Good day everyone and welcome to the Ingersoll-Rand Second Quarter 2008 Earnings Conference Call. This call is being recorded. At this time for opening remarks, I would like the turn the call over to the Director of Investor Relations, Mr. Joseph Fimbianti. Please go ahead, sir.

Thank you very much, Patrick. Good morning. This is Joe Fimbianti, Director of Investor Relations for Ingersoll-Rand. Welcome to our second quarter 2008 conference call. We released earnings at 7 A.M. this morning and the release should be posted on our website. I would like to cover a couple of housekeeping items this morning before we begin. Concurrent with our normal phone-in conference call, we will also be broadcasting the calls through our public website. There you will also find the slide presentation for this call. To participate via the web, go to www.ingersollrand.com, click on the yellow icon in the homepage of the website. Both this call and the presentation will be archived on the website. Also we will be planning a day for analysts and investors in Davidson, North Carolina in the fourth quarter. You will have the opportunity to hear about our businesses and spend some time with our senior operating team. We will be sending out information details about this in the near future. Now, if you would please go to slide number two. Before we begin I would like to remind everyone that there will be forward-looking discussion this morning, which is covered by our Safe Harbor statement. Please refer to our March 31, 2008 Form 10-Q for details on the factors that may influence results. Now, I would like to introduce the participants for this morning’s call. We have Herb Henkel, the Chairman, President and Chief Executive Officer of Ingersoll-Rand; Steve Shawley, our Senior Vice President and Chief Financial Officer; and the newest addition to our team, Bruce Fisher, Vice President of Strategy and Investor Relations. Welcome, Bruce. We will start with a formal presentation from Herb Henkel, Steve Shawley and with Bruce Fisher followed by a question-and-answer period. Herb will start with the overview. So, if you would please go slide number three.

Thank you, Joe. Good morning and thanks to everyone who dialed in to this morning’s call. Overall, the second quarter exceeded our prior earnings projections. Revenues were about equal to our original forecast for both historic Ingersoll-Rand businesses and Trane and we were able to more than offset somewhat higher than expected material inflation with price, higher productivity, and good cost controls at our business units and at corporate. For the quarter… the quarter revenues increased by 38% and by 7%, excluding Trane, which we acquired on June 5th. We had solid growth in all of our major businesses despite negative growth in North American residential construction and heavy truck markets and slowing industrial activity. EPS from continuing operations was $1.03, excluding about $0.13 per share from one-time items. This was about $0.15 above the mid point of our forecast range of $0.85 to $0.90 per share as Steve is going to go over with some additional details. During the quarter, as you know, we completed the acquisition of Trane. We’ve begun realizing the available cost synergies. I’ll cover more on the Trane acquisition later this morning. Finally, we are holding our full-year EPS forecast at $3.80 to $3.90 per share. Despite our above forecast results in the second quarter, we believe it is prudent to be conservative in our outlook given recent times of slow growth in some of our key markets going forward and a volatile material prices. Now, I would like to turn it over to Steve who is going to take you through the second quarter. Steve?

Please go to slide number four. Thanks, Herb. Those of you who have read our press release or reviewed our second quarter numbers, it is evident there are a lot of moving parts. This morning we are going to provide additional pro-forma information to supplement the GAAP reporting data so that you can get a clear view of our performance in the second quarter and understand our guidance for the full year. This slide gives a quick summary or revenue and operating margin for the second quarter. As you see in the upper right, revenues were $3.1 billion, up 38%. Excluding Trane, revenues increased about 7%. Looking to the lower right, reported operating margin was 11.7%, down 60 basis points from 12.3% last year. The box in the lower left of the chart details the $46 million of the one-time cost in the quarter related to the Trane acquisition, which was primarily related to inventory step-up and in-process R&D. Excluding the one timers, operating margin would have been 13.2% or 90 basis points ahead of last year. I will come back to the topic of margins and operating leverage in a greater detail shortly. Pleas go to slide number five. Looking out at the slide entitled Second Quarter Revenue Growth, you can see the components of the 38% sales gain in the upper right hand quadrant. Organic growth in the quarter was a little over 3% with about 4% of growth coming from the impact of foreign exchange. The Trane acquisition added 31 points of growth. Looking at the upper left, all four operating segments delivered solid revenue growth for the quarter. Trane revenue growth is shown as part of a newly created segment, Air Conditioning Systems and Services. Revenue change, portrayed in the bar, is on a pro-forma basis…

