Good day, ladies and gentlemen. Thank you so much for standing by, and welcome to the Emerson Second Quarter 2008 Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. Before beginning, we would like to remind you that Emerson's commentary and responses to your questions may contain forward-looking statements including the company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available in Emerson's most recent Annual Report on Form 10-K as filed with the SEC. In this call, Emerson management will discuss some non-GAAP measures in talking about the company's performance, and the reconciliation of those measures to the most comparable GAAP measures is contained within a presentation posted in the Investor Relations area of Emerson's website at www.emerson.com. Now, I'll turn the conference over to Ms. Lynne Maxeiner, Emerson’s Director of Investor Relations. Please go ahead, ma'am.

Yes. Thank you, Michael. I'm joined today by David Farr, Chairman, Chief Executive Officer and President of Emerson; and Walter Galvin, Senior Executive Vice President and Chief Financial Officer. Today's call will summarize Emerson's second quarter 2008 results. A conference call slide presentation will accompany my comments and is available in the Investor Relations section of Emerson's corporate website. A replay of this conference call and slide presentation will be available on the website after the call for the next three months. I will start with the highlights of the quarter as shown on page two of the conference call slide presentation. Second quarter sales were up 12% to $6 billion, with underlying sales growth of 6% led by strong international growth. Results for the second quarter '08 and the comparative quarter, second quarter '07, both exclude the European Appliance Motor & Pump Business. Operating profit margin improved 100 basis points to 16.4%, and earnings per share from continuing operations was $0.75, up 23% compared to $0.61 in the prior-year quarter. Operating cash flow was $748 million and free cash flow was $569 million, an increase of 37% and 45% respectively. We made progress on operational efficiency measures in a quarter with average days in the cash cycle decreasing to 66 days from 68 days, trade working capital as a percent of sales improving from 18.8% to 18.7%, and our operating cash flow to total debt ratio remained strong at 67%. It was another strong quarter and a great first half of 2008. Moving to the next chart, the second quarter P&L. Sales in the quarter were $6.023 billion, again an increase of 12%. Underlying sales growth was 6% with currency adding four points of growth and acquisitions net of divestitures adding two points of growth. As mentioned earlier, the…

Thank you very much, Lynne. First of all, I want to thank everybody for joining us this morning. We appreciate your time. I know we have a lot of things going on, but we appreciate it. I also want to thank all the business leaders, the operational heads, the presidents in particular, Ed Monser and Walt Galvin, for what I consider executing very nicely in a more challenging environment… and as we talked about in the February… in the analyst meeting. Now, the delivery of strong underlying sales, operating margins, leveraging our cost structure and really beneficial… benefiting from the restructuring we have been undertaking in the last couple of years and dealing with what I call a tough increasing material inflation environment, which is accelerating. On top of that, the operations really did a great job in managing their asset utilization and generating very strong operating cash flow of $748 million, up 37%, and around $1.2 billion in the first half, up 34%. So a very strong cash generation performance, very strong asset utilization performance. At the same time, we are growing sales on average over 6% in the first half, underlying sales, and also really improving the profitability of the business, underlying profit margin of the business. From the restructuring and the repositioning of the businesses, the increased presence in the key emerging markets, which now represent closer to 30% of our sales, the increased international presence which represent this quarter around 53% of our sales, and most importantly the continued aggressive investment in technology and new product programs that we’ll be launching throughout the remaining part of 2008, 2009 and 2010. Fundamentally, our core belief here in a marketplace as challenging as this is right now is, now is the time to invest… aggressively invest in key…

Certainly. Thank you, sir. [Operator Instructions]. Our first question comes from the line of Deane Dray with Goldman Sachs. Please go ahead, sir.

Yes. Thank you. Good afternoon.

Good afternoon, Deane.

David, [inaudible] was in your prepared remarks, but when you just finished seeking there you talked about accelerating tough materials inflation environment. So can you talk about… the point about… that it's accelerating and what the offsets are, price and productivity and so forth? And then I have a question for Walter on the hedging.

