Ladies and gentlemen, thank you for standing by, and welcome to the ITT Corporation Third Quarter 2010 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Tom Scalera, Director of Investor Relations. Sir, you may begin your conference.

Thank you, Paula. Good morning, and welcome to ITT's Third Quarter 2010 Investor Review. Presenting this morning are Chairman and CEO, Steve Loranger; and Chief Financial Officer, Denise Ramos. I'd like to highlight that this morning's presentation, press release and reconciliations of GAAP and non-GAAP financial measures can be found on our website at itt.com\ir. As always, please note that any remarks we may make about future expectations, plans and prospects, as well as other circumstances set out in our Safe Harbor statement constitute forward-looking statements for purposes of the Safe Harbor provision. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in ITT's Form 10-K, as well as our other public SEC filings. And now let me turn the things over to Steve.

Thanks, Tom, and I thank all of you for joining us this morning. Our strong third quarter results demonstrate that our attractive portfolio produces consistent and reliable results time and time again. This strong performance reflects our intense focus, as always, on strategic execution. And in this quarter again we saw some top-notch operating results by teams all across ITT, and it wasn't easy. Our focused productivity and cost management programs more than offset external headwinds, including some significant volatility in commodity pricing and foreign exchange. We saw some very strong organic growth in our Fluid Technology and Motion & Flow Control businesses where our markets continue to strengthen across the majority of our product segments and geographic regions. We're extremely pleased with the prior investments that we've made in emerging markets where we continue to see great results, in fact, growing 22% in the quarter, and of course we're expected to maintain strong growth rates in emerging markets for the next several years. In our Defense & Information Solutions business, we saw a 25% improvement in orders. And in addition, we recently generated several key strategic wins that validate ITT leadership position in a number of important programs. For example, in early October, we were awarded a $1.4 billion contract to provide comprehensive support services for all U.S. Army facilities in Kuwait. And this represents the fourth major facilities operations contract awarded ITT in 2010, and it solidifies our role as a premier provider of base operation services in the Middle East. In the third quarter, ITT was also recognized as a leading provider of space-based imaging payloads, winning two very important contracts to build next-generation imaging systems that are going to serve commercial and government markets. Our technologies will ultimately support imaging programs for both DigitalGlobe and GeoEye.…

Thanks, Steve. Let's turn now to Slide 4. We exceeded our third quarter EPS guidance by $0.12 due to stronger operating productivity, exceptional acquisition, integration and execution and lower corporate expenses. Third quarter revenues were flat as the growth of 17% at Motion and 11% at Fluid nicely offset the 9% decline at Defense. Organic revenue grew 3% at Fluid due to strength in both the U.S. and the European municipal markets, and Motion continue to deliver stellar organic results, growing 22% with double-digit improvement in all of those businesses. Defense's results included anticipated declines in CREW 2.1 and U.S. SINCGARS. So total organic orders in the quarter were extremely strong, and we are particularly pleased that the 18% improvement included growth at every one of our 10 value centers. Defense orders doubled compared to the second quarter and improved 25% compared to the prior year. Motion orders were strong at 20%, and Fluid orders were solid at 5%. Segment operating income exceeded expectations, declining 3% to $339 million. Exceptional operating productivity in the quarter contributed 100 basis points to the margin improvement. In total, margins declined 40 basis points due to negative foreign exchange, higher pension and a 60 basis point increase in incremental growth investments. During the quarter and throughout all of 2010, we've continued to make incremental investments in key growth platforms, including oil and gas, energy efficiency and emerging market expansion. And as just a reminder, we do include a chart in the appendix that provides a nice walk of our margin performance drivers versus the prior year. Lastly, our third quarter adjusted continuing earnings per share grew 6% to $1.8 due to solid operating performances, lower corporate expenses and a favorable tax rate. In addition, our 2010 acquisitions were $0.02 accretive in the quarter, and…

Paula, we're ready now to start the Q&A session.

[Operator Instructions] Your first question comes from Scott Gaffner from Barclays Capital.

I just wanted to dig in a little bit deeper on this acquisition performance. I mean that's pretty solid going from expectations for $0.04 dilution, now $0.03 accretion. Can you maybe just give us a little bit more color on how you achieved that, whether maybe the guidance going in with conservative or you outperformed on certain areas? And then whether or not you think you can take this experience forward and apply it to future acquisitions?