Thanks, Steve and good morning, everyone. As Steve mentioned, slide number 11 lists the highlights for Air Conditioning Systems and Services that represents Trane business that was acquired on June 5th. The left side of the chart shows Trane's results for the period June 6th to June 30th the time that it was part of Ingersoll-Rand. Revenues were $698 million. Operating income was $66 million reported and includes $45 million related to inventory step-up, in-process R&D and ongoing amortization as shown on the bottom left. The right side of the chart shows the pro-forma second results for Trane, excluding the $45 million of acquisition related items and also $2 million of restructuring that Trane undertook prior to the acquisition. Revenues for the quarter increased 4% versus last year on a reported basis and were up 2% excluding the impact of foreign exchange. Operating income was $252 million. In the appendix, you will find charts of reconcile operating income to Trane's traditional approach of showing segment income. To facilitate year-over-year comparisons, we have included the first two quarters of 2008 and all four quarters of 2007. Before reviewing the details of our sales, orders and backlog, I will first touch on the global HVAC equipment market. U.S. commercial equipment market grew low to mid single digits in the second quarter. Both applied and large commercial unitary markets had single-digit growth while light commercial unitary markets had a small decline. The international unitary and applied markets continue to grow mid single digits in aggregate. Let's now look at the composition of our sales growth as shown on the chart. We showed data on both reported and ex foreign exchange basis. I will focus most of my comments relating to sales orders and backlog excluding the impact of currency change. We had a…

Thank you, Bruce. Please go to slide number 12. Moving to Climate Control on slide 12, revenues in the second quarter were $912 million, up about 8%. The global Thermo King transport business, revenue increased by 12%, an excellent performance considering the depressed state of the North American refer trailer market. Declines in the North American trailer market were offset by growth in overseas markets especially in Europe and by the expansion of global truck, bus, and sea-going containers. Climate Control also benefited from significant growth in auxiliary power units in the U.S. Looking at just to Truck & Trailer piece of Thermo King, revenues worldwide were flat compared to the last year. North American industry shipments for trailers have been declining for the last six quarters as you know due to decline in truck ton-miles and higher fuel costs. Looking at the North American refrigerator trailer industry as a whole, second quarter unit shipments were down approximately 22%. Thermo King North American trailer sales were down about 18% compared with 2007. The European trailer revenues again exceeded our North American trailer sales. However, the rate of growth in Europe has slowed compared with a strong double-digit expansion we have seen over the prior-year quarters. We expect lower growth in Europe from the second half of 2008. Worldwide truck, bus, and sea-going container sales expanded significantly in the quarter and Thermo King recurring revenues increased by 7%. Finally, we enjoyed a substantial growth in our TriPac Auxiliary Power Unit where second quarter sales more than doubled compared to last year due to high cost of diesel fuel. This demonstrates all Ingersoll-Rand innovations are creating demand in tough markets. Looking at stationary refrigeration, global sales were up slightly in the quarter. This was driven by an 18% increase in the Americas…

Thanks, Steve. On June 5th, with the completion of the Trane acquisition we took another major step in our transformation towards becoming a leading diversified industrial company. The combined company has a stronger growth potential, better earnings consistency and better critical mass around the world. We are also creating a culture of performance and collaboration. Now please go to slide number 17. This morning I would like to cover very important topics of integration synergies and long term productivity improvement, which should be key drivers for IR going forward. Our focus for 2008 through 2010 will be, first and foremost, to keep the business running smoothly and to realize cost reductions in our overhead and builds of materials, while laying the groundwork for multi-year aggressive continuous improvement. We have established aggressive multi-year goals for key cost areas while working to achieve functional excellence through a lean administrative structure for key functions like finance, legal, HR, Information Technology and shared services. The total G&A cost base we’re working on is about $500 million a year. There should also be substantial procurement savings available in both direct and indirect materials considering the overlap of both companies builds of materials. The process improvement activity will also lead to manufacturing cost and quality improvement. That’s a total $9 billion cost base. Integration planning began back in January. We formed 14 integration teams, we staffed this effort with dedicated, full-time resources, both internal and external, to ensure execution with Vice President level internal resources bolstered with outside expertise as necessary. Additionally, we are in the early stages of making customer contacts to realize growth synergies in the future. We currently have focused on high profile areas such as parts and services, control systems and overall co-chain developments. Now please go to slide number 18. As…

Thanks, Herb. Please go to slide number 23. Let me start by updating the economic assumptions behind our 2008 forecast. Slide 23 summarizes the key economic and business metrics for 2008. Like many companies, we would seem softening in the U.S. in the second quarter, which implements our expectations of further weakening in many of our key end markets in the back of the year. We are also assuming slower growth in Western Europe in the last half of the 2008. And you can see on the upper right, we assume residential new construction markets will show no upturn before 2009. Non-residential construction put in place measured in dollars and a leading indicator to the Trane commercial business is expected to increase by about 5%. Domestic non-residential construction, measured in square footage, will see about 11% year-over-year decline with institutional activity down slightly year-over-year. Our market mix and our nine to 12-month lag from the indicators will provide our security business some cushion for the balance of the 2008. The refer trailer market in North America declined 15% in 2007 and is expected to decrease by an additional 15% as the market bottoms in 2008. Refrigerated truck and trailer volumes in Europe increased [ph] to offset the declines in North America. However, we believe that the European truck market peaked in the second quarter and the significant growth we experienced over the last eight quarters will stall in the back half of the year. Finally, looking at the lower rate, we expect industrial production and capacity utilization in the U.S. to continue to decline modestly. The influence of weak U.S. dollar will continue to stimulate exports. In summary, for the balance of 2008 we expect to see slightly declining markets in North America, slower growth in Western Europe and strong…

