Good day, everyone and welcome to the Ingersoll-Rand second quarter 2007 earnings conference call. As a reminder, today’s call is being recorded. At this time, for opening remarks, I would like to turn the call over to the Director of Investor Relations, Mr. Joseph Fimbianti. Please go ahead, sir.

Thank you. Good morning. This is Joe Fimbianti, Director of Investor Relations for Ingersoll-Rand. Welcome to our second quarter 2007 conference call. We released earnings at 7:00 a.m. this morning and the release is posted on our website. As usual, I would like to cover our housekeeping items before we begin. This morning, concurrent with our normal phone-in conference call, we will also be broadcasting this call through our public website. There you will also find the presentations for the call. If you go to our website, click on the yellow icon on the homepage. Both the call and the presentation will be archived and will be available later this afternoon. If you would please to go slide number 2. before we begin, I would like to remind everyone that there will be forward-looking discussion this morning, which is covered in our Safe Harbor statement. Please refer to our March 31, 2007 Form 10-Q for the details and the factors that may influence results. I would like to introduce the participants on this morning’s call. We have Herb Henkel, the Chairman, President, and CEO of Ingersoll-Rand; Tim McLevish, our Senior Vice President and Chief Financial Officer; and Rich Randall, Vice President and Controller. We’ll start with formal presentations by Herb Henkel and Tim McLevish, followed by a question-and-answer period. Herb will start with an overview, so if you would please go to slide number 3. Herb.

Thank you, Joe and good morning, everyone. This morning we announced second quarter earnings of $3.17 per share, which included $2.22 per share of a gain on the sale of the road development business. Total operating earnings of $0.95 per share were consistent with our prior forecasts and within our target range of $0.93 to $0.98 per share, despite a higher-than-expected tax rate. Please go to slide number 4. During the quarter, we continued to see solid activity in many of our key end markets, including commercial buildings, industrial, and refrigeration throughout the world. Residential construction continues to be weak in North America, which impacted both the new homebuilder and big box channels for our residential security business and Bobcat equipment sales. The worldwide refrigerated transportation market has really been a mixed bag for the first-half of 2007. North American shipments have been weaker than expected, as declining truck ton miles and lower freight rates have caused our customers to delay placing recently purchased new equipment into service. Second quarter truck and trailer industry shipments were down around 10%, and full year North American refrigerated trailer shipments are now forecasted to be down approximately 15%. This decline in North America has been offset by very strong growth in Europe and Asia. Overall, we expect our total full year 2007 refrigerated truck and trailer volumes to exceed 2006, primarily due to strong year-over-year growth in Europe. Please go to slide number 5. Reported revenue growth for the quarter was about 9%, which his well above our guidance range of 3% to 4%. Our previous guidance was based on the projected decline of about 10% in Bobcat for the quarter. Excluding Bobcat, the forecast would have been 5% to 6% year-over-year growth, so clearly we had a strong quarter in terms of…

Thanks, Herb, and good morning. Before I discuss our financial results for the quarter, I would like to remind you that as a result of our forthcoming divestiture or spin-off of the Bobcat utility and attachment businesses, we have reclassified their operating results net of tax to discontinued operations for both the current and prior years. Additionally, we have included Club Car’s operating results in the industrial technologies segment of both current and prior years. Reporting for all other segments is consistent with the first quarter. Please go to slide number 14. Revenue for the second quarter was $2.2 billion, up 9% from 2006, with growth in all three operating segments. Industrial technologies recorded double-digit growth, while climate control and security technologies were up 6% and 8% respectively compared with the prior year. Six percent of the company’s growth was driven by increased volume and price, with the remaining 3% attributable to favourable foreign exchange and acquisitions. We experienced significant revenue growth in all major geographic regions, which is reflective of the investments we have made in our geographic diversification. Asia-Pacific revenues were up 21%. More specifically, China was up 12%, where strong gains in industrial technologies offset declines in climate control. India revenues grew 59%, with gains in all segments. Revenues in the European region were up 17%; robust end markets, favourable currency and acquisitions contributed to the growth across all of our operating segments. Revenues in the Americas were up 4% as stronger Latin America bolstered modest growth in the United States. Recurring revenues grew by 11% and accounted for 19% of total revenues. Our strong revenue growth, despite softness in some end markets, is a result of the investments we’ve made to diversify the sources and geographical breadth of our revenue to sustain long-term growth to all…

