ITT ITT Inc

ITT Corporation (NYSE: ITT) today reported fourth quarter 2007 income from continuing operations of $128 million, or 70 cents per share. Excluding special items and restructuring costs, income from continuing operations was $172 million, or 94 cents per share, up 29 percent on strong profit performance from each business segment. Fourth quarter revenue was up 23 percent year-over-year to $2.5 billion on continued robust growth in the Defense segment and strong international sales in ITT�s commercial segments. Improved full-year 2007 margin performance across all segments led to record income from continuing operations of $633 million, or $3.44 per share. Excluding the impact of special items and restructuring, income rose to $650 million, or $3.53 per share, up 24 percent over the prior year. For the full-year 2007, ITT reported record revenues of $9.0 billion, a 15 percent improvement, driven by strong double-digit organic revenue growth. This marks the fourth straight year of double-digit organic revenue growth. �We are proud of our performance this quarter and for 2007 on the whole � we set a high bar and cleared it. On top of outstanding operational performance, we made significant progress on our strategic plan and effectively realigned and enhanced our portfolio for long-term success,� said Steve Loranger, ITT�s chairman, president and chief executive officer. �Our strong operational capability, combined with a portfolio that is built to weather economic cycles, gives us confidence heading into 2008. Despite the uncertainty facing the U.S. market, we believe our team has effectively positioned the company to have another strong year and meet our goals.� 2008 Outlook ITT is confirming its full-year 2008 earnings forecast in the range of $3.80 to $3.95 per share, reflecting anticipated 16 to 20 percent earnings growth over 2007 on a comparable basis. The company expects top-line revenue to be $11.1 billion to $11.3 billion in 2008, approximately 25 percent higher than 2007 revenue. Revenue growth expectations include mid-single digit organic growth and full-year revenues of recent acquisitions, including EDO Corporation and International Motion Control. In November 2007, ITT announced that effective with its first quarter 2008 earnings report it would no longer present restructuring costs within adjusted earnings figures. In anticipation of this change, projected restructuring costs of $35-45 million are included in this earnings forecast. Fourth Quarter and Full-Year Business Segment Results Defense Electronics & Services Fourth quarter revenue for the Defense segment was up 24 percent to $1.2 billion, on strong organic growth from the segment�s services businesses. Fourth quarter operating income for the segment grew to $125 million. Excluding restructuring, operating income was up 32 percent to $129 million. Full-year 2007 revenue for the segment reached $4.2 billion, up 14 percent over 2006, led by the strong year-over-year growth of ITT�s Advanced Engineering & Sciences and Systems businesses. For the full year, operating income for the segment was $503 million. Excluding restructuring, operating income was up 25 percent to $512 million, attributable