little bit more than half is volume-related, and then we do have a portion related to price.

Okay. And then in Defense, specifically when I looked at 18% organic revenue growth. How much was what we would characterize as a backlog burn versus a flow business that might have been in your numbers to begin with?

Yes. Deane this is Peter. What I can sort of tell you there, if you think about the fourth quarter so much of the growth came in AES and Systems and a lot of that contract work is put into and taken out of the backlog in the same quarter. Does that answer your question?

It does. And then last one on the slide... the Defense slide under backlog, you had NAs and I know EDO was changing, whether it's going to be included or excluded. Going forward are we going to see backlog numbers back in...

Yes we do. It just… we did that NA, because we showed the full year to the right but it would have been the same number, that's all.

Got it. But then, but you also have said you would be flat year-over-year, and you actually worked out that way.

Yes. Let me tell you exactly what happened there. We had ended last year with... if you get a little bit more precise like $3.88 billion, we said we had in this year that was ‘06 we said we end '07 roughly flat. I think we ended it like 3.82 or something. So, within $60 million, and as you know we had release out early in January of the Night Vision order, that was a $175 million. So, when Denise referenced timing clearly that was pretty accurate forecast I think in total.

Great. Thank you. And Peter you got your era on the conference call there.

Yes right. Thanks Deane.

Thank you. Your next question is coming from Shannon O'Callahan with Lehman Brothers. Please go ahead.

Good morning.

Good morning.

Peter, congratulations. Very well deserved. I think your exit from the department is weighing on the stock today, so not good news. But on Defense... lot of the focus has been on the product side, radios, Night Vision, and now the CREW side of EDO. I mean radios were up 9, Night Vision was up 6 and you grew 18% organically. Steve maybe if you could talk a little bit and give us little more detail on our outlook for AES and Systems and maybe the base part of EDO that we're not really paying attention to?

We've had a number of strong program wins in Systems and in AES. The win rates have been exceptionally high, we've got some effective execution capabilities that's allowed us to take market share away from other incumbents and quite frankly, you've just seen... you've seen the strength from that. Also, point out that you are starting to see what we have seen... couple of these businesses and I think you're going to see more this in '09 from space than what you are seeing... than what we saw in '07 and what we are going to see in '08 in Systems is some of these businesses pay a little bit of vortex [ph] and what you are seeing is budgets being reallocated into some really vital areas that have been put on hold for a while, and so I think some of that budget opportunity is also helping fuel this. We're looking at 10% sustained growth in 2008 on AES and Systems.

And how about the base sort of non-CREW EDO stuff?

I'm sorry, I forgot. If you CREW out, it looks like the EDO based business forecast for 2008 is gong to grow about 5% organically.

Okay. So, now that I said I'm not going to focus on the products, as a product question. On radios, you are up 9% here, I mean Night Vision you are up 6%, you got this $175 million order in January, radios anything new developing there in terms of [inaudible] or international orders or anything?

Not at all Shannon, we are good, clearly through '09 on funded backlog on radios. We had, as you know, some nice orders last year. We have this year complete nice funded backlog in the radio business, nothing has happened materially from the glitters [ph] program and the side hat [ph] since our conversation, other than that we continue to ship SINCGARS, which was... we reaffirm has been a productive business segment for us. There's going to be a supplemental. The standard complexity and volatility around the supplementals is certainly underway in this politically charged environment in Washington but we do expect again that there will be some contribution there. So, on the radio side, we are steady as she goes and we've got a nice forecast in front of us.

Actually Shannon, this is Peter in the fourth quarter we had international by over $100 million of orders and some good sales internationally as well. The overall communications division ACD had a couple of $100 million in order. So, it was a pretty strong quarter, and as Steve said, gives you backlog well into '09.

Okay, great. Thanks a lot.

Thank you. Your next question is coming from Steve Tusa with J.P. Morgan. Please go ahead.

Hi, good morning.

Hi Steve.

Thanks for getting me here at the end. I just have a... I'm still not quite clear on the moving parts with regards to EDO, I believe it was... you referenced just some consensus expectations that were out there, but I think EDO management had a slide deck out there that said that that they were projecting '08 revenues to be almost $2 billion. I'm not sure if you did... if that's what you are referencing, I'm just trying... I'm just not understanding the gap here between the $2 billion and the $1.6 billion? And then if you could just tell me and let me know what the... where they finally finished on revenues for 2007 for the total year company?