Thank you, Tim. Please go to slide 22. Our economic outlook for 2007 has not changed materially since our last forecast in April. We closed the quarter with solid revenue growth in most of our businesses and our continuing operations bookings were up about 9% compared to relatively strong numbers for last year. You may recall that both fourth quarter 2006 and first quarter bookings also increased by a similar amount at 8%. Discontinued operation bookings were also up around 10% for the quarter, with increased year-over-year activity at Bobcat, utility, and attachments. With the exception of the North American residential building and transport refrigeration markets, we expect steady growth in most of our worldwide end markets for the balance of 2007. We expect moderate overall growth in our industrial markets, with low single-digit growth in North America and double-digit growth in international markets. The golf market will remain sluggish for the balance of the year and Club Car will grow modestly by share gains and sales of non-golf vehicles. Material costs continue to be a drag on our earnings. Second quarter commodity inflation was approximately $28 million and will be $62 million year-to-date. We now expect full year costs to approximate $85 million to $90 million, which is about $10 million above our previous full year forecast. Non-ferrous materials continue to be the major portion of the increased year-over-year cost problem. We are minimizing the impact of material cost increases through our sourcing partnership, value engineering strategies, and our product pricing. Additionally, our cost reduction and productivity initiatives have identified a number of restructuring opportunities that will create substantial value in 2008 and beyond. During the third and fourth quarter, we will implement these restructuring actions, which in aggregate are expected to total around $23 million. These investments are…

(Operator Instructions) Our first question will come from Ann Duignan with Bear Stearns.

Good morning. My first question is around restructuring. Herb, given that revenue this quarter was a little bit better than you had anticipated, which businesses are you looking at restructuring at this point and why?

When we look at our manufacturing footprint around the world in both our climate control, in our security, as well as our industrial, we looked at where we have opportunities to increase our profitability as a result of the shift geographically of where our customer group is. We see more and more shift in terms of into Eastern Europe as well as Asia-Pacific and so on, and so what we’ll be focusing on is really our manufacturing footprint to reflect where we think the demand for 2008 is and beyond for all three of those sectors.

And the $0.07 is embedded in the operating EBIT of the business? It is not a separate line item?

That is correct.

My follow-up question is on the IRS tax audit. Is there any risk, Herb, that if you lose or if the IRS finds -- it prevails, I guess, is there any risk that they could go back and expand their audit to ’03 through ’07? How comfortable are you that this is only and solely a 2001 and 2002 tax filing issue?

Ann, let me, if I can, take the opportunity to not only answer your specific question but before I came into the room, I looked at my Bloomberg and I saw obviously that was one that was out there, so I would like to put together the entire list, if you will, that we have. We received this letter from the IRS approximately a week ago. The notice of the proposed adjustments regarding our reincorporation was not unexpected. The IRS, and I think this is very important, the IRS has not contested the validity of the reincorporation itself. They have, however, challenged the inter-company debt incurred in the transaction and they have characterized some of it as equity. Based on our analysis of the IRS view, we are very comfortable that we are adequately reserved for these adjustments and that the ultimate outcome will not have a material adverse impact on our results of operations in the past, in the present, or in the future. We obviously do not agree with the IRS position and we intend to vigorously contest those adjustments. There is, as I am sure you are aware, a long way to go before this matter will be resolved. If you will notice, we did not put any specific numbers out there because candidly, we believe that the numbers that the IRS are kicking around are not realistic and that under any circumstances we would be required to pay anything near those. And so to put a number out there at this point in time would be misleading. But your specific question, the audit relates to 2001, 2002 and I do not want to speculate on behalf of the IRS what they would do with the rest, but obviously it would be surprising to me personally if they did not follow through for subsequent years. I hope I addressed not only yours but some of the other things that are out there in the rest of the world.

Okay, Herb. Thank you. Just to clarify, you said it wouldn’t surprise you that they would look at 2003 through 2007 then, is that -- did I interpret what you said correctly?

That’s what I would say. I am not trying to forecast for them but I would be personally surprised if they did not look at those as well.

Thank you. I’ll get back in line.

Our next question will come from J.P. Morgan, Steven [Hoffman].

Good morning. Just to follow up real quickly on that and then we’ll let it go, but in your release you said you thought you were adequately reserved. Does that mean that you have an idea about what settling this matter will take or is it just too early to really get that?

It was really too early to do that. Based on, as part of FIN-48 this year, we had to take a hard look and support all of our tax-related reserves, including what we though a potential outcome might be for the inversion-related reserve. But it is very preliminary. As Herb mentioned, we received this notification late Friday afternoon last week and our tax folks and outside advisors are pouring through it and the next step is we will submit back to the IRS our protest of their findings and we’ll just have to take it from there, but I would not want to speculate more on the specifics of the matter.