Well, let me say first that we are extremely pleased with the performance that we've seen on these acquisitions. And to have them accretive so early after we've acquired them, I think, is pretty strong performance. I think the first thing to understand is that these businesses that we bought are very strategically aligned with our current businesses. So that gives us a lot of capabilities when we first acquired these businesses to be able to get incremental value out of them. These were very high quality assets that we bought. They were very good companies. And what we've seen is we have seen some strong end-market demand, particularly with Godwin on the Dewatering side. So that actually performed much better for us than we thought. And again, these are very strong businesses and so we're very happy with how they're performing.

I just wanted to add on top of that is, it all starts from having extremely strong operating performance in the markets. We've actually had sales and operating income conversion that have been nicely in excess of our model. So we're pleasantly surprised. We're getting some early leverage of the organization, particularly in Fluid Technology, where we're able to leverage the scale of our distribution and selling networks. And I think the teams have been very cautious on the cost of integration. We make certain assumptions in our model when we make the acquisition to tie into appropriate valuation. But I think the teams have really done a very good job of not adding any additional cost for acquisition integration that was necessary. So all in, I think we've had a lot of practice in the last several years and we're getting better at it.

It sounds like maybe the sales synergies came in higher than you were expecting, selling through the ITT channels?

No, I would say that was not the biggest piece. The biggest piece was actually just pure operating performance in the markets they currently serve. But we are seeing nice setups for getting those sale synergies, starting to see some nice progress.

So I think what that says, as we integrate those businesses even more what we've done today, particularly with Godwin, which we closed that acquisition in August, we're going to see some nice accretion from these businesses as we get into 2011.

And then what's the acquisition pipeline look like right now? Are there any other businesses out there that are close to coming to fruition or is it still later in 2011 until we see some more acquisitions?

I won't speculate on any near-term deals, but we certainly do have a robust and active pipeline in most of the areas that we've talked about in the past in cyber, in some networking systems, in terms of geospatial, in air traffic management, in a number in Fluid Technology. So I would say the pipeline is robust. We're actively working them. We are in due diligence with a couple of companies, but other than that, I can't speculate. But I'd like to say that we are strongly on our course to be appropriately deploying capital in areas that we find to be more attractive for our portfolio in the future.

If these acquisitions don't materialize, obviously, your stock price has been relatively low and trading at a relatively low multiple. When do you sort of start to deploy the cash more towards share buyback rather than acquisitions? And how long do you kind of weight that time frame out?

That's a hypothetical question because we're pursuing a certain course. But the answer is we'll deploy cash in the areas that we think will create the most value. And until we get to that point on the acquisitions, we're essentially going to be maintaining our cash on the balance sheet to deploy for the acquisition. Obviously, if things change down the road, we'll re-evaluate it for the nature of your question.

Next question, comes from Jim Lucas of Janney Montgomery Scott.

First question, more housekeeping, with the strength that you're seeing in the emerging markets, could you bring us up-to-date on where you stand in terms of emerging markets as a total percent of sales? I know that it's been more heavily weighted toward China. Maybe break out China separately as well?

Let me give you an overall number. So when we think about emerging markets on a full year basis on the commercial side, and I'll focus my answer there. We're looking at about $1 billion in total on a full year basis. Out of that, I'd say China and India is about $200 million or so within that. So we already have a nice presence in emerging markets at $1 billion, when you look at that as part of the overall commercial revenues of $5 billion. That represents a little over 20% of emerging markets. And so we've got a nice presence there. We've built a lot of capability within these emerging markets, and we expect to see continued nice growth in emerging markets as we go into 2011.

On Defense, in your prepared remarks, you had referenced going into the fourth quarter outlook, recovered third quarter production delays. Could you expand on that comment please?

Those were some delays that we had in delivering some night vision and some jammers. And so that will fully fall in to the fourth quarter for us from Q3.

And from a revenue standpoint, how material was that?

It was around $40 million or $50 million.

Following up on the last question, capital allocation, you've been very busy on the Fluid side. And for quite some time now, you've referenced other areas like cyber and air traffic and there were a couple of smaller properties that you announced acquisitions on. When you look in your pipeline today in the non-Fluid side, so those cyber and air traffic opportunities, are those going to be more of the single-type acquisitions or are there larger properties which falls? Then secondarily, what types of valuations are you seeing on those properties?