to high performance on fixed-price contracts and continued focus on operational efficiency. On Dec. 20, 2007, ITT closed its acquisition of EDO Corporation. The agreement to purchase EDO was announced in September 2007 and approved by EDO shareholders at a special meeting held two days prior to closing. The acquisition was ITT�s largest in its history and makes ITT a top 10 U.S. defense contractor, as measured by revenue. Fluid Technology ITT�s Fluid Technology segment reported fourth quarter revenue of $985 million, up 18 percent year-over-year and 11 percent organically. Growth in the segment was driven by strong international sales in commercial and industrial end markets, which offset weakness in the U.S. residential market. Fourth quarter segment operating income was $125 million. Excluding restructuring, operating income grew 18 percent to $145 million year-over-year. For the full-year 2007, the segment grew 14 percent on revenues of $3.5 billion and generated operating income of $433 million. Excluding restructuring, operating income improved 19 percent to $473 million, driven by ongoing deployment of operational and productivity improvement initiatives. Motion & Flow Control Fourth quarter revenue for the segment was up 41 percent to $370 million, which includes full-quarter revenues of the recently acquired International Motion Control. Organic growth for the quarter was also strong at 12 percent, on continued strength in the Aerospace Controls and Friction Technologies businesses. The segment reported fourth quarter operating income of $38 million. Excluding restructuring expenses, operating income improved 37 percent to $50 million. Full-year 2007 revenue for the Motion & Flow Control segment was $1.3 billion, up 22 percent over 2006. Operating income grew to $187 million for the year. Excluding restructuring, segment operating income of $202 million improved 22 percent, benefiting from continued focus on operational and lean initiatives. Emerging Markets Progress During the fourth quarter, ITT made significant progress against its emerging markets growth strategies by opening three state-of-the-art manufacturing facilities and a new research and development center. The new sites serving ITT�s commercial businesses will focus on customizing and building products designed to meet the specific needs of customers throughout Asia Pacific, as well as other markets. ITT opened two advanced manufacturing and assembly centers in China and one in Poland. The Wuxi, China site will primarily support ITT�s Motion & Flow Control segment. The Nanjing, China and Poland plants will primarily develop products for the Fluid Technology segment. The Nanjing facility is a showcase of ITT technologies as it deploys an advanced industrial water treatment system enabling the plant to reuse virtually all the water needed to operate the facility. During the quarter, the company also opened an ITT Technology Center, in Vadodara, India, which was established to meet the specific needs of Indian customers, and eventually global customers. Income Tax Controls In the fourth quarter, ITT identified a material weakness specifically related to income tax accounting controls. The company