Thanks, Steve. We completed a very productive quarter. We finalized the acquisition of Trane, again achieving our planned synergies and we've exceeded our earnings guidance. Additionally, we're very mindful of the slowing macroeconomic environment and all of our businesses continue to make important ongoing strides in operating efficiency and cost reductions. We believe, we've significant opportunities going forward to achieve earnings growth in sluggish markets through revenue growth from innovation products and services as well as recurring revenue expansion. We will bolster this growth of margin gains derived from continuous improvement and higher productivity from lean Six Sigma activities. And finally, there are significant synergies available from the Trane acquisition. I see a bright future for Ingersoll-Rand going forward. Now, I would like to open up to questions that you have. Thank you. Question and Answer

[Operator Instruction]. And we will go first to…[Operator Instructions]. And we will go first to Terry Darling with Goldman Sachs.

Thanks. Herb, I am wondering if you could take us through the drivers by segment of the change in the expected margins on the full year '08 forecast. I guess the first item is Trane going from 11% to 12% to 9.5% to 10%, maybe if you could take us through those, that would be helpful.

Shawley is first to that and I will do the rest for you.

Sure in that original guidance of 11% to 12%, there was some contingency baked in, I believe, that Ingersoll-Rand put in not in the Trane margin but down below and so what you see in the decline in the margin projection is really the combination of putting that contingency back up into the Trane margin number itself. That’s about half of it. The other half is, higher materials cost that we see in the second half of the year and some impact of business mix where we are trading commercial equipment sales for service sales and have a little bit of hurt in an incremental margin basis.

Okay. Do you want to speak about others?

Just a comment, start with Climate for the year, what’s driving Climate for the year is pretty much the same as the what's driven Climate year-to-date. Experiencing slower markets in the trailer segment as we talked about. Offsetting that was the revenues coming from the Auxiliary Power. Auxiliary Power units have seen significant sales up tick, in fact in second quarter we saw about 124% increase in that product line. So that's offsetting to a large the top line. The Hussmann business, particularly in the U.S. is improving nearly due to the fact that we are picking up a little bit of share plus making significant improvements in the operations there. That’s going to continue through the year and as we said the impact of Europe slowing will have a little bit of down ramp on the top line, particularly in the third quarter. But the productivity, pricing and cost focus is going to be enough to, we think, drive Climate to a situation where there will be about one full percent improvement in margins year-over-year. Security, I think in the second half, is going to be significantly affected by the slowing commercial markets. As you all know that’s a significant piece of our security business. The drop off in the second half is [inaudible]. You can see on our charts that we have provided. Also continuing softness in the residential market, we have seen significant improvement in price in Security. That seems to be an opportunity there that will help us for the full year. The net material improvements we’ve seen in the terms of this productivity has been very expensive in Security. So the operating margins are improving a bit for the year and I think the total improvement forecast for Security is one point to two points in this forecast. So, those are the main things there. In Industrial Technologies, again the slowing industrial markets in the U.S., that was… not as much of a concern in the second half as we have for the residential and commercial markets, but we are seeing again productivity improvements in Industrial. Inflation in Industrial is probably hurting us a bit more because of the steel content there. So we are still looking for improvement year-over-year and if you back out the one-time issues that happened in the second quarter, we think... we see us being on track to improve margins and productivity as well. So, the whole story rose up and I think if you had looked at the second half forecast, it's really built on the fact that we are making improvements in productivity, margin enhancements in all the three old sectors of Ingersoll-Rand and that's going to be critical for this forecast.

Helpful color there. I appreciate that. The… on the old Trane, hard for me to pin point from those comments exactly what sort of the primary driver is. Is it a little bit of slowing in Europe and a little bit of raw material pressure on Industrial?

I think we… Terry if I look at it this way, saying that on the Trane side of things what we see as, again compared to how we had forecasted when we did this back in April, what we see is more material price pressure than what we had seen before. We didn't expect the $100 plus million. We thought it was going to be less than that and a lot of that comes out of the steel and some from copper, but steel is really the big driver that comes out of that part. And I can’t leave you saying that I think we also saw in terms of we had thought we would do better on pricing on some of the residential side. We didn't see that coming through. If I move over them into rest sort of the IR type businesses, if you look at first half to second half, Climate Control continues to be frankly going from 12% probably up to 13%, the Industrial Technologies piece probably goes from 13% up to over 14% and then the security in second half is actually running close to 19% but that's because we always have a stronger second half margin in security than we do in the first half. So, overall I would say to you is that it isn't the margin side that's different than what we talked back in April, it really is the revenue side. We did not see the slowing down. When I was talking to you back in April, I did not see, did not forecast, we didn't see in our numbers of the slowdown in Western Europe as much as we currently are forecasting it today. Maybe I am over conservative but that's really the change, more on the revenue side than it is on the margin side.