I think the takeaway I want you to have from us is that we quoted in our release and we said in our announcement before, the tax rate for IR going forward for the rest of this year is forecasted to be 15.1%. That is after we have this notification.

Okay, good. And then, it looks like just, Tim, based on your fairly thorough tax discussion there that maybe next year we should think it goes back up to the 20, 21 area? Does that make sense?

No, it really doesn’t, Steve. I would say -- there will be lots of changes as we pursue the strategic alternatives for the Bobcat construction, or the Bobcat business and so forth but I would say probably somewhere in the range of what we originally set out this year, the 17%, 18% is probably more reasonable.

Okay, great. Herb, as we think going forward now and getting a lot of this stuff behind us, you have what looks like two good platforms and maybe one, the industrial, that we might think of as kind of other. I don’t know if that’s accurate or not. Should we look at this as three platforms or two-and-a-half? As you look to grow the business going forward, I guess I am assuming it happens in the two platforms more than the industrial, but maybe I’m wrong there. And then I guess even a step further back, do you need another platform? How do you think about where this thing looks in five years?

I count three, not two-and-a-half, Steve.

Okay, fair enough.

And what I would say to you is that we started off, I think it is relatively clear, if I can spend a moment elaborating on this, if I do them in reverse sequence of where we normally talk, security I think it is relatively clear where we see global footprint -- mechanical electronic access control, that kind of technology -- all those areas have both geographic reach opportunities as well as acquisition targets for us. Climate control really so far, we have been focusing on transport as well as stationary. Geographically we see tremendously upside. I am really, really getting optimistic about what I start seeing going in the Indias and the Chinas of the world. I think I see there more opportunity for us, frankly, organically than I do at a lot of acquisitions. I think there will be some bolt-on stuff we do a la the APU, but I think it will be more organically driven. As I look into the industrial piece, what we started off there was really in two parts. We had an air business and we had a tool business and we now have a vehicle business with Club Car. There are many other industrial customers that we touch with a broad range of solutions that we could provide to them, so actually I would tell you that I am more I guess looking forward to bolt-on acquisitions in that sector than probably the other two combined. If you start thinking as to where we touch the customer and their being more productive and more profitable, there are many ways that our technology would really fit in and a much broader base than those two product categories I described to you. To me, think of it along the lines as the three areas growing globally, with two having significant acquisition and the third one, the climate one, probably having more organic drive over the next couple of years.

We also have embedded, Steve, within the tool business, we have a fluid handling business and some other material movement businesses that provide good growth platforms for us. Additionally, we are investing in growing geographically. There’s good opportunity for continued strong growth in all of those parts of industrial, particularly in emerging market countries, India, China, where we are realizing some nice improvement.

Great. Thanks, guys.

Moving on, we’ll hear from David Raso with Citigroup.

A quick clarification on the tax rate issue. Just so I understand, you made the comment even after this letter, you still felt 15.1 is the right tax rate for this year. But just so I understand, if they do alter and they prevail on changing how the Ingersoll New Jersey debt level is treated or however they want to look at as equity, whatever may be, how does that not affect the ongoing tax rate for the entity? Or should we take the comment, even after the letter it’s still 15.1 as simply because this won’t have a resolution until the end of the year?

Again, Herb’s comment of the 15.1 is really reflective of our belief that we are appropriately reserved for any costs associated with any change associated with the inversion audit. That is not to suggest that would reflect the full of what the IRS has assessed in their denial of the interest deduction, but we don’t believe that is the outcome. So consequently, there is no related adjustment to our P&L nor our tax rates related to this inversion audit.

-- Tim, but if they do prevail, doesn’t that change the level of debt in IR New Jersey that is shielding your U.S. profits, and thus it does have implication going forward on the inherent tax rate for the company, correct?

Their position is that yes, it is either not debt or a reduced amount of debt, and if they did prevail, then it would have an impact on our rate.

Okay, I just wanted to clarify. A quick question about the asset sale, the process. With the credit markets obviously a little bit disturbed, to say the least, over the last few weeks, how would you assess the impact it’s been so far on what you think you could sell the businesses for and the interest level of the potential buyers?

I think it would be fair to say that we have world class businesses that therefore drive interest level when it relates to a sale from both strategic as well as from financial type buyers. Obviously if there are interest rate changes, that would potentially impact the amount that a potential financial buyer would put out there. It does not impact what a strategic buyer puts out there. Secondly, we are still, as we said before, evaluating whether or not the shareholder is getting more value if we complete a sale to either of the parties we just described, or whether or not a spin-out is the right way to go. That determination, as we said in my notes, is something that we will be advising you of, we are certain, within the third quarter.