has initiated remedial steps to enhance controls in this area, and also performed additional analyses and post-closing procedures that reasonably assured the reliability of income tax accounts as of December 31, 2007. This control issue, which will be more fully discussed in the company�s 10-K, did not result in the restatement of, or otherwise materially impact, ITT�s financial statements for any period. Investor Call Today ITT's senior management will host a conference call for investors today at 9:00 a.m. Eastern Standard Time to review fourth quarter and full-year performance and answer questions. The briefing can be monitored live via webcast at the following address on the company's Web site: www.itt.com/ir. About ITT Corporation ITT Corporation (www.itt.com) is a diversified high-technology engineering and manufacturing company dedicated to creating more livable environments, enabling communications and providing protection and safety. The company plays an important role in vital markets including water and fluids management, global defense and security, and motion and flow control. ITT employs approximately 40,000 people serving customers in more than 50 countries. Headquartered in White Plains, N.Y., the company generated $9 billion in 2007 sales. Safe Harbor Statement Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 ("the Act"). These forward-looking statements include statements that describe the Company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target" and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed in, or implied from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated by the Company include general global economic conditions, decline in consumer spending, interest and foreign currency exchange rate fluctuations, availability of commodities, supplies and raw materials, competition, acquisitions or divestitures, changes in government defense budgets, employment and pension matters, contingencies related to actual or alleged environmental contamination, claims and concerns, intellectual property matters, personal injury claims, governmental investigations, tax obligations, and changes in generally accepted accounting principles. Other factors are more thoroughly set forth in Item 1. Business, Item 1A. Risk Factors, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements in the ITT Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other of its filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. ITT Corporation Non-GAAP Reconciliation Reported vs. Organic Revenue / Orders Growth Fourth Quarter 2007 & 2006 � � � � � � � � � � � ($ Millions) � � � � � � � � � � � � � � � � � � � � � (As Reported - GAAP) (As Adjusted - Organic) � � � Sales & Revenues Sales & Revenues Change % Change Sales & Revenues Acquisition Contribution FX Contribution Adj. Sales & Revenues Sales & Revenues Change % Change 3M 2007 3M 2006 2007 vs. 2006 2007 vs. 2006 3M 2007 3M 2007 3M 2007 3M 2007 3M 2006 Adj. 07 vs. 06 Adj. 07 vs. 06 � � � ITT Corporation - Consolidated 2,528.7 2,051.3 477.4 23.3 % 2,528.7 (108.4 ) (76.5 ) 2,343.8 2,051.3 292.5 14.3 % � Defense Electronics & Services 1,177.9 952.3 225.6 23.7 % 1,177.9 (52.6 ) (0.2 ) 1,125.1 952.3 