And lastly, I hope last quarter you were helpful with a kind of back on the envelope first sense of things for 2009. I am wondering if you could take us through an update on that.

Yes, I would get accused of doing this after I answer you, but the diversity of not disappointing my colleagues around the table, let me say this way that, again it's kind of interesting listening to what you see the outside grow. But if I look at it, I've seen more like a U, and I see in shape of coming down in… it could be the '08 and then going up again for '09. So, overall if I make just an assumption going in that '09 was in aggregate very similar to what you see in '08 overall, but may be being weaker in the first half and stronger in the second half. If I take that and put it all together the way I kind of look at it is that we wind up replacing in the first five months of the year, Trane income comparing it against obviously with ahead of interest income for the money that we had and then adding on to that obviously interest expense. When I take that and then I look at the synergies that we add in, we come up with a number, in my thinking on it, which just well north of the 415, 420 type thing, that’s if you assume the same kind of math in 2009 as we currently have in 2008. And I don't know if that's a conservative forecast now or not. So that's why we will give that to you later on in the year. So, all in when we look at the comparison between where we were as IR, add on Trane to track the cash that we had in the first part and then obviously the synergies that I told you about the $0.30, you add that all up and you come up with a number that’s well north of 415 to 420.

So, is that pretty much unchanged versus previous?

Yes that's pretty much in terms , but we were actually saying is that, I think if anything I was looking at to be higher than that. I am taking now off of the lower base in the second half on revenues than what I was thinking about three months ago and that's why this is Austrian math rather than a formal forecast that we are sort of giving you. But just overall, if you just sort of think of where we are today and if I think that the third quarter slows the way we put it in and the fourth quarter in turn comes pretty comparable to that to get through the numbers we have this full year that’s a lower base that I thought we would be coming and hopefully there is some upside there, but overall, I would say that I feel them going in for the next year, but takes us north of 415, 420, 425 number all based on what you guess on cost of material and obviously the ongoing issues of material costs in a big way.

Thanks very much.

How about our next question?

We will take our next question from Andy Junien [ph] with JPMorgan.

Hi, guys. [inaudible]

Hi. Good guess.

One question and one follow-up, I promise. Can we go back to the input cost again? You said that $120 million for Ingersoll ex Trane, just what you said Trane itself is going to be?

Trane was going to wind up being another $140 million on top of that.

Okay. And does that --?

Copper and steel being very, very big pieces of their’s, Andy, really they got hurt by it more than we did in some of our other sectors. So, their number is actually higher than ours on it. That's a full pro forma basis.

Sure. And then the procurement savings, the $25 million that you expect to achieve by year-end, is that saving embedded in this forecast of combined $260 million or whatever?

Yes, when we do the 380, 390 full year we said this is our operating results incorporating the $75 million of synergies and excluding obviously the one-time cost we had talked about.

Okay. And then my follow up is on pricing and you had about 2.4% pricing in second quarter. Can you walk us through your outlook for pricing by segment in the back half?

Yes, I think that a lot of the pricing is actually in. We are not looking too much extra above and beyond that. So, my expectation full year are fairly comparable to where we have been so far. If you look at Climate in terms of what it is running it can be less than 2% range, Industrial is close to that and Security is actually the highest because of what we've put in in the second half of the last year. They are actually running up almost up to 4%.

And Trane or ACSS?

Bruce, I think, it’s about 2 to 3 is sort of… the kind of number overall right? Is that right?.

Yes, about 2 to 3.

Okay, I will get back in line. Thanks.

We will take our next question from Andrew Obin with Merrill Lynch.

Yes, good morning. Great quarter, just a question in terms of the guidance I am trying to reconcile, slide... I guess it’s slide 26 versus the slide 25 that you had in 1Q of '08, it seems that EBIT reduction is, based on my calculation, is somewhere like $0.35 over negative drag. Then higher… lower interest expense is a positive tend and I think share counts I am estimating is I don't know like $0.07 or $0.08. It all seems to add up to $0.18 of lower EPS. So can you explain how the flat EPS guidance even that you have taken down your EBIT significantly and the share count and interest expense is not enough to offset it?

Andy, let me take a shot at that. I think if you look at where we were three months ago with this whole thing we were anticipating some of the things you heard today. The slow mix volume in the commercial markets and the impact of inflation and just what was happening in the second half. So the guidance given three months ago and this is coming from a new guy, taking a look at this, okay…I would say that…that was fairly well hedged still. So, when you give a number calculation between the Trane piece of the guidance last year, for full year and what we are saying now, we have put that conservatism back up in the forecast. I think the fortunate realization that we are seeing, inflation we are seeing the impact for the markets impact us. So the short answer to your question is that some of these risks and some of these downsides were included in the overall guidance of $3.80 to $3.90 last quarter and now we are pushing them back of the individual pieces as we learn more about what's happening in the Individual segment.