Jim, it varies all over the map. We have large and small acquisitions from $5 million, $10 million, $20 million type companies all the way up in the multi-$100 million companies in every one of the areas you mentioned. So I think there's really no one answer to your question because the landscape of our pipeline really does include a variety of different sizes. We're not focused on size per se, we're focused on strategy, and what we want is to create value as an example of the recent OI and SRA type acquisitions are relatively small. And we've got a couple of other relatively small acquisitions that are just giving us a very, very nice suite of technology. I can go back and point to acquisitions we did with Allen Osbourne, with Insight, with Dolphin, those were all small-scale acquisitions. But as an example, a couple of those we're central to our ability to deliver the miniature soldier radio wave form and other secure GPS technology as adjuncts to our jamming and communications. So those are the kind of things that really give us a lot of benefit in the marketplace. So Jim, it really is a wide landscape.

And following up on that, the valuations that you're seeing in those properties?

I don't think there's any trend because when you look at a venture-capital company that has a lot of technology and no revenue, you're going to be looking at very high valuations as a percent of total multiples. In the most recent space, we were paying in the eight to 10x EBITDA, the 1.5x to 2x sales. Those metrics in those Water acquisitions were really just applied because the operating margin was extremely high. And the performance of the business this quarter validates that they were appropriate.

And finally, just wanted to touch on Fluid. You highlighted a strong municipal and the U.S. and Asia and Europe showing some improvement. Can you talk a little bit about the European muni outlook? What you're seeing in your order book today?

Yes, we didn't have very strong municipal performance in the third quarter. So when we look at -- in the U.S., it was up about 10% or so. When we look at Europe and EMEA, it was up about 4%, and even Asia was up, very strong for us at about 20%. So we are looking for some nice growth as we go into Q4. And in fact, that some of the expected performance that we expect to see out of Fluid Technology into the fourth quarter. So we've had nice orders, we've had nice growth, and we expect that to continue into Q4.

Your next question comes from Jeff Sprague of Vertical Research.

Could we just spend a little more time on the asbestos? I think it's a bit of a surprise that this is kind of going up relative to going down just given kind the legacy and age, et cetera, people who are might be making this sorts of claims. Has there been something in particular to tap in legislatively? Or some other construct that is kind of changed the profile of what you're seeing?

Jeff, as an overarching legislative change, the answer is no. However, when we look at what we have seen in prior years versus what we saw this year, we did see a few changing dynamics. On a local base, we did see greater than expected activity in several of the high-cost fee jurisdictions. We also saw, in some areas, a substantial increase in the settlement values of various cases. And we also saw some aggressive behavior last year with some of the national plaintiff firms. And these are examples of things that we saw that we think in this charge that we took our very best estimate to make sure that we were covering the future impacts of these kinds of changes. And I'll point out as we have disclosed in the last year or so in all of our Ks and Qs, these charges can go up and down. But at this point in time, this new charge we think adequately reflects this sort of unexpected and new developments that we saw throughout the various components of the liability calculations.

Are the settlement values going up? Because the more frivolous have been kind of weeded out and you're getting into settling with truly sick people? Why would settlement values be going up?

In last year, there was an abundance of some cases that were put on in the state of New York that did drive some of the settlement values up. They were older cases that came to fruition. But as a generality, the amount of -- when you say frivolous, let's just say that there are claims in that system which have merit and those that don't. And we don't see that changing dramatically.

And just finally, on Defense, you introduced I think a warranted discussion here on some of the complexity of understanding the backlog. Are you specifically coming off the view that though that the backlog will be $4.5 billion to $4.7 billion at year end? The Q4 sales in the sense of a $1.7 billion, I think, would be the strongest revenue in the quarter ever for the sense. You do pick up $40 million or $50 million on this timing issues, but it seems like that potentially could put a pretty big dent in the backlog if you shift that hard in the fourth quarter.

First of all, on the fourth quarter shipments, the Defense team is confident that we'll be able to make that. And the forecast, we certainly think the year-end will be higher than the 4.3 that we have. And right now, we have some timing issues with a couple of large service contracts that may or may not get into the backlog. So we're going to be in that range. But right now we're just saying it's going to be more than 4.3. And by the way, the only thing I would add, Jeff, is that, that does not change our view in terms of the Defense business for 2011.

Right because you have more service rolling in it and it doesn't touch the backlog basically.

Correct. There's a lot of complexity I think is in these outline, but this service mix that has a 60 to 90 day backlog, coupled with diversification and then a lack of some of the block surge orders, and the expansion of the IDIQ makes this metric really less represented, if it's accurate. But it's less represented than it was in times past, which is why we want to show you that we got well over $10 billion of funded and unfunded and coupled with the other major wins while putting it up into the $14 billion, $15 billion range, would suggest that we have already earned an extremely strong opportunity shift. And so when we kind of look at the probability of these things coming in, even with this variation, we do feel good about 2011. We'll have another very nice year on Defense in 2011.