172.8 18.1 % Communications Systems 222.4 204.0 18.4 9.0 % 222.4 0.0 0.0 222.4 204.0 18.4 9.0 % Space Systems 166.7 156.3 10.4 6.7 % 166.7 0.0 (0.2 ) 166.5 156.3 10.2 6.5 % Advanced Engineering & Sciences 144.8 89.8 55.0 61.2 % 144.8 (3.4 ) 0.0 141.4 89.8 51.6 57.5 % Electronic Systems 100.4 88.2 12.2 13.8 % 100.4 0.0 0.0 100.4 88.2 12.2 13.8 % Night Vision 125.5 118.4 7.1 6.0 % 125.5 0.0 0.0 125.5 118.4 7.1 6.0 % Systems 372.9 299.0 73.9 24.7 % 372.9 0.0 0.0 372.9 299.0 73.9 24.7 % EDO 49.2 0.0 49.2 NA 49.2 (49.2 ) 0.0 0.0 0.0 0.0 0.0 % � � Fluid Technology 985.2 838.8 146.4 17.5 % 985.2 0.0 (55.0 ) 930.2 838.8 91.4 10.9 % Industrial Process 192.0 155.7 36.3 23.3 % 192.0 0.0 (1.8 ) 190.2 155.7 34.5 22.2 % Residential and Commercial Water Group 304.2 271.7 32.5 12.0 % 304.2 0.0 (12.8 ) 291.4 271.7 19.7 7.3 % Water & WasteWater 500.9 420.5 80.4 19.1 % 500.9 0.0 (41.2 ) 459.7 420.5 39.2 9.3 % � � � Motion & Flow Control 370.2 263.1 107.1 40.7 % 370.2 (55.8 ) (20.2 ) 294.2 263.1 31.1 11.8 % Aerospace Controls 26.6 20.3 6.3 31.0 % 26.6 (0.7 ) 0.0 25.9 20.3 5.6 27.6 % Flow Control 62.8 51.2 11.6 22.7 % 62.8 (7.9 ) (2.6 ) 52.3 51.2 1.1 2.1 % Friction Technologies 101.9 75.3 26.6 35.3 % 101.9 0.0 (11.3 ) 90.6 75.3 15.3 20.3 % Energy Absoprption 68.8 22.4 46.4 207.1 % 68.8 (42.3 ) (2.4 ) 24.1 22.4 1.7 7.6 % IMC Controls 16.5 0.0 16.5 0.0 % 16.5 (16.5 ) 0.0 0.0 0.0 0.0 0.0 % Interconnect Solutions 104.8 93.9 10.9 11.6 % 104.8 0.0 (3.9 ) 100.9 93.9 7.0 7.5 % � � Orders Orders Change % Change Orders Acquisition Contribution FX Contribution Adj. Orders Orders Change % Change 3M 2007 3M 2006 2007 vs. 2006 2007 vs. 2006 3M 2007 3M 2007 � 3M 2007 � 3M 2007 3M 2006 Adj. 07 vs. 06 Adj. 07 vs. 06 � � Defense Electronics & Services 1,401.6 1,211.7 189.9 16 % 1,401.6 (2.2 ) (0.2 ) 1,399.2 1,211.7 187.5 15.5 % � Fluid Technology 907.7 762.5 145.2 19 % 907.7 0.0 (49.6 ) 858.1 762.5 95.6 12.5 % � Motion & Flow Control 414.9 275.1 139.8 51 % 414.9 (83.7 ) (22.9 ) 308.3 275.1 33.2 12.1 % � Total Segment Orders 2,720.5 2,243.7 476.8 21 % 2,720.5 (85.9 ) (75.7 ) 2,558.9 2,243.7 315.2 14.0 % � Note: Excludes intercompany eliminations. ITT Corporation Non-GAAP Reconciliation Reported vs. Organic Revenue / Orders Growth Full Year 2007 & 2006 � � � � � � � � � � � ($ Millions) � � � � � � � � � � � � � � � � � � � � (As Reported - GAAP) (As Adjusted - Organic) � � Sales & Revenues Sales & Revenues Change % Change Sales & Revenues Acquisition Contribution FX Contribution Adj. Sales & Revenues Sales & Revenues Change % Change FY 2007 FY 2006 2007 vs. 2006 2007 vs. 2006 FY 2007 FY 2007 FY 2007 FY 2007 FY 2006 Adj. 07 vs. 06 Adj. 07 vs. 06 � � ITT Corporation - Consolidated 9,003.3 7,807.9 1,195.4 15.3 % 9,003.3 (150.6 ) (198.6 ) 8,654.1 7,807.9 846.2 10.8 % � Defense Electronics & Services 4,176.2 3,659.3 516.9 14.1 % 4,176.2 (54.6 ) (0.6 ) 4,121.0 3,659.3 461.7 12.6 % Communications Systems 805.4 757.9 47.5 6.3 % 805.4 (0.8 ) 0.0 804.6 757.9 46.7 6.2 % Space Systems 605.8 626.8 (21.0 ) -3.4 % 605.8 0.0 (0.6 ) 605.2 626.8 (21.6 ) -3.4 % Advanced Engineering & Sciences 480.8 326.8 154.0 47.1 % 480.8 (4.6 ) 0.0 476.2 326.8 149.4 45.7 % Electronic Systems 409.6 371.7 37.9 10.2 % 409.6 0.0 0.0 409.6 371.7 