Got you. So basically a little bit of hedge has gone basically.

Yes, you got it. Yes.

And as the second question, this is not a statement if more a request, for years we used to include discontinued ops in guidance, it seems that we stopped doing that. So and this is just trying to wonder how should I put my numbers on for first call, should we include discontinued ops? Or should we exclude discontinued ops and I am not it makes any difference, but just for consistency sake, have you changed your reporting?

Andrew, historically we have included discontinued ops as part of the discussion. We started to show the continuing part of it try to break things into pieces so you could track them, but I think the numbers in first call going forward should include discontinued.

Yes, Andrew, we tried this that if you could think what we were concerned were we... we throw into discontinued ops, you would always wind up seeing tremendous gains from the transactions that we had completed. We didn't want that to crowd it at all, but you were to go look at things going forward, the way I view it is that as you get into it, basically disc ops cost us about $0.02 a quarter. That will be like what I call more of the steady state for the foreseeable predictable type future and as soon as we wind up getting rid of all the noise in the disc ops, which totally distorts all the numbers, we plan on really continue to go back in and again and include this $0.02 number. So when you put your First call stuff in that's really we think you should put that in there, will get included in all forecasts.

Gotcha. I appreciate it. Thank you very much.

We will take our next question from Shannon O'Callaghan with Lehman Brothers.

Good morning.

Good morning.

First, I guess a question what's one-time here with respect to the ongoing amortization of Trane, I am just trying to understand it looks like the 13.2% margin… operating margin ex items backs out the ongoing amortization of Trane. I mean is that…is that ongoing amortization in or out of the guidance at this point?

It is included.

The ongoing amortization piece Shannon is in the numbers, okay? It's a little bit confusing because if you take a look at how it's working here there is $46 million of one-time cost associated with the acquisition in the numbers for the quarter, $11 million of that falls out into unallocated corporate, okay? And you have to pull back about $10 million or so of ongoing amortization cost back up to the Trane segment. So what's in the Trane segment of the $46 million is about $35 million of one-time costs, okay. That's primarily inventory step-up write-down, R&D in-process write down and some other costs associated with the acquisition. So, a little bit confusing because the numbers happened to be the same, but I don’t know if that clears it up your analysis, we can certainly try to send you more information if you need it.

Yes, maybe I will follow up, I mean... even just on the... on the basis of your slide... slide 9, I mean, we know $3.81 billion of revenue and a 14.4% segment margin guidance, and 46 of corporate doesn’t look like… looks like it gets 12.9% operating margin ex items and it looks like that 9.6 might have been the difference, but you are basically saying the one… so you are just saying 103 and a 380 to 390 for the year bake in the full amortization of Trane?

Yes, it does, Shannon.

Shannon, yes, we have the ongoing amortization reflected in the numbers we provided for a guidance going forward. It’s is not considered as a one-time event.

Yeah, I mean, that's what I thought... I just having little trouble... again but I will follow up on you with that. In terms of… on price maybe Bruce can we dig in a little more to that? I mean... I think... you guys said you are not assuming sort of additional price in the second half and may be you didn't get as much as you thought in residential, I mean, is that matched out at this point? I mean if you basically hit a wall and figure assuming no further price?

No, no Shannon, I don't think it's true, I think... we want out first in residential with price increase and we took a couple of month for competitors to follow those results in that interim period and for the fourth quarter of 2000... of second quarter 2008. We didn't see as much prices perhaps we had hope to get. Now everyone has announced price increases, so there should be some more price going forward.

Okay, I leave it at that. Thank you.

We will take our next question from Eli Lustgarten with Longbow Research.

Good morning.

Hi, Eli

Terrific performance in this environment. Just one quick clarification, I think you said the incremental material cost for Trane was $120 million. How much of above your planning was that?

When we started the year off Eli, I thought the number was going to be around a 100 and then the wound up, going up 10 in the first quarter and we just added another 10 now, so we are now around at about a 120 and as I said most of it candidly was, we did not in our forecast assume this steel piece going up as much as it has, we saw steel more like $700 to $900 and obviously it’s been running over a $1000 of what’s in there. So that has been really the biggest driver. Our copper has been pretty much in line with where we thought it would be, which is good news it’s just compared to forecast and zinc is a little down, but obviously the two big drivers for our company going forward with the combination with Trane businesses and the traditional IR businesses is going to be the copper and steel pieces, so that’s the one that we really need to keep focused on and those are the two as I said that collectively we took the number up about 20 million that we thought when we went into the year back of seven months ago.

And is that the indication that the pricing to recover that $20 million maybe difficult to is that what you are trying to say?

