Good morning ladies and gentlemen and welcome to the Ingersoll-Rand Second Quarter 2009 Earnings Results Conference Call. (Operator Instructions) At this time for opening remarks and introductions I would like to turn the call over to Mr. Bruce Fisher, Investor Relations Vice President. Please go ahead sir.

Thank you, Chris, and good morning everyone and welcome to Ingersoll-Rand’s Second Quarter 2009 Conference Call. As you know we released earnings at 7:00 am this morning and they are posted on our website. Concurrent with our normal phone in conference call we are broadcasting this call through our public website as well. 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 on our home page. Both the call and the presentation will be archived on our website and will be available tomorrow morning at 10:00 am. Now if you would please go to Slide No. 2. There will be a forward-looking discussion this morning which is covered by our Safe Harbor statement which is shown on this slide. Please refer to our December 31, 2008 Form 10-K and March 31, 2009 10-Q for details and factors that may influence results. In addition, please refer to Slide 24 in the back of the slide deck which covers the use of non-GAAP measures in describing company performance. Now I would like to introduce the participants on this mornings call. We have Herb Henkel our Chairman and Chief Executive Officer; Mike Lamach our resident and Chief Operating Officer; Steve Shawley our Senior Vice President and Chief Financial Officer; and Joe Fimbianti our Director of Investor Relations. Herb and Mike will review our business results, Steve will cover our financial position, and then Herb will summarize our outlook for the second half of the full year. We will then open the lines for your questions. Now if you would please go to Slide 3 and I will hand the call over to Herb.

Thank you, Bruce and good morning and thanks to everyone who dialed in to this mornings call. In the second quarter we continued to focus on performance, achieving better than expected results on our programs while facing continued weak markets. Second quarter reported earnings from continuing operations, excluding $0.09 of restructuring, came in at $0.50 per share, at the top end of our EPS forecast of $0.30 to $0.50 per share. This improvement in EPS reflects better than forecasted operating performance while offsetting lower volumes driven by the weak global markets we’re facing. For the quarter revenues were $3.5 billion and they declined 23% on a pro forma basis including train. Excluding 4 points of currency revenues declined by about 19%. Second quarter pro forma revenues were at the lower end of our April guidance which anticipated an 18% to 23% drop year-over-year. On a reported basis the second quarter revenues were up 13%. Demand in our key end markets continued to decline year-over-year; however, revenues were up about $500 million higher than in the first quarter driven primarily by seasonal factors and a slowing in customer inventory destocking. The decline in order intake was in line with the revenue drop and was off about 23% year-over-year. Excluding currency affects orders were down 20%. We exceeded our 5% goal for productivity through a combination of tight cost controls, restructuring savings, Trane synergies, and operational improvements we delivered 5.6% gross productivity. We also held or gained share in most of our businesses and continue to develop and introduce new products which would mitigate some of the weakness we see going forward. And our focus on cash is really paying off. We generated $605 million of available cash flow in the first half of this year. We used this cash to both increase our cash balances by almost $300 million in Q2 and we’re paying down our total financing by $241 million, which puts us well on our way to achieving our goal of reducing financing by at least $675 million by year-end. Now let me turn it over to Mike Lamach who will take you through the second quarter in more detail.

Please go to Slide 4. This Slide gives a quick summary of revenue and operating margins for the quarter. As Herb mentioned reported revenues for second quarter 2009 were $3.5 billion, up about 13% on a reported basis. On a pro forma basis, including Trane revenues declined by about 23% and were down 19% including the impact of currency. Reported operating margins were 7.2% and were 8.4% excluding $41 million of restructuring costs. On an apples-to-apples basis adjusted operating margin declined 300 basis points. I will come back to the topic of margins and operating leverage in greater detail on a later slide. Please go to Slide 5. This next slide entitled year-over-year revenue change provides a look at the trends in our segment sales change on both a reported basis and excluding the impact of currency. We think revenues excluding currency, shown on the bottom of the chart, give a better view of our organic sales performance and our comments will focus on this measure. After delivering consistent growth for 2007 in the first half of 2008 the momentum we had seen in key end markets tailed off in the third quarter of last year. As you can see on the chart, all of our businesses had increasing declines compared with last year through the first quarter. The second quarter declines look similar to those that we saw in the first quarter. I will give you two other views of our second quarter results, the geographic split and a split between recurring revenue and equipment. On a geographic basis revenues declined by about 19% in the US and about 29% in International markets; Equipment revenues declined by about 27% on a comparable basis for the last year. Worldwide recurring revenues held up better and were off by about 10%.…