It would seem with the higher tax rate you cited for the disc op, is it fair to say when you think through spin versus sale, some of the spin could be done tax free, that higher rate has to be taken into consideration. And for the after-tax proceeds if you did sell it, is it fair to say, Tim, I should be using a higher tax rate than you ended up paying for Road?

Let me first say that assuming that the tax rate in discontinued operations for those businesses, what we would ultimately have to pay would not be fair. That business resides or does business in many, many countries around the world and is taxed on their earnings in those countries at the prevailing rate. I would say relative to what we paid for roads, probably is not a bad assumption. I think we can probably, if the mix of business would enable us, do a little bit better.

I appreciate it. Thank you.

Our next question will come from David Bluestein with UBS.

Good morning. Two quick ones; first, given the potential Bobcat transaction, do you expect there will be any windows where you are out of share repurchase mode in the third quarter?

No.

Okay and the second one, you did not want to give us a size of the IRS’ proposed adjustments, but of the tax benefit from moving to Bermuda, what percentage of the benefits are they attacking?

They are attacking the inter-company loan portion of the package.

I understand that. What I am trying to get at is --

I know what you are trying to get at. [Let me restate the whole thing] I said before, that we believe that the amount that I would be talking to you about, what they are proposing, that it is a totally unrealistic number that it would be totally misleading to put that out there because we don’t believe it has anything to do with reality.

Remember, we in all likelihood will end up in a appeals process and probably in tax court and who knows how far up in the court system that we will ultimately have to carry this but revealing too much information of our reserves or our position on this would not serve us well in that process.

Fair enough. Thank you.

Our next question will come from Bernstein, [David Dell, Daniel Dell].

Good morning, guys. I suppose I’ll leave the tax issue for now. Let me turn to a couple of things about the businesses, things that were noticeable. Club Car was up substantially in a business that historically, that’s been less the case. I would be interested in some color there. You also had share gains in several of the businesses. I would love for you to be able to characterize how you drove those share gains, particularly in some reasonably challenging markets.

Let me start off. Remember that when we reported Club Car when Bobcat was still in continuing operations, they were in the same sector. So if you were to look back at the details going all the way back for the last two years, even where Bobcat was falling off, Club Car continued to increase and revenues were up around the same 10%. So that actually has been a continuing trend and they have done that, even though golf course construction overall worldwide had been relatively flat. As a result of a new car introduced three years called the Precedent, we are really now going, we are getting more two out of three, three out of four, sometimes four out of five of brand new courses as they are switching in new fleets. We are getting that kind of business, so we’re really seeing a significant market share to where we are now actually one out of two golf carts. The second piece we really were focusing on with Club Car had to do with getting them to be more than golf. There are many, many utility vehicles that are used, some which we sold through Bobcat channel and some which we sold through other four-by-four type dealers. So we view that as a real strong global growth platform for us. The other areas we found were I think, and I was really, really happy with our team’s performance really had to do in the security area on the residential side. If you look at big box, you listen to the kinds of numbers you are hearing from them, whether it is off 5%, off 8% or so on, we actually had significant increases while they were seeing those kind of same-store sales reductions. A lot of that I attribute to in light of a market leader, getting more shelf space, as well as brand new introduction of electronic residential locks. I think when we were talking about that $1.3 billion of innovation, that is what is really driving the market share gains throughout all of the sectors.

And you would characterize the market share gains as virtually none of it driven by price decreases or those kinds of promotions?

No, as a matter of fact I would say to you it is the first time I can remember, and I usually have a pretty good memory on these kinds of things, this is the first time I can remember our net price increase for operations is actually over 2%. We did about 2.3%, so we actually had more increase. I think every number I remember reporting to you was less than 2% for quite a few years. So actually, I think we were even more aggressive and that was true candidly as it is in our security business. It was up the most. It was up over 4%. We also, of course, had more copper to deal with in that than anywhere else. I think if anything, what you are seeing is new products that are generating value propositions for the customers that actually would allow us to increase pricing. The Club Car story I was telling you before, that Precedent sells for more than 15%, some cases 18% higher than what we had before with the older product. I think it is the value proposition, not discounting, that is getting us the market share.

You may recall that we’ve been talking about investing back in the business to enhance our channels and accelerate the new product development and so forth and those investments are paying off and picking up market share and growing.

Our next question will come from Andrew Obin with Merrill Lynch.

Good morning. Just a question -- great operating performance -- just a question on can you just talk a little bit about the moving pieces in the guidance by segment? What has changed specifically and as I said, if you could address the outlook by segment?

Going forward into the third quarter?

Yes, just the second-half of the year, what is better, what is worse -- and as I said, just go segment by segment if possible.