Okay, Steve. Yes, indeed, that was precisely among the various forecast I was referring to. We cannot speak to the forecast that the EDO Corporation put out that you referenced. But what I can speak to is the fact that keep in mind that legacy ITT is already a supplier of electronic jamming devices in the same environment. We think we understand that world very well. We did an intensive amount of due diligence with good solid communications with the customers and we can reaffirm the position that we believe our forecast of $1.6 billion is the right forecast appropriately adjusted for the puts and takes that occurs throughout the planning cycle. So the backlog that you saw publicly announced by the United States Navy and other customers does tie directly to the $1.6 billion.

Okay. And then what was the base revenue, where did EDO finish up for 2007?

Yeah. When you look at their 2007, they were about $1.1 billion.

$1.1 billion for '07. Okay. And then I guess the backlog at EDO finished at about a $1.4 billion, is that correct?

Correct.

Okay, great. And that is about flat with the third quarter, but up substantially with the fourth quarter of last year?

Yes, it is correct.

Yeah, that is exactly right.

Okay. So, there is nothing really... it doesn't sound like there is anything that concerned you here with regards to the difference of between what may be a more aggressive management team was talking about versus an appropriately conservative one?

No, thank you, Steve. We completely understood all the variation and various forecasts, but we work hard to get the one that we believe is right, and that is one that we are reaffirming consistent with our valuation, consistent with our forecast model, and consistent with the backlog. So, at this point in time, no, we don't have any variation in terms of our internal plans.

Right. And that's an important point that that is consistent with the evaluation that you guys... that we were all talking about when you did this field. So...

That's right. There's nothing changed... there's nothing changed in our forecast. We're just coming out with a forecast that we absolutely believe in, one that is tied to the backlog, tied to execution, and one that is… is one that we can affirm our commitment to. But, no nothing has changed, we feel very good about the EDO acquisition on the basis the we made it.

Great. Congratulations, Peter you've been a big help and good luck in your new job there.

Thank you Steve.

Thank you. Our last question is coming from Matt Summerville with Keybanc Capital Markets. Please go ahead.

Hello?

Hi, Matt.

Hi, Matt.

Actually, this is Joe Herrick with Gaterman Research [ph]. Couple of things Steve, congratulations on a solid results you always seem to come through. Regarding each of your segments, can you talk about your operational improvement initiatives revolving around Lean and Six-Sigma, the benefits you expect to see in throughput throughout each of your segments.

Thank you. We operate internal through the ITT management system a multi facet approach to continuous improvement, falling probably in three buckets. First of all, it is foot print realignment and restructuring. Denise covered the... if you will, the commercial non-acquisition components of that restructuring. In addition to that, we are doing a fair amount of restructuring in acquisition integration. In both the Motion & Flow segment, as well as in the Defense segment, directly associated with the IMC and EDO acquisitions respectfully. And those costs, and those benefits of that footprint realignment are embodied in the acquisition model and it is essentially in the operating performance. So, we continue... and then I would say in the case of both EDO and the IMC footprint work that is underway, there's still some planning. There haven't been any specific announcements, but it's certainly is part of the plan. The second major bucket is what we would just call Lean and value based Six-Sigma. You know, we have an aggressive subset of program of continuous improvement, where we do Lean based lines in our business, where we do high impact activity, and systematically go in on the constraint theory to improve those areas, which make the greatest difference. We have hundreds of action plans that are monitored by Nick, Gretchen and Steve and all of us throughout the year. But at the end of the day, we probably have in the order of $50 million net benefit in the areas that we would call [inaudible] net that is the gross improvement offset by, by inflation that's in the business. So it's a real productivity number at the bottom line. And in finally, we engage in global sourcing efforts, and we improved as I said last year about 4% of our commercial purchases to low cost regions and we have another year slightly I think it's slightly higher than that this year that will be additional accretion to the operations. So we do work in many and many different dimensions and I think that, that probably is the overall outline.

In terms of metrics, how you guys measuring yourself that your plan regarding volume [inaudible]. What do you looking at measures itself against your competition and what the shareholders now… number one in the industry, remain number one and we are focused on the right objective.

We, we look at our balanced set of essentially 5 metrics. Sales, return on invested capital, operating margin, free cash flow and earning per share. These are the balance metrics that we believe most consistently are reflected in our peer companies in terms of measurements and these are the metrics which are precisely tied to our internal compensation, you can read all about that, of course in the proxy.

Thanks Steve. Melissa thanks, that’s all time we have for the call. So I want to thank you everybody for joining us and feel free to follow up with phone rest of the day.

Thank you this does conclude today's ITT Corporation fourth quarter 2007 year end earnings conference call. You may now disconnect.