Thanks Mike. Please go to Slide 16. As we have discussed on many occasions, a key goal for the Company in 2009 is to reduce our total financing requirement by $675 million. I am very pleased with the progress we are making toward that goal. This chart lays out our liquidity and financing projections for 2009 based on the strong year-to-date available cash generation of$605 million. As you can see, the proceeds of the refinancing which we completed right at the end of the first quarter went toward paying off the bridge loan. The securitization program increased total period to date financing by $161 million, but a net pay down of $241 million in total financing was made possible by the unprecedented level of cash generated in the second quarter. As evidenced by the $299 million increase in cash balances since March 31, 2009, the timing of our commercial paper maturities into July prevented an even greater amount of debt pay down to take place in the second quarter. $750 million of credit facilities roll off in June, but now with much lower levels of commercial paper outstanding our liquidity cushion remains more than adequate. This projection continues to assume that the $300 million of put bonds will be paid down in the fourth quarter. To the degree that these bonds are not put back to us, our liquidity cushion would increase accordingly. Our second quarter cash performance gives us a high degree of confidence that we will meet our $675 million debt pay down commitment this year. Please go to Slide 17. Back in February at our investors meeting we laid out a plan to generate $920 million of available cash including the impact of incremental pension funding requirements in 2009. At the core of this plan was an…

Thanks Steve. Would you please go to Slide No. 19. Back in the third quarter of 2008 we saw a downward flex point in many of our major end markets. The uncertainty related to the cost and availability of credit caused a notable decline in business in the fourth quarter when the US GDP dropped by about 6.3%. The rate of decline continued in the first half of 2009 from both reduced end market demand and inventory destocking by many of our major customers. Our forecast for the balance of 2009 still has considerable uncertainty due to many current unknowns in the world market. Most economists are predicting that the US GPD won’t turn positive until the fourth quarter of 2009 and even then the recovery will remain hesitant. We are operating with what we believe is a conservative baseline plan for 2009 and have additional contingency actions available if markets perform worse than what we expect. Let me start by reviewing the updated economic assumptions behind our 2009 forecast. Slide 19 is an updated summary of the key economic and business metrics for 2009. The changes from our prior forecast are the ones that are noted in red. For US construction residential building markets appear to be bottoming at very low levels compared with the 2006 peak. We believe non-residential construction will see about a 19% reduction in contract value and a 24% year-over-year decline in square footage, with institutional activity off 12%. The outlook for non-residential building has continued to deteriorate as the slower economy and tight credit negatively impacts starts. The refer trailer market North America continues to be weak, but our forecast here has improved slightly. Order rates have increased during each of the past four months. Recent order rates indicate that the North American market…

(Operator Instructions) Your first question comes from Alexander Blanton with Ingalls & Snyder. Alexander Blanton - Ingalls & Snyder Llc : I haven’t had a chance to fully check this out, but do you know whether the analysts consensus which was reported to be either $1.32 or $1.37 depending on who reported it for them. Yours includes or does not include these restructuring costs?

I think they compared to our $1.30 to a $1.50 so they were excluding the restructuring. Alexander Blanton - Ingalls & Snyder Llc : Compared with the which?

The guidance that we had given in terms of $1.30 to $1.50 which was with that restructure; it excludes restructuring. Alexander Blanton - Ingalls & Snyder Llc : What were the restructuring charges in per share for the year, $69 million is how much per share?

It is approximately 325 million shares. Alexander Blanton - Ingalls & Snyder Llc : That is a pre tax number though.