Okay, fair enough. From the standpoint that… this is not anything unique to Emerson. As we all know, we are out there dealing with a very challenging environment relative to steel. The steel companies have continued to raise prices. We have contracts for some X percent of our steel and then we have to go out and negotiate and have spot buys for the rest. This is... we have seen spot steel go from $800 a ton up to over… approaching $1,200 a ton. We have had a lot of our suppliers try to add surcharges around $250 a ton. We have been able to maintain our agreements with these suppliers. They’ve honored that. And we are working very aggressively to try to make sure we mitigate that. But it is pretty clear to us between steel, copper, nickel, aluminum that we are looking at a pricing cost environment. This can be substantially higher than it is this year going back to what we saw in 2007, and hence as we reviewed with our operating people in the last couple of months and reviewed with the Board today, we're looking at a price increase environment that's going to be greater in 2009 as we move into it and we start taking those actions now than we saw in 2008 going back to where we were in 2007. So we've been able to stay green as we look at it from our price cost. We work very closely with our customers. We do have some contracts in hedging, and everyone has been honoring those, but it's a much more challenging environment. So as we look at it going forward, it's going to drive much higher cost for us as we leave 2008 and go into 2009, hence the pricing environment. From our standpoint, our productivity allows us to get the margin expansion. We're not getting margin expansion through price. Our goal is to basically offset our material cost through price and then through our productivity of our facilities and obviously job moves and productivity programs we get the margin improvements. Our margin improvement is not coming from price actions. So it's going to be an interesting environment here, not unlike what we've seen in the last two or three years. So we’re being very aggressive right now and we know what the issues are and we are moving forward.

But just to clarify, in total that you believe you’d be able to offset for the balance of 2008?

Yes, we... our current plan shows that we're slightly green, that our underlying… what we would say, our net material inflation right now is going to probably be… I’d say it’s going to be around the 2% to 2.5% range. That's where we are right now. It's going to be higher than that next year, approaching 3%, and so therefore right now, we do have enough price across the company on average to stay green.

Great. And then for Walter, just it's a little bit surprising to see mark-to-market hedging charge or gain coming through in the quarter. I mean typically you manufacture using the supplier agreements. Dave just mentioned some supplier agreements. So what is it about these derivative instruments, are you factoring in other gains or potential losses in your guidance for the balance of '08?

That's a multitude of questions. The...

I'm sorry.

Yes. But on your first question, we have been hedging copper, aluminum for at least 25 years. You have the issue of a significant movement in the quarter. Most of it is deferred because of FAS 133, but you do have a significant movement in round numbers… you can look it up. The price of copper probably went from approximately $3 a pound to $4 a pound. Aluminum also moved as did from other commodities. We follow very straightforward FAS 133, and where you have a correlation factor when all squared, which is less than 80%, you need in market-to-market you also have to factor to look at is the slope between your actual cost increases and your price cost kind of hedging that you've done, is it between 0.8 and 1.2. If you don't meet those two criteria, you are required by FAS 133 to mark those contracts to market in a period. Generally speaking, it's been a much smaller number this quarter. It was a larger number. We felt it was appropriate with the rule to disclose that number to you and break it out so you knew what was driving the margin change in the quarter.

For your information, we actually had a negative number in the first quarter when copper went from high to low to about 25 million, somewhere around there. So, it's... and the net-net for the six months, there wasn't much change, but--.

It moves around.

It moves around and the new rules will make us to do this now unlike what it used to be.

Great. Thank you.

You're welcome.

Well, thank you. Bob Cornell with Lehman Brothers, please go ahead with your question.

Hello. Mr. Cornel, how you're doing?

Hey, David. How you're doing? You look… it looks like you [inaudible].

We had a good Board meeting today.

Absolutely. You mentioned the investments you made and the comments around changing the game. I mean maybe you could just give us some color with regard to what you're doing in what businesses, and maybe sort of quantify and help us just understand little bit more what you're doing?

From my standpoint, Bob, a lot of these are what I consider pretty proprietary areas that we are not going to talk until we’re ready to launch. But it’s… from the standpoint, if we look what's going on in the Process Business right now and we’ve talked about wireless and we’ve talked about the increased investment and expansion there, but at the same time we are doing a lot of significant investment and next-generation type of products and capabilities, which will unfold in the next couple of years. Emerson is not going to stand still. We changed the game back in the '97 time period with our [inaudible]. It's now been ten years and so you can imagine that we are working very harder around that same type of area. In the area of Network Power, we have the large UPS products. We are doing a major redesign from energy efficiency standpoint, both in the Uninterruptible Power Supply and also the Precision Cooling units that will be coming out starting later this year going into 2009. I'm not getting… I won’t get any more specific than that, but needless to say that both Process, Network Power, and Industrial Automation we have significant investments and technologies that will continue to drive our leadership and participation gains that we have set for ourselves.