37.9 10.2 % Night Vision 484.7 419.8 64.9 15.5 % 484.7 0.0 0.0 484.7 419.8 64.9 15.5 % Systems 1353.7 1164.3 189.4 16.3 % 1,353.7 0.0 0.0 1,353.7 1,164.3 189.4 16.3 % EDO 49.2 0.0 49.2 NA 49.2 (49.2 ) 0.0 0.0 0.0 0.0 0.0 % � Fluid Technology 3,509.1 3,070.1 439.0 14.3 % 3,509.1 (26.8 ) (138.4 ) 3,343.9 3,070.1 273.8 8.9 % Industrial Process 703.9 595.6 108.3 18.2 % 703.9 0.0 (5.2 ) 698.7 595.6 103.1 17.3 % Residential and Commercial Water Group 1,183.3 1,086.6 96.7 8.9 % 1,183.3 (1.4 ) (33.7 ) 1,148.2 1,086.6 61.6 5.7 % Water & WasteWater 1,663.3 1,419.2 244.1 17.2 % 1,663.3 (25.4 ) (101.5 ) 1,536.4 1,419.2 117.2 8.3 % � � � Motion & Flow Control 1,332.5 1,092.9 239.6 21.9 % 1,332.5 (69.2 ) (58.7 ) 1,204.6 1,092.9 111.7 10.2 % Aerospace Controls 101.3 82.7 18.6 22.5 % 101.3 (3.0 ) 0.0 98.3 82.7 15.6 18.9 % Flow Control 251.6 224.4 27.2 12.1 % 251.6 (7.9 ) (9.1 ) 234.6 224.4 10.2 4.5 % Friction Technologies 393.4 318.4 75.0 23.6 % 393.4 0.0 (31.9 ) 361.5 318.4 43.1 13.5 % Energy Absoprption 144.3 87.2 57.1 65.5 % 144.3 (42.3 ) (6.7 ) 95.3 87.2 8.1 9.3 % IMC Controls 16.5 0.0 16.5 0.0 % 16.5 (16.5 ) 0.0 0.0 0.0 0.0 0.0 % Interconnect Solutions 425.6 380.2 45.4 11.9 % 425.6 0.0 (11.0 ) 414.6 380.2 34.4 9.0 % � � Orders Orders Change % Change Orders Acquisition Contribution FX Contribution Adj. Orders Orders Change % Change FY 2007 FY 2006 2007 vs. 2006 2007 vs. 2006 FY 2007 FY 2007 FY 2007 FY 2007 FY 2006 Adj. 07 vs. 06 Adj. 07 vs. 06 � Defense Electronics & Services 4,073.9 4,118.0 (44.1 ) -1 % 4,073.9 (4.2 ) (0.6 ) 4,069.1 4,118.0 (48.9 ) -1.2 % � Fluid Technology 3,657.1 3,144.1 513.0 16 % 3,657.1 (20.8 ) (139.1 ) 3,497.2 3,144.1 353.1 11.2 % � Motion & Flow Control 1,399.3 1,141.4 257.9 23 % 1,399.3 (86.0 ) (63.1 ) 1,250.2 1,141.4 108.8 9.5 % � Total Segment Orders 9,118.1 8,391.7 726.4 9 % 9,118.1 (111.0 ) (205.5 ) 8,801.6 8,391.7 409.9 4.9 % � Note: Excludes intercompany eliminations. ITT Corporation Non-GAAP Reconciliation Segment Operating Income & OI Margin Adjusted for Restructuring Fourth Quarter of 2007 & 2006 � � � � � � � � � � ($ Millions) � � � � � � � � � � Q4 2007 As Reported Q4 2006 As Reported % Change 07vs. 06 Q4 2007 As Reported Adjust for 2007 Restructuring Q4 2007 As Adjusted Q4 2006 As Reported Adjust for 2006 Restructuring Q4 2006 As Adjusted % Change Adj.07 vs. 06 � � Sales and Revenues: Defense Electronics & Services 1,177.9 952.3 1,177.9 1,177.9 952.3 952.3 Fluid Technology 985.2 838.8 985.2 985.2 838.8 838.8 Motion & Flow Control 370.2 263.1 370.2 370.2 263.1 263.1 Intersegment eliminations (4.6 ) (2.9 ) (4.6 ) (4.6 ) (2.9 ) (2.9 ) Total Sales and Revenues 2,528.7 � 2,051.3 � 2,528.7 � 2,528.7 � 2,051.3 � 2,051.3 � � Operating Margin: Defense Electronics & Services 10.6 % 10.0 % 10.6 % 10.9 % 10.0 % 10.3 % 60 BP Fluid Technology 12.7 % 12.9 % 12.7 % 14.7 % 12.9 % 14.7 % - BP Motion & Flow Control 10.3 % 13.6 % 10.3 % 13.6 % 13.6 % 13.9 % (30 ) BP Total Ongoing Segments 11.4 % 11.7 % 11.4 % 12.8 % 11.7 % 12.6 % 20 BP � � Income: Defense Electronics & Services 125.4 95.3 31.6 % 125.4 3.4 128.8 95.3 2.5 97.8 31.7 % Fluid Technology 125.4 108.2 15.9 % 125.4 19.6 145.0 108.2 15.2 123.4 17.5 % Motion & Flow Control 38.0 � 35.9 � 5.8 % 38.0 � 12.2 