Yes. It is $0.15 if you do the math. Alexander Blanton - Ingalls & Snyder Llc : I want to ask a question about the destocking effect and other companies have had the same experience. Destocking in the supply chain, your customer chain has been very, very rapid this cycle compared with any other cycle that I know of, and it is probably due to the fact that so many companies have adopted lean manufacturing and lean techniques so they are able to respond much more quickly to cyclical downturns such as we’ve had. Employment has been reduced much faster also for the same reason. But, if your customer reduces inventory by cutting orders below his demand level than just to meet demand he has to raise his orders in the next period if he stops reducing inventory. It doesn’t mean that he increases inventory, it just means that he has to raise orders to get back to the level of demand even though demand might still be falling. So, how much of that do you see out there? I mean is there going to be a period of recovery in orders and then followed by renewed weakness because of that? What to you think?

I think it will be cautious in terms of the bill back inventory at the distribution level, but by any comparison that we’ve got they’re at very, very low levels and we start to factor in the pent up demand, kind of latent demand and replacement cycle. We know from our forecast and talking with the distribution base of dealers that we will see a bit of an up tick in that regard and these are very, very low inventory levels in the channel today. Alexander Blanton - Ingalls & Snyder Llc : Well yes. So they have to rebuild a little inventory as well you are saying? Even if demand continues to fall it could be, what I am saying is there could be some misleading increases that happen?

Think along the lines that most of the distributors, let’s assume they say I want to have 60 days worth of inventory on hand. If they wind up going through any period of time where obviously their revenues fall short of what they thought they were going to be, and if they see going forward the demand not increase, and they all of a sudden say, holy cow, I’ve got more than 60 days worth on hand then they start cutting your orders. A lot of this really as to what we expect going forward I think is when people start thinking that they’re going forward inventory level has to be raised because their sales level is going to be raised. I think that is where we are at, at this point in time.

Your next question comes from Shannon O'Callaghan with Barclays Capital.

I would like to get a little more color on your view of restructuring going forward and into next year. Is there more to do, where would that be, and is it something that you would be backing out next year including in the numbers? Just give us a sense of how you are thinking about how much more is left to be done.

We are going to continue to look at things that make sense for us to do and through the year this process has been such that we were able to, on a cash return basis for the year, have it really be accretive for us. So, it is okay to look at those going forward. We have a lot of opportunity in the area of capacity utilization. We have taken some actions. We are putting together some more detailed road maps and footprints around what it would look like going forward and just make decisions based on that once we are through with that plan. To date we feel good about what we’ve been able to do and hopefully we will look at that the same way going forward.

You mean in terms of a policy next year it would be backed out if you were going to do something?

The concept would be that we would identify incremental projects going into next year if they are there. Plus if they provide a return both at the P&L and of cash for the expenditures. As we identify more opportunities, as we become part of the process, I would hope that we could get out of a, shall we say, a timing disconnect between cash spend and cash benefits going forward. I would say as we identify new projects the benefits will offset the costs in the period. That is what we would be looking at.

Okay and give a little flavor, you mentioned some of the encouraging signs in truck. Non-rig you took your expectation down a little bit, but you also mentioned some pick up in services. Give us a feel for how you expect Trane commercial and security commercial to behave with kind of tougher new construction but some of these other positive offsets going on.

In the case of Trane on the HVAC side we are really seeing a lot more activity around proposals and the pipeline, around energy efficiency projects, around more complex solutions, turnkey contract things. We have quoted something in excess of $1 billion ready associated with the stimulus package. We have booked something probably greater than $50 million at this point and we will look to convert on some of that, probably $350 or so if our share will hold with the past. China’s interesting for us. Backlogs there in the HVAC business are up over 20% and so there has really been direct confusion, kind of an immediate impact on what we’re seeing there as well. Now on sort of the right side of the equation we have had 12 quarters of declining revenues and we start to see where fourth quarter this year, first quarter of next year, you really begin to round the corner here and very low levels; you start to see an up tick. Security follows a bit of the Trane the HVAC cycle. It is a little longer lead from when a project is put in place to when we actually would use the product there maybe three or four months longer, but it really trends the same cycles.

I think for us going forward you want to look into the residential side in the HVAC. I think that if you look at the pent up demand as a result of the traditional replacement cycle that has really been under spent as a result of I think really poor customer confidence, it is a question of when the customer confidence gets back and we’re going to start seeing then that replacement cycle going back and I think that has got some tremendous upside. But it is going to be tied to when consumers feel confident in their investments.