No, I'd say to that, I think that increase is why we were able to realize the full 24. If you go back, remember we always talked about, I thought that was a number to have your increases less than 2% and now all of a sudden we are seeing, we are actually north of the 2% and I think we are able to put it through because that I think our customers realize when they are starting to see in terms of... the costs that we have there?

And as a follow-up, can you give us some ideas how long does the backlog at Trane last, given that the softness we are seeing and Hussmann I think, you said European food service was down all of a sudden... that has been running middle to almost double-digit for a while, that just opens and [inaudible].

Bruce, do you want to…?

Sure, in Trane commercial the backlog typically you could think of it in the range of three months to nine months in duration.

Does that set up a problem for next year because you are sort of late in the construction cycle where it is going down that we are into a problem looking into ’09 and --?

No, well [inaudible] is that what you have now in the backlog is something you're going to be shipping mostly by the end of this year into the first quarter and that obviously what you're looking at is, you don't get orders that far in advance. So, during the third quarter we'll be getting orders in, backlog in that we expect to ship everywhere from as early as the fourth quarter to as late as maybe the second half of the next year. For us the key part I would tell you, I think the focus on here is the increasing percent of the recurring risk to the revenue stream that's now over half of the revenue overall. And that's the one that I keep looking at where, again, [inaudible] acquisition part, that's been growing double digit and so that's where we're going to keep driving that, while we're looking at possibly in terms like tempering, if you will, the overall non-res construction stuff.

And let we have Steve speak to the decline in control, please.

Yes, Eli, you're about the case business outside of the U.S. really boils down to the... what we're seeing prices yielded Europe out predominant retailers over there and… expanding the region in Eastern Europe, seeing growing markets there and are driving the prices to the point where we've actually just said look our focus is on improving the profitability of Hussmann and we're not playing in those kinds of price levels. So, it’s not so much of market issue as more share and it is intentionally so, because of the profitability impact we have. We are responding to that by moving production to Central Europe, the Czech Republic, in order to try to combat the cost side of that and pretty much same thing is said about Asia and we're seeing similar kind of our pricing activity going on in Asia. So, we are evaluating our internal strategies to how to deal with that, in the mean time we are not in a business so that we lose money on.

Thank you very much.

We'll take our next question from Nigel Coe with Deutsche Bank.

Thanks, good morning.

Hi, Nigel.

Nice quarter. Just to clear, a question on the full-year guidance, so, essentially you had about $0.23 of contingency or buzz whatever you want to call it, off the books, and you now put that back in because of power inflation, lower volumes whatever, is that the way to think about it?

Yes, I try to use that what we've thought was going to happen is now happening and it's going to go and preclude are really going up higher unless we continue to see higher revenues, yes.

Okay, great. And then secondly, on the target for synergy Trane obviously you've kept those unchanged there is still a bit of debate with investors about whether those targets are achievable? Could you maybe talk about your comments levels on those targets and what you might see as trap some of the down side risks to those numbers coming through in '09 and 2010?

Nigel, this is Steve. Let me just comment on this. We've spent an enormous amount of time focusing on each of these pieces of synergy. I'll take the pieces in 2008, if you look at the numbers it is about $50 million of corporate spend and we've that nailed down budget-by-budget, headcount-by-headcount. So, when we look at what we do month-to-month we track those profiles of spending. And I am talking about the total spend, both corporate entities and what was Trane and what was already us around. That piece, I'm very, very confident and if you take a look at next year, we're expecting another $50 million of corporate synergy, in another words, of full run rate, about $100 million overdone. And again that's the function of coming out of 2008. So, we feel very good about that piece. The procurement piece in 2008 is driven primarily by one of our indirect material savings. The things like partial freight, insurance premiums, legal fees, IP synergies. So, those are easier to get because those are negotiations with the vendors or suppliers. Okay. Those are ongoing and we are collecting those as we go so those are countable, those are visible, those are tractable. As we move into 2009, we are going to be more depend upon what I will call the direct material piece of the synergies and we are focusing right now on aligning our engineering organization, our procurement organization, our focus around the world as to what we have to do to drive those projects and it's simple as getting the drawings prepared to do fees in a timely fashion so we can realize the benefits. The packages we’ve send on direct material the returns are coming in very nicely. So I feel that we will see significant benefits on our direct materials. And since that's going to occur a little bit later in time out into the 2009.

Okay. Okay. That's helpful. And then just a couple for modern questions. TriPac sales you said that that's good growth, can you just call out that number maybe what you are expecting the 2008 sales and what was D&A including Trane?

It's interesting I mean if you take a look at the dynamics of that thing it's, at $4.50 a gallon of diesel, it's a 12 month pay back and diesel is running higher than that so you just can do the math on what customers are seeing from a value opposition. We are expanding to drive fleet. If you look at promoting strength that was through the distribution network to refrigerated carriers, we are seeing a much greater expansion into drive fleets at this point in time and of course the ability to service and provide sales force from a dealer network is critical. So for the year, and for the quarter I mention we were more than double of 124%. And for the year we are looking to be up north of 60% in product line, which comes at a very, very good time relative to where we are in North American Trailer.