50.2 � 35.9 � 0.7 36.6 � 37.2 % Total Segment Operating Income 288.8 � 239.4 � 20.6 % 288.8 � 35.2 324.0 � 239.4 � 18.4 257.8 � 25.7 % ITT Corporation Non-GAAP Reconciliation Segment Operating Income & OI Margin Adjusted for Restructuring Full Year 2007 & 2006 � � � � � � � � � � ($ Millions) � � � � � � � � � � FY 2007 As Reported FY 2006 As Reported % Change 07vs. 06 FY 2007 As Reported Adjust for 2007 Restructuring FY 2007 As Adjusted FY 2006 As Reported Adjust for 2006 Restructuring FY 2006 As Adjusted % Change Adj.07 vs. 06 � Sales and Revenues: Defense Electronics & Services 4,176.2 3,659.3 4,176.2 4,176.2 3,659.3 3,659.3 Fluid Technology 3,509.1 3,070.1 3,509.1 3,509.1 3,070.1 3,070.1 Motion & Flow Control 1,332.5 1,092.9 1,332.5 1,332.5 1,092.9 1,092.9 Intersegment eliminations (14.5 ) (14.4 ) (14.5 ) (14.5 ) (14.4 ) (14.4 ) Total Sales and Revenues 9,003.3 � 7,807.9 � 9,003.3 � 9,003.3 � 7,807.9 � 7,807.9 � � Operating Margin: Defense Electronics & Services 12.0 % 11.0 % 12.0 % 12.3 % 11.0 % 11.2 % 110 BP Fluid Technology 12.3 % 12.1 % 12.3 % 13.5 % 12.1 % 12.9 % 60 BP Motion & Flow Control 14.1 % 13.7 % 14.1 % 15.2 % 13.7 % 15.2 % - BP Total Ongoing Segments 12.5 % 11.8 % 12.5 % 13.2 % 11.8 % 12.5 % 70 BP � � Income: Defense Electronics & Services 502.7 404.3 24.3 % 502.7 9.7 512.4 404.3 6.3 410.6 24.8 % Fluid Technology 432.7 370.6 16.8 % 432.7 39.9 472.6 370.6 26.7 397.3 19.0 % Motion & Flow Control 187.4 � 149.7 � 25.2 % 187.4 � 14.9 202.3 � 149.7 � 16.5 166.2 � 21.7 % Total Segment Operating Income 1,122.8 � 924.6 � 21.4 % 1,122.8 � 64.5 1,187.3 � 924.6 � 49.5 974.1 � 21.9 % ITT Corporation Non-GAAP Reconciliation Reported vs. Adjusted Net Income & EPS Fourth Quarter of 2007 & 2006 � � � � � � � � ($ Millions, except EPS and shares) � Change Percent Change Q4 2007 Q4 2007 Q4 2007 Q4 2006 Q4 2006 Q4 2006 2007 vs. 2006 2007 vs. 2006 As Reported Adjustments As Adjusted As Reported � Adjustments As Adjusted As Adjusted As Adjusted � � � � � � � Segment Operating Income 288.8 35.2 #A 324.0 239.4 18.4 #D 257.8 � � Interest Income (Expense) (27.6) - (27.6) (14.8) - (14.8) Other Income (Expense) (2.8) - (2.8) 0.7 - 0.7 Corporate (Expense) (39.8) (0.2) #A (40.0) (39.7) 1.3 #D (38.4) � � � � � � Income from Continuing Operations before Tax 218.6 35.0 253.6 185.6 19.7 205.3 � � Income Tax Items (20.0) 20.0 #B - (2.4) 2.2 #E (0.2) Income Tax Expense (70.2) (11.2) #C (81.4) (61.3) (6.4) #F (67.7) � � � � � � Total Tax Expense (90.2) 8.8 (81.4) (63.7) (4.2) (67.9) � � � � � � Income from Continuing Operations 128.4 43.8 172.2 121.9 15.5 137.4 � � � � � � � � Diluted EPS from Continuing Operations 0.70 0.24 0.94 0.65 0.08 0.73 $0.21 28.8% � � #A - Remove Restructuring Expense of $35.2M and ($0.2M). #B - Remove Tax Charge of $20.0M and apply structural tax rate impact in Q4. #C - Remove Tax Benefit on restructuring of ($11.2M). #D - Remove Restructuring Expense of $18.4M and $1.3M. #E - Remove Tax Charge of $2.4M and apply structural tax rate impact in Q4. #F - Remove Tax Benefit on restructuring of ($6.4M). ITT Corporation Non-GAAP Reconciliation Reported vs. Adjusted Net Income & EPS Full Year 2007 & 2006 � � � � � � � � ($ Millions, except EPS and shares) � Change Percent