Okay. Mike if I could just solve quick on the conversion of the 350. I mean are these things that are orders this year, but the revenues are really showing up next year. Can you give me just a little flavor for the timing of that?

Yes, absolutely. They are going to be early next year, so it is proposals that have gone out where construction is going to start. You are probably looking at anywhere from 8 to 14 months in a typical cycle where you would see revenue. Where it is a contract thing or service deal it is going to really be on a percent complete basis, but you are going to see the bulk of that coming next year as well.

Your next question comes from Eli Lustgarten with Longbow Research.

You talked about $150 million forecast for commodities this year and you said the first and second quarter is still identical. How much have you recognized, or have you recognized, any of it today and how much is in the second half and how does it break out?

There was about a $40 million dollar positive swing that we have seen already. We had locked in most of the second quarter, as you know, from the last call and didn’t have much risk on that. Looking forward as we look at, again, the percent lock versus where we’d be on the market, we feel fairly confident about the $150 million at this point.

Have you been locking in copper at this point, not only for this year, but for trying to protect the next year given some of the volatility we have seen over the last few weeks?

We have been locking in for this year, looking at through out the third and fourth quarter, but right now we are not locked in 2010 on copper.

One clarification, in your forecast you assumed a re-order of 137, but you had been 140, 141, and it is probably going to be in that range for a year. Is there a big impact on your forecast or your bottom line if you wind up with a 141 and 145 year-over-year instead of a 137 year-over-year?

It would be upside above obviously what we have, but remember I said to you we were putting together what would be a relatively conservative time line.

You were talking about the absolutely impressive margin performance of security and safety, to be almost 20% and in this kind of environment. My question is how sustainable is the kind of performance that we’re seeing for this year into next year?

I don’t think it’s a fluke.

They won the blue ribbon for productivity across the Company and we’re north of almost 6.5% productivity. They have got a very robust pipeline of activity going on. They have done an outstanding job and I think they will continue to do that. There is a methodology and a process we put in place across the whole company. A lot of the best practices really are coming from that organization. So that has been good news for us.

They will be able to hold that even though buy ins and the other markets may be doing them over the rest of the year. That is the purpose of new products driving it?

Yes, I think so. That is our goal.

Your next question comes from Stephen Tusa with J.P. Morgan.

I have a question on the commercial HVAC side. Can you talk about the dynamics between applied and unitary within commercial?

You would look at unitary and our exposure and market share would be certainly around commercial office buildings. That is going to be sort of down mid-20’s kind of range, it has been our activity. We have launched some new product which is helping us in that regard, so a new air pool chiller range which is out would be helping that a little bit in terms of share. The applied side is performing better, kind of off high teens and some of that is happening as a result of more owner direct complex solutions where we are driving an energy efficiency program and pulling through some of the applied equipment is part of that. So that would be sort of how that would line up. All told you are looking at probably being off in the 20 range.

So when you look at that equipment order pace that you’re putting up it seems actually surprisingly good in the context of what we’re seeing in starts and non-res activity and I think most people think you guys took your guidance down thinking it is going to get worse. Do we see those order comps trend well north of 20 by the time we get into the back half of this year?

The orders are coming from the shift of resources that we’ve made over into the owner direct selling organizations. We have actually moved and increased headcount there, so a lot of this is being driven through direct to customer performance contracting and complex solutions businesses. Comps get easy in the fourth quarter, so that, to Herb’s point, is a little bit misleading. The volumes aren’t where we want them to be, but you did get some relief in the fourth quarter.

Do you get some relief on the commercial business in the fourth quarter?

Yes, absolutely.

Your next question comes from Mark Koznarek with Cleveland Research Company.

I have a question about the assumption about price realization being neutral for the year. First quarter was up a point, half a point this quarter, so you are assuming it is going to tail off. Could you discuss that a little bit more and where that might be concentrated?

The pricing we got in the first half of the year it is positive across the organization. It is something less than 1 point. The types of declines we’re seeing are going to be something less than a -1 point. All told across operations we are going to be relatively flat for the year implying a back half which will be weaker. That is going to be moderated somewhat by what happens with commodity pricing. It is pretty fluid right now. If we see an increase I think we are going to have less pressure in pricing and obviously the inverse if we see for the reduction. So we are looking at flat and again plus or minus 1 point on both sides of the year.