I guess, could you take that over to the margin side though, Steve? Given the shift, you're going from I guess a lot of high higher margin towards in the life product businesses towards service, and you're running pretty high margins now. What should we expect next year as these things kind of blend together?

I think, fair question. And I think the answer to the question, first of all, validates the capability of the team because we have had a substantial reduction, as you know, in our core businesses in the last couple of years to the tune of $900 million of sales in the higher-margin CREW and SINCGARS business. And that has been offset by this very aggressive adjacency strategy that has, coupled with the defense transformation, actually lays the operating margin. And considering the fact that, that CREW and SINCGARS headwind had actually higher than defense average margin, I think really supports the fact that this team is working it really, really hard. With the transformation that Dave Melcher and the team lead is going to give some nice incremental run rate benefits. They're continuing to do some productivity, and we actually expect to increase some of our restructuring activity in Defense to be able to position for the future. And that's overcoming an additional pension headwind. So all that in, we're going to have about the same margins next day. The Defense team is going to hold the margins about where they are.

Your next question comes from Terry Darling of Goldman Sachs.

I wanted to try to understand the margins on the commercial side a little bit better, I guess, specifically in Fluid. On the bridge here, you're talking about a negative impact from FX on the margin side versus a positive on the revenue side. Can you talk a little bit about that where you'd expect incremental margins to trend here as you move into 2011? You've done a lot of growth investing and restructuring and stepping up the productivity and trying to think about whether you get an upsized, incremental margin profile in 2011 relative to what you'd expect normally in that 30% plus or minus range?

In terms of Fluid and productivity, we are very pleased with the productivity that they are putting up this quarter and on a full year basis. So we are seeing some nice productivity based on the restructuring and the growth investments that we're making. As I said, we are investing in growth in Fluid for this year, and so that is keeping their margins at the level that we have indicated here. As we transition into 2011, we are expecting to see some very nice margin improvement in our commercial businesses. And that's due to continued productivity improvements. The investments that we've made over the years will now start paying a very strong benefit for us in 2011. And then with that top line growth that you're getting, we're expecting to see some very nice flow through into their margin performance. And so the investments and the incremental investments, we would expect that those will be lower than they are, than what we're seeing in 2010 and that will also help the margin in performance. So we're expecting to see nice margin improvement in Fluid and in Motion & Flow next year as the top line, especially, recovers.

Can you be a little more specific there? First on the third quarter in Fluid, what happened to this FX drag when FX had a favorable impact on revenues?

We had both transaction and translation impacts that impacted our foreign exchange. We get impacted not only by what happens with the euro but also with what happens with the krona and the relationship there. So when you put all that together for Fluid, it impacted the margin by the 120 basis points.

And can you be a little more specific about what rolls off in terms of the growth investments in '11 versus '10? I mean it sounds like you would expect incrementals in the commercial businesses well north of the 30% next year. But maybe you could just help us with some of the things that are readily identifiable that are falling off here from activities in '10?

Due to the comprehensive portfolio nature of a global multi-industry, you can imagine that our investments are in a lot of different areas. So let me just give you some generalities. When we talk about growth investments, we talk about positioning the company in emerging markets. And as you know, we built 11 all-new facilities in emerging markets, all of which are up and running and being populated. That level of investment is coming down quite a bit. Also in emerging markets, we've also been populating the teams with new application engineers and selling and marketing folks. As an example, three years ago, we had two people in India. Today, we have well over 200 in India, and that's tapering off. That's tapering off right now. We're investing a lot in value-based commercial excellence, which is to upgrade the overall process capability of our selling and front-end on the commercial side of the business. That will taper off a bit. So those are some examples of things that are tapering off. In terms of new product technology, the engineering product development, that's probably going to be about the same, maybe slightly down as some of the new mining and the new residential commercial pump lines are coming to production. But that gives you an idea of what's happening.

And then just lastly, the 20% order pickup in MoFlo in the quarter relative to the 3% organic in the fourth quarter, I think you said that called out some impact from the European auto business on that. Weighing that down and the underlying would be up 15%. Can you talk about that European auto business a little bit more? Is that just production or do you have some adjustment to inventories going on there or what else is going on there?