And the sales?

Sales totaled about a $115 million for the year.

Great. And then just finally just the D&A increase in Trane for the quarter?

$89.5 million if I have this correct here.

Great, thanks a lot.

Okay. We will take our next question from Robert Wertheimer with Morgan Stanley.

Hi, good morning, everybody. Two quick follow-ups. Can you give the... if you didn't already, I don't think I heard it. Can you give the materials cost for the first half versus second half of that $120 million?

Yes. We were looking so far for [inaudible]. We are talking honestly almost 50-50, we don't really see that’s being a lot different.

All right. Let met get the one [inaudible]

Yes.

I don't think it really is that much different for the first half of the year, by the time we get done with the second half it is about the same thing, it’s about half up.

That's actually interesting just given the way stuff is accelerating, is that?

No. Not really. So you have awful lot to do with what we saw and we were hedging before on the corporate side that what we weren't doing before and so when you really get done with that overall and saying that copper has actually comes slightly back down again from where it was in terms of metals. So we are seeing more like a… think if it is more like a bell shape curve as to what we have been looking and we don't think the back half is a lot different than that.

Okay. And then on Trane, when you did the apples-to-apples, which is really helpful, you left them on LIFO, right?

Yes, we did.

Perfect. And last question I guess one of the things that's surprising to me is just your pricing is pretty good in the toughening environment. I am wondering if you could break out may be it's for Thermo King U.S. versus Europe and I am trying to understand if you can get pricing in the slow environment or if its just you’re you are getting more on the ones that are hanging on so far. I mean, is it similar in the U.S. and Europe on Thermo King?

No. It's different. The U.S. is pretty flat, if you look at… that market trend started as we said really in 2007 where we were down 15%. So when you look at pricing availability in that market which really tough for '08. Pricing has improved in Europe because of the market conditions and we have also introduced new products over there. So, that’s really what’s driving… probably higher than expected price realization in Europe and lower than expected because of market conditions in U.S.

Let me go back and redo my Austrian math if I can… check out… I had only two other categories, while Steve was talking I have been doing the rest for you and when I add in all of the other miscellaneous what I missed in my numbers to you okay was a latter step we do in our [inaudible]. When added those pieces back up again and deduct the total number, what really comes out is that we are talking about somewhere along the lines of less that $50 million in the first half and over about $70 million in the second half when I go all there, not just copper or steel, which I was talking about but I got to add in my colleagues here who are kicking me in the meantime talking about adding in all of the other stuff that we had, it’s probably more oil related. So, all in with total inflation including not just steel and all that kind, we are actually, I said, it’s more like 50 to 70.

70 perfect. Thanks for the…

The job I have done.

Okay.

Okay.

Thanks.

We will take our next question from Jeff Hammond with KeyBanc Capital Markets.

Hi, good morning guys.

Hi, Jeff.

You just… I mean you've been doing a nice job on productivity, hit that 4% bogie this quarter, how are you thinking about that within your guidance in the second half of the year?

More of the same.

Okay. And just to begin on commercially HVAC a little bit within Americas maybe, Bruce, you can speak to what you are seeing between unitary and applied within the Americas and if you could just speak qualitatively to the replacement market, are you seeing a benefit from because of higher utility cost or conversely are you seeing push outs as people extend their life in the tougher environment, may be just a little color there?

Sure Jeff. First let me talk a little bit about the vertical markets we see there. In the second quarter, we actually saw particular strength in four of the seven markets that we track lodging, government, healthcare, manufacturing and in an aggregate they were all of at least high single digits. Commercial office and education were relatively flat and retail was down double digits. So, as you can imagine since retail tends to be more towards the unitary side like commercial unitary that's why we saw a small decline overall in terms of the light commercial unitary. The large commercial unitary and the applied were actually up mid to high single-digits for the quarter.

Okay. And then just comment on the replacement market?

You mean for commercial or for residential?

For commercial, just in terms of… are people buying into higher energy efficiency.

Yes, I think so and I guess the one thing I would point to that would suggest that is when we look at the performance contracting work that we are doing and this is where we go and work with the customer and they can pay the upfront cost of the new equipment with... generally these are replacement jobs and they pay for the... the capital cost of the equipment out of the energy savings and as I mentioned that part of our business sales were up roughly 50%.

Great, thanks guys.

We will take our question from Dindle Doun [ph] with Bernstein.

Good morning.

Good morning.

Two things... it's one of the follow-up, so your unallocated corporate expense for FY '08 Q1 was about $150 million, you now guided to about $170 million to $180 million, what's in the $20 million to $30 million that you didn't you expect in that corporate expense?