Change FY 2007 FY 2007 FY 2007 FY 2006 FY 2006 FY 2006 2007 vs. 2006 2007 vs. 2006 As Reported Adjustments � As Adjusted As Reported Adjustments � As Adjusted As Adjusted As Adjusted � � � � � � � Segment Operating Income 1,122.8 � 64.5 � #A 1,187.3 � 924.6 � 49.5 � #E 974.1 � � � Interest Income (Expense) (65.3 ) (7.0 ) #B (72.3 ) (60.8 ) (60.8 ) Other Income (Expense) (13.4 ) - (13.4 ) (12.9 ) - (12.9 ) Corporate (Expense) (145.6 ) 1.6 � #A (144.0 ) (123.6 ) 2.2 � #E (121.4 ) � � � � � � Income from Continuing Operations before Tax 898.5 � 59.1 � 957.6 � 727.3 � 51.7 � 779.0 � � � Income Tax Items 20.6 (20.6 ) #C - 0.2 (0.5 ) #F (0.3 ) Income Tax Expense (286.1 ) (21.2 ) #D (307.3 ) (227.8 ) (16.2 ) #G (244.0 ) � � � � � � Total Tax Expense (265.5 ) (41.8 ) (307.3 ) (227.6 ) (16.7 ) (244.3 ) � � � � � � Income from Continuing Operations 633.0 � 17.3 � 650.3 � 499.7 � 35.0 � 534.7 � � � � � � � � � Diluted EPS from Continuing Operations 3.44 � 0.09 � 3.53 � 2.67 � 0.18 � 2.85 � $0.68 23.9 % � � #A - Remove Restructuring Expense of $64.5M and $1.6M. #B - Remove Interest Adjustment on Tax Audit Settlement of ($7.0M). #C - Remove Tax Benefit of ($20.6M). #D - Remove Tax Benefit on restructuring of ($21.2M). #E - Remove Restructuring Expense of $49.5M and $2.2M. #F - Remove Tax Benefit of ($0.2M) and apply structural tax rate impact in Q4. #G - Remove Tax Benefit on restructuring of ($16.2M). ITT Corporation Non-GAAP Reconciliation Cash From Operating Activities vs. Free Cash Flow 2007 & 2006 � ($ Millions) � � � � � 2007 2006 � Net Cash - Operating Activities 798.1 780.7 � Capital Expenditures (239.3 ) (177.1 ) � Cash Payment re sale/leaseback 44.8 - � Pension Pre-funding, net of tax 50.0 � 82.0 � � Free Cash Flow 653.6 � 685.6 � ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED INCOME STATEMENTS (In millions, except per share) (Unaudited) � � Three Months Ended Twelve Months Ended December 31, December 31, 2007 � 2006 2007 � 2006 � Sales and revenues $ 2,528.7 $ 2,051.3 � $ 9,003.3 $ 7,807.9 � Costs of sales and revenues 1,828.1 1,458.9 6,435.0 5,618.4 Selling, general and administrative expenses 364.2 331.7 1,342.7 1,175.9 Research and development expenses 52.4 41.3 182.3 160.9 Restructuring and asset impairment charges, net � 35.0 � 19.7 � � 66.1 � 51.7 Total costs and expenses 2,279.7 1,851.6 8,026.1 7,006.9 � Operating income 249.0 199.7 977.2 801.0 Interest expense 46.2 25.4 114.9 86.2 Interest income 18.6 10.6 49.6 25.4 Miscellaneous (income) expense, net � 2.8 � (0.7 ) � 13.4 � 12.9 Income from continuing operations before income taxes 218.6 185.6 898.5 727.3 Income tax expense � 90.2 � 63.7 � � 265.5 � 227.6 Income from continuing operations 128.4 121.9 633.0 499.7 Discontinued operations, net of tax � 29.9 � 18.9 � � 109.1 � 81.4 Net income $ 158.3 $ 140.8 � $ 742.1 $ 581.1 � � � Earnings Per Share: Income from continuing operations: Basic $ 0.71 $ 0.66 $ 3.51 $ 2.71 Diluted $ 0.70 $ 0.65 $ 3.44 $ 2.67 Discontinued operations: Basic $ 0.17 $ 0.10 $ 0.60 $ 0.44 Diluted $ 0.16 $ 0.10 $ 0.59 $ 0.43 Net income: Basic $ 0.88 $ 0.76 $ 4.11 $ 3.15 Diluted $ 0.86 $ 0.75 $ 4.03 $ 3.10 � � Average Common Shares � Basic 180.5 184.0 180.6 184.3 Average Common