Okay. That sounds good. On the last conference call, Dave, you mentioned that the one business that could surprise us in the second half will be Climate, and I think after prospective increase in Asia… I mean how to look now? And I think the regulation changes in China are still not firmed up, maybe sort of give us a view on the rate changes in China and whether you still think Climate could be second-half surprise?

Let’s put it this way. I'm not quite anticipating that second have surprise on this conference call as I did in February. I think that the residential US market has clearly continued to weaken. And so, therefore, as I look at it right now and you look at the consumer, you look at the price of gasoline, you have been reading the paper and watching TV and all those stuff. I just don't see that being a situation right now that we will see it happen. So I would back down from that. It was my feeling back in February and now I would say it won't be a surprise to my opinion. The Asia situation, China I still believe will have a very strong year. The government has continued to negotiate and deal with the change. They have not finalized yet. There is a lot open switches. We will continue to move forward with our investment because China will move to the more energy efficient units. There actually the OEMs are starting to build the units. It will take longer, but it will happen. So we're not backing off that. I just don't think we have that second half upside surprise that we talked about. I think you're going to see this was capital driven. The capital businesses, as you can tell from the orders, are still staying pretty good for us right now. The global businesses are still standing pretty good. The residential, the consumer-related businesses will continue to be weaker throughout the rest of this year and I... and my bet right now for Climate, 2009 will be a good year for Climate.

Got it. Thanks, Dave.

You're welcome. All the best to you, Bob.

Well, thank you. Our next question is from the line of Michael Schneider with Robert W. Baird. Please go ahead. Michael Schneider - Robert W. Baird & Co.: Hi, Dave.

Mike, well, you didn’t call me back [inaudible]. Michael Schneider - Robert W. Baird & Co.: Still hanging my head.

It's okay. Michael Schneider - Robert W. Baird & Co.: The… I guess sticking with the margins I guess in Process, if you look at a reasonable flow through in that business, David, presumably it should have did about $75 million more in operating income. In addition--.

What do you call reasonable flow through in profitability, Michael? Michael Schneider - Robert W. Baird & Co.: 30% in Process.

Okay. Michael Schneider - Robert W. Baird & Co.: And you put about $45 million extra year-over-year. That $30 million, is there anything unusual in there or is the mix change changing within process or is it indeed that's the type of magnitude you’re spending on R&D and your project deployments?

There is a couple of things going on. There are some very large projects going under way up there around the world. So the mix from a project standpoint is up right now, which will create a low... larger… I would say a lower margin. We are having to add capacity. This is the fourth or fifth year of this expansion in Process, so we're now having to add incremental capacity. So that will… the incremental margin will be a little bit less. We are seeing some… this acceleration of price and cost issues relative to the materials, and so we can get the price in that business, but it takes a little longer especially on a project. And we have increased our investment in very strategic areas as we talked about. You’re in a mode right now in Process, as you look at it, we will continue to improve our profitability at a slower rate because of the mix, because of the long-term investments we're having to make relative to capacity and repositioning our global infrastructure, and also with some of the technology. So, I think that you're correct normally, but I think you didn't see the lower level at this while as we continue to invest in this business. Michael Schneider - Robert W. Baird & Co.: And are these investments that will be dialed back as this cycle slows down? In other words, is it opportunistic spending right now or is this necessary spending?

Emerson doesn't waste any money, Michael. It’s [inaudible], we don't waste money. So I would say that at this point in time we've made strategic decisions to go after some technology investments and capacity investments and some global project investments that are fundamentally there to allow us to continue to grow our business and take advantage of this strong global growth in the Process marketplace. You're trying to make hay during this upturn. So, we will dial it back, but I won't dial back innovation investments that will allow us to change the game. So, we may slow down some of our expansion and capacity, but I don't think it'll be of slowing it down too much. Michael Schneider - Robert W. Baird & Co.: Okay. Thank you.

All right, thank you. And our next question is coming from Christopher Glynn with Oppenheimer. Please go ahead. Christopher Glynn - Oppenheimer & Co.: Thanks. Hello.