I guess I would say if you start off on a sector-by-sector basis, we see that the growth in climate control probably slows down a little bit to more like a mid-single-digit to high-single-digits at most, because of the continuing slowing down on the transport refrigeration side in the Americas. That’s probably the biggest thing. The rest I think continues to be relatively strong. If you move over into the industrial side, we had our first signs of some potential weakening on the industrial in the North Americas, so where we were talking about 12% increases the second quarter, we see that being closer to more like 10%, high single-digit, low double-digit range going forward. If you get security technologies, that is probably the one where it is the biggest question as to how long can we outrun the residential side by outperforming it. So when we put in for the rest of the year here, we took the growth that we were running, we took it down more into the low to mid single digits, so we are talking more along the lines of 4% to 6% type numbers.

Just a follow-up question on the restructuring. What is the payback period that you expect? When do you expect -- and I apologize if you noted it -- how fast do you expect to recoup your restructuring expenses?

In general, they run between one to one-and-a-half and none of them go above two years.

Thank you very much.

Our next question will come from Cleveland Research, Mark Koznarek.

Koznarek.

Mark, we’ve been doing this a long time and I don’t think they’ve ever gotten your name right, so --

I’m used to it. As long as we were talking about this restructuring, how much benefit rolls into 2008?

We would expect the full payback is, as Herb said, between one and two years, so we would expect next year to get pretty much the full effect of it.

I would be disappointed if we didn’t get about $20 million just from that alone out of the 23 we are talking about investing.

Okay, so the net delta, we’d be talking about the delta between that 20 and what we capture this year?

Well, the majority of the expense will be taken in this year, so next year we will realize all probably $20 million worth of positive benefit.

Okay, great. Then, another detail here is on the new business mix pro forma for just the continuing operations. What is the rough geographic split?

I would say probably 64, 65 -- I’m sorry, it’s about 60% North America, 40% international. I’m not sure I am going to give you a breakout between --

25% about Europe and then about 15% Asia-Pacific would be the way. I would just do it as a ballpark number.

It shifted a little bit. Bobcat was more North America, so it is going to shift our international up a little bit, two or three points.

Okay, so not really a huge swing.

No.

No.

Just a final detail here in the security business; electronics, I used to see numbers in the teens kind of rates of growth, or even higher. Now it seems to be growing more or less in line with segment and I am wondering if you believe that business has reached some level of maturity or expanded penetration enough that it is going to be more realistic to grow in line with the overall segment, or was there something unusual slowing things this quarter?

The electronic when we added all the pieces together was up in the second quarter around 11%, so it really was growing faster than the rest of the pieces. And our third quarter outlook -- I just remembered the numbers I had is full year, my expectation is still going to be somewhere around 12%. So we are still running, if I compare that to the mechanical side which runs 4%, 5%, it is still running significantly higher. For us, what I keep thinking is more and more the idea of going and upgrading not only as commercial construction takes place but people going back in and retrofitting electronic solutions for where they currently have mechanical ones. I would really in your thinking go along the lines of that. The electronic piece is still running at probably double to triple what I call the mechanical run-rate.

There is also, we are going to have a classification change with regard to some of the residential as we introduce more electronic residential locks. That gets characterized down in the big box or in the residential space, so that would enhance that growth as well. And if you think -- we introduced an electronic deadbolt. If you were to look at a Schlage deadbolt, you are talking about something that is the $50 to $60 type range. We now introduced electronic deadbolt and it goes for $125 for the same one unit, so you can see in terms of the value proposition obviously is also significantly higher, so on the revenue side you go up almost 100% just because of the price point versus the mechanical side.

The breakout of the geographic split going forward. It’s about 60% North America, 25% Europe, 10% Asia-Pacific, and 5% Latin America.

Just finally, a minute ago when you were answering Andrew’s question, was that your segment outlook for growth in the second-half or full year?

That was second-half I was talking about.

Okay, great. Thank you.

Our next question will come from Deutsche Bank, Nigel Coe.

Good morning. Just to follow up on the pricing question, you said 4% in the security. I’m assuming that was driven by mechanical pass-through. Is that correct?

That’s correct.

Okay. I remember, Herb, last quarter you said there were signs of some softening in your non-res channels. Is that continuing?

I think it’s continuing at the rate that we were looking at. It’s running around the 8% type level so it has not dropped off. We look at Dodge Data and the question mark is really when you get out into the fourth quarter as to whether or not the slowdown happened. What we do is take the Dodge Data and age it because of where we wind up in the construction cycle, so the data really for us would not really be significant until the end of the year.

Okay, so there’s been no real change since last quarter in what you are seeing?

No.