Yes, let me take a shot at that, I think it goes back to the comment I made earlier. Three months ago we had a pretty good view of this total picture in terms of what if I was going to take to integrate this business and to do the things we had to do to affect the acquisition. As we have been enable to do a fine line forecast line-by-line planning out the things for this falling prices in different places than we expected. For example as some of the one-time costs we just mentioned about $11 million in the quarter was in the unallocated corporate line. Also I think that there is a bit of…and when we put the forecast together we didn't have a good projection of time line as to how long the some people are going to be still on the rolls to affect the actual transfer, and we have people on the retention deals we have those kind of things going on. So what we are seeing and we expect to see is that those costs even themselves out as we go into 2009 some of them disappear. We got a full run rate of corporate spend and we expect to be approaching the $150 million in 2009.

Okay. I guess that brings me to the next question which is, I guess for everyone expect to Bruce. So what do you know about Trane now that you didn't know before the deal closed?

Why I think what I know about is the fact that we have as much, if not more, opportunity both in synergies, revenue side as well as on the cost side. I also know more about what the different technology issues are that we probably have to go deal with going forward and the opportunity the present. I just came back last week. I was over in the China and we were meeting with those folks on the kind of things we are looking at how attractive is it to consider introducing a residential solution, where we currently are just commercial outside of North America. I mean, those are the kind of things I think that we are continue to focus on. I think that we found that there is some great practices that Trane has that we are going to be adding to our business operating systems and I think there is some that we can add to their part. So I think what we are learning about each other in terms on it really is a very, very positive overall and as I said before I think that I am even more optimistic than we were before. And if you saw that one chart that we showed about the revenues stuff, we do not have any of that yet included droller wise. We are still working it, initial numbers I will tell you up front that could be very, very significant we are talking about $100 million, $200 million, $300 million just the question of how fast we could realize it. So I am even more existed than when we started, and I think we’ve got some great people and we got a great brand and we got to work it.

Is there anything negative that you found out since the close?

I think the negative piece we found out in terms to saying is that the residential piece in terms going to be tougher to go through and we have to continue to work that far. But I don't… that’s just because frankly we haven't pay that much attention to beforehand because it wasn’t part of our business profile expect for what we had usually like residential stuff. So I think that to me in terms of this soberness of the replacement market with people making decision there that been frankly has been a challenge for us.

All right. Thank you.

And you see that there in the numbers when we talk about revenues being up 12%.

All right. Thank you.

We'll take our next question from Ted Wheeler with Buckingham Research.

Yes, hi. Good morning. One kind of just housekeeping, on the amortization conversation we had a moment ago. I think I am interpreting it that the amortization on going is excluded in the $1.03 that we just… or reported and that it will be included here after, is that correct?

Ted, let me be real clear about this. Okay. The ongoing amortization is in the $1.03 and it’s in the guidance for the year.

Okay, I interpreted that that was part of what was removed in the press release. The other…thank you… the other question I had was on the residential and the overall pricing issue at Trane, how much of the $140 million raw material headwind do you think you are going to end up recovering in '08 and do you think you can put pricing into ultimately recover it, I mean I know there re new things moving around in '09, but do you think, you can get pricing to recover the $140 million in '09?

Ted, I think the answer to that is yes although timing is always problematic because…

Lag.

Right. There is always a lag.

How much do you think will be shortfall this year, just to get?

I don't… hard to put a number on that. I think we could be slightly behind.

Okay, thank you.

We will go next to Andy Casey with Wachovia Securities.

Good morning, thanks. Just a detailed question on slide 24 for Climate Controls, of forecasted growth is accelerating in Q4 from Q3 and I'm little confused if you could help me understand because the transport side seems to be getting a little bit kind of flattish if you will overview you have stepped away from business to avoid margin compression, is the acceleration all coming from North America in stationary side?

Yes. In fact, we look at the North American in the fourth quarter, Climate Control is very, very heavily depended upon the North American stationary piece. That's been a seasonal story for a long, long time. We picked up market share that will appear in the fourth quarter, I am not going to any specifics, but if you look at what will happen there it will be a significant, we believe more equipment shipments in the fourth quarter than the year, that's a big part of it. I think that the other piece is that they are continuing strength of the APU that's offset half of the trailer business in the U.S. and the other thing is that it goes with the equipment piece or Hussmann that is contracting quite frankly installation type businesses that help drive that. So, you are going to get a balance there, third quarter if you look at that piece, let's get the pretty hard comparable path, past years and that is going to be the tough spot for the year.

Okay, thank you very much.

We have no additional questions in queue at this time. I'd like to turn the call back to over to the management for any closing remarks.

Thank you very much Patrick. We are going to wrap up now. Thank you for joining us. There will be an instant replay of today's conference call available at approximately 1 PM and will be available until August 8. Calling number is 888-2031-112 and the pass code is 230147. The audio and slides of today’s conference call will be archived on our website and finally the transcript for the conference call will be available at Ingersoll-Rand website next week. Thank you all very much. We are now concluding our call.

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