That was due to the European stimulus program that was put into place that we saw some benefits from in the fourth quarter of last year, continued into the first quarter of this year and a little bit that fell into Q2. So we're expecting that in Q4, we're going to see a lower number because of that pull forward for the reasons for that. If you excluded that and you look at the other Motion & Flow businesses, you're going to see that the other ones are up about 15%. Motion Tech in general, we're very pleased with their performance on a full year basis. They've had a very strong win rate with new platforms. And we think that, that is going to serve them well as they go into 2011. So it really is just this European stimulus program and the fact that got pulled forward in Q4 and Q1.

Your next question comes from Deane Dray of Citi Investment Research.

I had a couple of questions regarding Water and the business mix for the quarter and specifically on the municipal North America up double digits. I know there's this expectation about municipal austerity. So I'll be interested in what type of business are you seeing? This has to be more than just the MRO break and fix, so all of their projects, with their stimulus, what's driving that?

Deane, I don't think there's a macro trend. Remember, in North America, we have 75% of our muni market is in aftermarket. At certain point in time, with respect to some of the abatements we have seen in the past, they're going to come to fruition. And we are seeing a slight increase in the restoration of ongoing projects. But I wouldn't say there's any major trend there other than that.

And then over on the analytical instrument side, this is a new venture for ITT. But the idea, you've added Nova which gave you a clear to the cornerstone acquisition [indiscernible], could you just update us on what the go-to market strategy is? Is this all leveraging your channel or will there be differentiated technology? But it's still a very fragmented market.

Yes, it is, Deane. So we have a two-pronged go-to-market strategy. First of all, a lot of the analytical instrumentation goes through its own distribution network today, and we're going to continue to drive through that distribution network. Most particularly for those Analytical customers who are not in the mainstream of Fluid technology or on-site Fluid Technology. On the other prong of the strategy is, in fact, as you suggested, leveraging our marketplace. We, as you know, have a very substantial footprint. In fact, several thousand salespeople around the world who are accessing municipal and commercial customers. And we will also, to the extent we don't conflict with the distribution channel, we will also be flowing the analytical instrumentation through those channels. So it's the best of both worlds. I should say also that's very similar to our Godwin strategy and it's very similar to the cross-selling strategy we referred to even within our own ITT distribution. And so we're taking advantage of the geographical benefit of this huge selling and distribution network, really, which is second to none in the world. And we're able to offer through this geographic benefit, the transport treatment and CAS technology that gives us the only capability of a comprehensive suite of technology to be able to address these needs. So that was what we referred to earlier about starting to see the opportunity for leverage in our existing Fluid Technology channel.

Would it be safe to say that the growth strategy could also include additional bolt-ons of additional test products?

Without a doubt. When we bought the business, we bought the business on the basis that we can build it into a lag, into a fundamental platform. And while it currently is embedded because of high commonality in the Fluid Technology, Chris McIntire and Gretchen McClain and the team have a very substantial growth strategy. And I'm pleased to say we're on that growth path. We're looking at a variety of incremental adds an we executed the first one with OI, and we've got several more locked and loaded to go.

Just lastly for me for Denise, on the asbestos, just a couple of clarifications, if you could. First would be, has there been any change on the insurance carriers in terms of expected insurance recoveries in your assumptions today?

No, there has not been any change. We do, do a deep dive on that also as part of this annual process. And so you know we have multiple insurance companies, multiple policies. We've looked at all of them, and there was really no major impact or change in our estimate for that versus a year ago.

And that $25 million number, the annual, that is net of insurance recoveries?

That is net of insurance recoveries, but it is also pretax.

So it's on a pretax basis because if then if we look at -- and the way we look at the asbestos liability, it's also as a percentage of annual free cash flow. And prior to today's announcement, this was low-single digit 1% or 2%. So even when tax affecting that, you're still very small percent, low-single digit of free cash flow. Is that correct?

That's correct.

Your next question comes from Steve Tusa of JPMorgan. C. Stephen Tusa - JP Morgan Chase & Co: A lot of good detail on the call. I just wanted to ask kind of a bigger picture question and maybe this isn't a platform for this question but I'm not sure when we're going to talk again.It's been a relatively frustrating year from a stock performance perspective, and obviously, the elephant in the room is the Defense business. I think a lot of people out there continue to believe that this business is just facing massive secular headwinds over the next couple of years, and you see it in all the Defense multiples. And sure enough all the defense companies this quarter like General Dynamics missing its revenue guidance, but the margins are better than expected, not really getting credit for that. You guys talked about the acquisitions you're executing on the big pipeline. It seems to me like you're kind of setting us up for running acquisitions. But at what stage do you get frustrated with the degree of misunderstanding at a portfolio and do something a little more aggressive on the portfolio management side, maybe lever the company up buyback a ton of stock? You've done a very good job with the card you've been dealt over the last six or seven years, Steve. And I'm just wondering at what point do you get frustrated with the street view that just seems like no matter how much you explain the diversity and the growth potential of this Defense business, it just doesn't seem to me that you're going to be able to get out of this rut over the next year or so. So I'm just curious as to what level of frustration you guys have over there in the board room?