Talking about the portfolio changes, it seems from what you said in the slides, Bobcat doesn’t necessarily mean the end of the asset disposals. It sounds like you are looking to pursue more of an organic growth strategy within climate. So does that mean you really aren’t interested in any sort of residential acquisitions?

I would say that based on what I told you, that would be a very, very logical conclusion one would come to. Residential is not a space, with the exception of our security business where we sell to the big box and those channels, but residential -- I mean, consumer space is not one that --

We would have a tough time leveraging that, Nigel, across the rest of the businesses. We are much more, as you know, let’s face it -- the best lever -- if you want to talk HVAC, I would see much more opportunity for us to fix the air conditioning in a Wal-mart by the technician who is on their knees taking care of the display case. We don’t have a technician making a call at home anywhere so that for us would be totally in a different space whatsoever. Really, the residential side there does not bring anything. It would have to be such a tremendous idea. It would be standalone excellence rather than synergies.

I also wanted to respond. I’m not quite sure. Maybe I missed what you said but I think we’ve been pretty clear that with the exception of some small bits and pieces here and there, that this is the finish of our restructuring or recasting the portfolio. I don’t anticipate any large or significant divestitures going forward in any of our portfolio businesses.

Okay, fair enough. The last question is really on the corporate line. We’ve seen that, a big pick-up year on year. I think we’ve seen this with ASP and also with -- would you expect that trend rate to continue until the end of the year and would you expect that to -- what would you say that settles at?

Let me talk a little bit about the accounting of this. When there are corporate costs that are directly charged to the business for a specific activities, they will go into discontinued operations with it. Those that are general allocations of corporate costs cannot be allocated to businesses that are into discontinued operations. Therefore what you see is the increase in corporate unallocated this quarter is reflected. We have undertaken a zero base budgeting process to make sure that we are sizing our corporate staff and shared services with the remaining business. We are reluctant to pull the trigger on that until we ultimately determine what the outcome of the divestiture or spin-off would be. Clearly you can imagine that if we ultimately ended up with a spin-off, we would have to staff the spun company with corporate and shared services resources, so we don’t want to scale back until that is determined. However, we have undertaken and are well into the process and are targeting taking some $40 million of corporate costs out of our cost structure. So what we did in our forecast, we said for simplicity’s sake we included discontinued ops as though they were here throughout the rest of the year and therefore the corporate charges, if you will, match up accordingly on that unallocated line for the rest of the year. As soon as we are able to come and say as to what the real disposition looks like, then we will talk about what that looks like and then we are well on our way for a zero based plan to deal with the appropriate size corporate and shared service staff.

Okay, that’s clear -- I think. I’ll follow-up offline. Thanks a lot.

(Operator Instructions) Our next question will come from Credit Suisse, Jamie Cook.

Good morning. My first question, when we think about the climate controls business, I guess it makes sense that Thermo King in North America is going down more than we thought. How does that impact margins and is there any big difference between the margins in Thermo King in North America versus overseas?

The difference in Thermo King Europe and North America is really very, very little. Both are equally very profitable. The real mix issues that we are dealing with is in the area where stationary refrigeration revenues are up while transport refrigeration revenues are down. The transport refrigeration revenues on the upside carry gross margins that approach 40% while the stationary are much more in the 20s. That’s the biggest issue for us in the sector.

Stationary refrigeration growing in the double-digit rates and we are seeing the decline in transport, particularly in North America. But that whole mix resulted in some pressure on margins.

Yes, but Thermo King is very nicely balanced profitability wise around the world.

Herb, just a longer term question -- when you think about your portfolio after Bobcat and the road paving business and you think about potential acquisitions, how important is it to shift more of your base into higher growth opportunities overseas and using acquisitions as a tool to do that? And then just a follow-up on that, we are hearing some data points that perhaps there are -- while Europe is good today, maybe ’07 is sort of the best -- you know, sort of the peak there and does it follows the U.S. So just your thoughts on Europe longer term.