Shares � Diluted 183.9 187.1 184.0 187.4 ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) (Unaudited) � � December 31, December 31, 2007 2006 Assets Current Assets: Cash and cash equivalents $ 1,840.0 $ 937.1 Receivables, net 1,935.0 1,288.9 Inventories, net 890.4 726.5 Assets of discontinued businesses held for sale 5.0 183.2 Deferred income taxes 110.1 79.8 Other current assets � 156.3 � 102.8 Total current assets 4,936.8 3,318.3 Plant, property and equipment, net 980.3 833.0 Deferred income taxes 28.5 136.1 Goodwill, net 3,806.9 2,336.8 Other intangible assets, net 733.0 213.2 Other assets � 1,050.2 � 563.2 Total assets $ 11,535.7 $ 7,400.6 � Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 1,296.8 $ 929.4 Accrued expenses 938.0 839.4 Accrued taxes 40.9 105.6 Notes payable and current maturities of long-term debt 3,083.0 597.0 Pension and postretirement benefits 68.5 68.9 Liabilities of discontinued businesses held for sale 1.0 96.7 Deferred income taxes � 8.2 � 0.2 Total current liabilities 5,436.4 2,637.2 � Pension and postretirement benefits 764.6 735.5 Long-term debt 483.0 500.4 Other liabilities � 921.0 � 658.1 Total liabilities 7,605.0 4,531.2 � Shareholders' equity � 3,930.7 � 2,869.4 Total liabilities and shareholders' equity $ 11,535.7 $ 7,400.6 ITT CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) � Twelve Months Ended December 31, 2007 � 2006 Operating Activities Net income $ 742.1 $ 581.1 Less: Income from discontinued operations � (109.1 ) � (81.4 ) Income from continuing operations 633.0 499.7 � Adjustments to income from continuing operations: Depreciation and amortization 185.4 171.6 Stock-based compensation 34.6 22.9 Restructuring and asset impairment charges, net 66.1 51.7 Payments for restructuring (51.5 ) (43.4 ) Change in receivables (236.7 ) (61.2 ) Change in inventories 111.8 (101.4 ) Change in accounts payable and accrued expenses 137.2 246.4 Change in accrued and deferred taxes (34.1 ) 30.3 Change in other current and non-current assets (106.0 ) (74.0 ) Change in other current and non-current liabilities 47.2 30.7 Other, net � 11.1 � � 7.4 � Net cash � operating activities � 798.1 � � 780.7 � � � Investing Activities Additions to plant, property and equipment (239.3 ) (177.1 ) Acquisitions, net of cash acquired (1,780.2 ) (89.5 ) Proceeds from sale of assets and businesses 283.6 226.6 Other, net � 6.8 � � (6.3 ) Net cash � investing activities � (1,729.1 ) � (46.3 ) � Financing Activities Short-term debt, net 2,311.9 (155.6 ) Long-term debt repaid (244.2 ) (13.3 ) Long-term debt issued 0.5 0.5 Repurchase of common stock (299.0 ) (210.0 ) Proceeds from issuance of common stock 65.4 69.0 Dividends paid (96.6 ) (77.6 ) Tax benefit from stock option exercises 15.0 16.7 Other, net � (0.9 ) � 0.1 � Net cash � financing activities � 1,752.1 � � (370.2 ) � Exchange Rate Effects on Cash and Cash Equivalents 103.0 50.6 Net Cash � Discontinued Operations: Operating Activities (16.2 ) 80.2 Investing Activities (4.0 ) (9.3 ) Financing Activities � (1.0 ) � 0.4 � � Net change in cash and cash equivalents 902.9 486.1 Cash and cash equivalents � beginning of year � 937.1 � � 451.0 � Cash and Cash Equivalents � end of period $ 1,840.0 � $ 937.1 