How are you doing, Chris? Christopher Glynn - Oppenheimer & Co.: Good. Network Power margins were pretty interesting. It looks like the underlying was probably quite a bit ahead of plan. I'm just wondering where the Motorola margins came in roughly breakeven negative and if the plan is with them being well above plan, really we're looking at tougher margin comps in the second-half when you had anniversaried all the prior acquisitions?

Exactly right. Right now what we see is, the Motorola business, the Embedded Computing business is slightly ahead of plan from profitability standpoint. Integrations is going extremely well. Jay Geldmacher and his team, both within the Astec and Artesyn organization and the Motorola organization have really done a great job and my hats off to them. It's going to get tougher as the year goes on. We probably had about a point impact from the acquisition in this quarter. And the whole program is to get this done before the year is out so we… as we get into 2009 we start seeing some of the improved profitability. But the business within the Network Power business, right now improved profitability is good. We're leveraging it nicely. We have lot of new product programs, the underlying growth is good and we are getting the integration done in Motorola. And I'd say that we are slightly ahead of plan and I feel good about where go into the second half this year. Christopher Glynn - Oppenheimer & Co.: Great. Thanks a lot.

You're welcome.

All right, thank you. Our next question is coming from the line of Steven Whittaker [ph] with Sanford Bernstein. Please go ahead.

Hello, Steven.

Hello, good morning. Just a question around expanding your comments on the market position. Could you talk a little bit about market share changes in the up markets and the down markets, so a little bit more on Process Management and wireless and the success that you’ve had in the last quarter, and then also maybe Climate Control Europe for example and giving us a sense for where the markets are tough? What's going on with for the year?

Relative to... talking about quarterly changes and market participation is, to be honest, it’s a joke, you can’t do it. I mean you cannot sit there and tell what's going on quarter-to-quarter. What I can tell you, over the last couple of years we have been gaining on average one to two points in our Process Management business and I see no reason why we won't have that again this year. It doesn't mean you have it each quarter, but as I look at the underlying growth trends of our business, I look at the underlying growth trends of the market, the market’s strong, all boats are raising in this market right now. But I believe that we have done extremely well across the board and have for many years. So as I look at our Process Management business right now, we continue to expand our participation on a global basis. Wireless is launched and will continue to launch. It is not significant enough at this point in time to have any impact at all on the market share. From our standpoint, it is a significant program. As we move out over several years… we expect this to have about $0.5 billion of sales as we go through that over the next five or six years and that is significant than any major new product and innovation. But that’s going to take some time because that is just coming forward and you've to get all the product approved and everything underway. So it's moving forward and I'm pleased about... pleased of what happens right now… what's going on right now, and I'm pleased with the Process Management. I think if you look at the orders, the underlying sales, and you look at how we continue to leverage sales, not just orders but sales and profits, we continue to win and win nicely here. In the Climate Technology in Europe, we had a very strong 2.5-year time period, particularly with the expansion of the European heat pump market, which was using the scroll technology electronics. We look at that market right now as being very weak in Europe. Historically, Climate Technologies’ end customers who do some exporting… quite a bit of exporting in Europe are hurt by the stronger euro and we usually see those customers get impacted first across all of our Emerson customers in Europe and that’s been the case here again this time. As the euro went from 135 to 160, we saw many of the Climate Technology customers really dial back and that's what we were seeing right now. I do not anticipate this to return until well into late this year… into the calendar year 2008 for Europe Climate Technology.

Thank you.

You're welcome.

Thank you. [Operator Instructions].

While people are thinking by, I want to again thank everybody for joining us today. I am looking forward to seeing people down at EPG later this month in May. I will be present, the calendar is set, so I can make it this year. Looking forward to talking to everybody and seeing everybody. And again I want to thank the operating heads and the business leads across Emerson for the performance in the first half of this year, which I think is outstanding in a very challenging environment as we've continued to grow sales nicely, underlying profitability, cash, and return. They have executed and I look forward to continue executing in the second half of this year. Since we have no more questions, we will call it a day.

Okay. There are no further questions at this time. So thank you, ladies and gentlemen. This does conclude the Emerson second quarter 2008 conference call. If you'd like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236 or 303-590-3000 and put the access code 11112378. Those numbers again, 800-405-2236 or 303-590-3000, and put the access code 11112378. We would like to thank you very much for your participation. You may now disconnect. Have a very pleasant rest of your day.