I would say to you that my many years of doing this that Europe follows the U.S. by anywhere from 12 to 18 months based on the kind of businesses that you are in, and so I would agree with you saying that these are the best of times that are there and that probably as we look at our more ’08, ’09 type numbers, we don’t see a double-digit increase. We see that more leveling off on a more sustainable rate in the single-digit level. For us, what you very, very accurately described is looking for acquisitions and/or opportunities, we really are developing double-digit numbers. So for as at this point in time, whether that is Eastern Europe or frankly for us it is some of the Latin American countries of the world, and clearly India. If I look at climate control, and when I was just over there, we were talking with one customer and their biggest concern is can they really hire 5,000 store managers and can they really put in the 2,000 trucks they need to be able to deliver those kinds of things. So I think those kind of tremendous developing market opportunities are ones that I am excited about. When we met over the folks in Beijing and Shanghai with Club Cart, we are now the largest producer of non-gas modeled product, the small people type movers in the world. We are well-positioned to go in there. I just love to go and replace put-puts in Delhi and all the other cities that are there, or go to the World Games. I think those kind of opportunities and looking at acquisitions that enhance that kind of opportunity, both security, industrial and climate are what we are targeting. And I can’t believe the challenge we’ve had has been the price point. We haven’t talked about it but I would say to you, I can tell you I am quietly cheering here on the sidelines that private equity has real problems with the stuff because we have seen in terms of more deals that we’ve lost to them over the last year-and-a-half than all of the other strategics combined. So as I think they wind up having to deal with money more along the way I do, it will give us more of a shot to buy that kind of company that meets the profile I was just describing to you.

If I could go back for a second to Herb’s prepared remarks and our focus for those acquisitions would be geographies, would be channels and it would be technologies and the geographies certainly are focused on the more rapidly growing emerging market economies, Eastern Europe, Russia, India, China and Asia.

I think the part that I like this year is that we actually are seeing now that our market penetration throughout Europe is such that while North American transport stuff is off for climate control, we now are actually seeing the European marketplace on an absolute dollar terms is equal to what we see in the U.S. That would really help us longer term to be able to balance out the kinds of cycles that we had experienced beforehand where we weren’t that strong there.

Okay, great. Thank you. I’ll get back in queue.

Our next question will come from Joel Tiss with Lehman Brothers.

Can you just talk a little bit about the cash movement, the tax rate impact for moving the cash around? Is that done or is that going to continue as you buy back shares into the third quarter and into 2008?

It gets into a little bit more sophisticated tax explanation than I wanted to go into but if you really step back from it, the majority of that still is ahead of us but it is reflected in the rates. Remember, that was arrived at to determine a full-year rate. So consequently, while the cash -- we haven’t actually incurred it but it is embedded within the rate. We clearly will finish the $2 billion authorization that we said we would finish by the end of this year with that amount. There will be no additional required for that.

So the tax rate that we described to you already includes the full $2 billion being acquired in shares by the end of the third quarter. What we do not have in there is beyond the third quarter because we do not as of this point in time have any guidance out there as to how robust our activity is in the fourth quarter.

Okay, great, and everything else has been answered. Can you just spend a couple of minutes on the rental channel? I know Bobcat is discontinued but can you just talk a little bit about what you are seeing from those guys? Are they cutting their CapEx pretty strongly or are they hanging in there? Just a little characterization. Thank you.

There’s really two different answers. We are finding that the utilization of Bobcat type compact equipment has resulted in very, very low levels of activity. Our activity level in the rental market for the first-half of the year was less than half of what it was in 2006. Some of that I think has to do with new owners that probably are revisiting the cash flow line. I think some was more of a wait and see activity levels. We just now received a couple of orders from one company that honestly we normally would have expected back in March or April, so they really have cut back. On the other side, when I look at what we are doing on our utilities type of equipment, more on the air compressor. Now, these are obviously much lower cost units. That business there has been very, very strong and continues to be very, very robust. But overall, I do believe that the change in ownerships has caused a delay and a reduction in CapEx for the rental. I think the sale with United obviously put them out on the block for a while, so I think there’s been some ownership issues that delayed it even more.

Thank you very much.

But overall, it’s really been a significant negative for the Bobcat story.

Okay. Thank you.

Our next question will come from Eli Lustgarten with Longbow Securities.

Good morning. Two quick questions -- one, could you talk about the [inaudible] market, up 11% I guess. Can you talk, was that mostly Europe or was it balanced or -- what is your outlook in that part of the business?

Balanced.

Balanced around the world. Doing really, really well there both in Europe as well as the Americas. We are seeing some strong growth. I told you -- when we lined up getting into the Wal-mart business, that went up and then secondly, we are starting to see a good rebound for some of the more traditional larger chains that are doing better these days. It is pretty well balanced across the board and it will be I think for the rest of the year.

Is there a big price component to that because of the material content or -- [Multiple Speakers]

There’s two issues that we have to struggle through there. Number one has to do with the net price realization and this one is only 1.5% while inflation is running north of 3%, so that one is tougher because it gets into the -- it’s almost like trying to get big box price increases. So that’s a challenge, if you will. The other piece I would say that’s a big difference has to do with the product mix. When you are doing more, what we talked about, remember white shelves that you wind up making for the Wal-mart aisles, those do not have as attractive a gross margin to them as if you are making some very fancy glass display cases that go to hold foods and so on. So the shift to what I would call more traditional line stuff puts a little more pressure on the gross margin line as well. So those are the two negating factors.