I think one can never get frustrated in this business. What you need to do or what we do is we do our very level best to continue to communicate what we think is the right perspective on the defense business. And I will say that very specifically, Steve, to the point of your question, there is more concern about our Defense business in the street than we believe is appropriate. There is no question that some pieces of our Defense business are under stress. I think we're being extremely transparent about that. But at the end of the day, we're going to continue to communicate the reasons why we think the Defense component is a strong and robust component. Let me just review some top-level statistics with you. If you take a look at the $700-ish billion dollar top-level market that we think about in Defense, Secretary Gates has already articulated that he's going to drive around $100 billion of productivity through efficiency in the acquisition process and other cost elimination. When you take that efficiency through the budgets and recognize that just slightly over half of the budget is the piece of the budget that we really, really like and that we really want to preserve and Secretary Gates really wants to preserve, which is the operation and maintenance in the RDT and the yearly investment equipment side of the budget. The current DoD plan is to hold that essentially flat, in fact it's flat to up 1%. That's the place that we play. So the first thing you have to understand is that in the market segments where we play, the Secretary in Defense and everyone else is trying to drive this efficiency that you are all hear about to actually preserve the budget component that's the…

Our final question comes from Gautam Khanna of Cowen and company.

The first one, I think people understand kind of the more mature Defense product areas in your portfolio that face pressures. But beyond sort of the top line DoD budget concerns, it seems like DoD the rhetoric is more ominous each quarter about how they're going to squeeze profitability of service contracts, and you've won a lot of service contracts of late. Can you characterize sort of how the margins on these wins compare with your portfolio of legacy service business? And just beyond that also if I might ask, the direction of operating income at Defense in '11 and beyond, irrespective of margin?

There's no question the Department of Defense is going to drive efficiency. But unlike sometimes what you hear in the rhetoric, productivity is not the antonym of operating margin. In fact, we prove year-after-year that we can get both in this business. And I think that, that applies in the Defense contracting model as well. So we should be able to hold up the operating margin. I think the operating income number to your question is going to be proportional to the amount of actual revenue opportunity, revenue growth that we have. So we'll continue to be working the operating income. That will obviously be under pressure as sales tend to be in the flattish range as we go through this transformational mix into the Defense budget. But at the end of the day, I am convinced as we drive for more fixed costs, we continue to drive for productivity at these efficiency initiatives. We should be able to maintain our operating margin.

And to jump to Fluid at Water & Wastewater, given the Q3 order results in Europe, as well as kind of your early read in Q4, do you think it's safe to say European municipal has bottomed from an order perspective? Or did Q3 have some been lumpy serendipitous orders that got you in the positive territory?

We do expect that in the European municipal market that we are beginning to see some stability and some more favorable trends. So we do anticipate as we go into the fourth quarter in Europe that the spending on the municipal side will be higher than what it was in Q3.

And just a related question to that, U.S. was up, I think, was it 20% in Q2? And now it's up 10%. Are we seeing sort of a wind down in stimulus in U.S. that we should be concerned about going forward?

No, not at all. I think we never saw the wind up from stimulus. It was somewhat mythical in terms of its impact in the capital infrastructure markets. I can't say that we actually saw anything subsitive in that area. Thank you for your questions, and let me just close the call here by saying that we understand that we have a lot of changes in our business. We have been very clear about the portfolio transformation, which includes not only the Defense adjacency which is going extraordinarily well, dealing with the stress in the defense budgets and also migrating the portfolio into more valuable, commercial and emerging market opportunities. That's both done on an organic basis with our investments and with the allocation of cash. We're proud of the fact that we think that strategy is working well for us. And even with all these changes and with these headwinds, we wanted to confirm and conclude this call by saying that each and every quarter, you can count on us to be delivering and executing as has always been expected of ITT. So I want to thank you for your interest and let you know that we feel pretty good about the quarter. We hope you do as well, and we look forward to talking with you in December. So thank you very much.

Thank you. This concludes your conference. You may now disconnect.