A follow-up question is really how should we think about Ingersoll? Guidance of $3.50, which is really $2.65 plus discontinued, and most of the analysts had a $3.50 going to -- the contention was $3.92 for next year, or $3.90 to $4. That $2.65, without normal growth, $0.12, $0.15 is a $3 number for next year. Is it philosophically that you intend to fully offset the dilution from these divestitures to have us think in the closer to $4 range? Or will you think of the ongoing company, will you buy back enough stock to offset the dilution? If you can’t make the acquisitions, do you feel the pressure to make the acquisitions offset the dilution? How should we think about Ingersoll-Rand over the next year?

I think I would go more along the lines of the fact that what we do is we will redeploy the assets that we get, the cash or whatever it is, assuming we do not spin-off -- let’s assume it’s a sale. If you were to look at that part, I would be very disappointed if we did not get very close to making that basically neutral, so that if you look at the share -- obviously there’s a lot which I don’t know. You know, this is one of these -- Tim and I were talking about this beforehand. When you talk about buying back $2 billion worth of business, of shares, you would love the stock to be $30 but the last time I looked, I want a higher stock price rather than a lower stock price, so you have to make all sorts of assumptions. But if you look at the stock as being $50 and you look in terms of what our expectations are, I would be really disappointed if we were not able to go back to where we would be at least neutral. I am not looking to replace all of the revenues with share buy-back. We do think that we have some very attractive pieces that we’ll be reporting out in the remaining part of this year but for next year, I would go more along the lines of the full value for the IR rather than one that is based on the current -- I think that would be a real miss if you did that.

But the call is not to do it all with share buy-back, I assume?

That’s correct but if you look at -- if I do the acquisitions that we are targeting, I expect them to be at least in line with the kind of earnings that we are going to be getting for the business we are selling.

Thank you.

From Citigroup, we’ll hear from David Raso.

I’ll be quick. I know it is getting late. Corporate expense -- just a little help for the full year number. Obviously it dropped dramatically last year second to third quarter, and given the change with the disc ops, can you give us some guidance full year corporate expense?

Last year’s third quarter was an anomaly. You may recall we the stock-based liabilities that as our stock priced dropped for the quarter, it provided a credit for us. We are probably looking at corporate unallocated on the restated basis somewhere in the $150 million to $160 million level. Again, before any restructuring, zero base budgeting benefits that we would receive.

I’m just trying to think for the back-half. Obviously the first-half of the year, EPS growth was negative 4; third quarter you are looking at 3 to 4 and the fourth quarter has to be up 36%. You have a very easy comp on Bobcat, obviously and the disc op that quarter. There is some seasonality, security and safety gets a little better profitability in the fourth quarter. Climate control, you should have an easy comp. The question is, if Hussmann’s doing better, a fairly profitable part of Thermo King is down in North America, how should I be thinking -- let’s say climate control is going to be the swing factor in the fourth quarter to get the number if everything else is reasonable. Can I expect climate control to have a big margin improvement in the fourth quarter to make up for last year’s fourth quarter disappointment?

Yes.

Thank you very much.

Operator, we’ll take one more question, please.

Our final question will come from Andrew Casey with Wachovia Securities.

Good morning, everybody. Most of my questions have been answered. It’s been kind of long. Just a quick question on CapEx in the quarter. Significantly down year over year, is that totally due to the removal of the machinery businesses or is there a comp issue there?

Those have been removed from both years so we are down considerably, but you may recall last year we had indicated that we had some significant investments. We are investing in an R&D facility in Czech Republic and some other significant ones. What we are doing now is again, we will continue to invest in the business to provide, to maintain our facilities and to meet our growth needs. But I would say this is more --

I think it is light just because of what happened, didn’t happen in there. I think if you look at us going forward 1.5%, 2% CapEx is pretty I think on average, a kind of number you’ll be looking at.

Thank you very much.

Thank you, everybody. We’re going to wrap up now. There will be an instant replay of today’s conference call available at approximately 1:00 p.m. It will be available until August 3rd. The call-in number is as follows: 888-203-1112, and the pass code is 8907146. International number, 719-457-0820. The audio and the slides from today’s conference call will be archived on our website and we’ll be putting the transcript up probably some time next week. Please call me, again, I’m Joe Fimbianti, if you have any additional questions. Thank you and we are going to conclude the call.

That does conclude our teleconference for today. We’d like to thank everyone for your participation and have a wonderful day.