I guess the question is, is that concentrated in the businesses that are more commodity intensive like climate control and air conditioning or is it across the board?

It is really more so in the HVAC businesses than it would be in the others.

Then I have a question on security. Could you split out the performance between new construction and retrofit activity and remind us of the business split between those two?

We haven’t done that in awhile, at least for this call, but historically it has run that we had 20% to 30% exposure to new construction, new square footage. About 1/3 of our exposure was towards replacement business through the wholesale channel and the balance really coming through more of the retrofit market which wasn’t new square footage in place, but it was retrofitting existing space.

How did the performance during the quarter vary among those categories?

New square footage commercial markets followed exactly the conversation earlier about trends. Some stimulus spending and some money in the school and healthcare markets, coming in in that area around retrofits and upgrades, pretty consistent with the HVAC story.

Your next question comes from Terry Darling from Goldman Sachs.

On Trane, the parts and service business, I was wondering if you could take us through how that tracked through the quarter and when you might expect to see that business turn positive, and whether you think there is sort of a winding spring on that piece of the business at this point.

It is followed the historical trend where you are going to see lack of maintenance and deferral kind of pushing through to parts and service, so both scheduled and unscheduled labor and parts would be up in the back half of the year. But, the real mover for us has been in the area of contracting mainly around complex solutions or some would say performance contracting energy efficiency type contracts. That is where the big backlog has built. The burn rate on contracts of that magnitude are 10 to 14 months, so you really begin to see it on the contract side more early next year, but certainly contributing in the back half of the year and that is where we get this idea that it will be flat, but potentially slightly up depending on how much contracting we can push through during the year.

Did you see that you got a little more negative on an organic basis in the second quarter. Did you see that improving in June versus April/May at all?

The big bookings happened earlier in the quarter in June. It was a pretty good month for us. Last June was a big month for us, as you know, but it started earlier in the quarter. It has been fairly consistent. We are looking at the proposal pipeline initially in the first quarter and early in the second quarter we had, I would say, more untraditional delays with customers making decisions. That seems to be normalizing a bit and we are able to put in place a little bit better forecast relative to those businesses in the last couple of months.

On the residential side, looking at your numbers relative to some others, maybe you are getting a little bit of share there. I am wondering if you can talk about your approach to the residential market right now. You did mention a little bit of price weakness there as well. Just talk about where you think your residential business is heading here in the back part of the year.

The back half of the year we think it may round the corner in the fourth quarter. We have seen, like most others have reported, positive mix swing at the 14’s here and up. We think we are getting a little bit of momentum. The traction with putting our respective organizations and the residential business together around customer involvement, both at retail and builder, which historically haven’t been really big components of the train of story. We have done a lot of work on the value engineering component of our lower seer product to really go after and capture some of that share that I think got away from us a year or two ago.

The industrial business looked a little softer. Looking at the sequential drivers there America’s got a little weaker. It looks like the international business got a little weaker as well. Would you say in terms of this range on your forecast for the back part of the year that industrial is one of the bigger concerns that you have?

The driver there is going to be capacity utilization and if our customers aren’t busy we’re not going to be busy either. So, that has been, probably of all the businesses, the most difficult business to be able to really get a handle on when that will turn the corner at this point.

How do you feel about your share in that business? It did look like one of your competitors was not down as much. Do you think that’s an anomaly, or are you concerned about share at this point too?

Your next question comes from Nigel Coe with Deutsche Bank Securities.

I want to go through the free cash flow walk through the rest of the year. It looks like you’re projecting $119 million of net debt pay down in the second half of the year. If I look at your low end of guidance I see $350 million in there for earnings. You have $45 million of dividends, so $3 million of available cash flow. You are keeping it kind of flat. Is there any other drain on cash I should think about?

As I said in the commentary we are planning on the puts bonds coming back in November. I think there is a lower probability of that happening now than it was three months ago.

That is not net debt though, right? I mean that is just between cash and debt.

Right, so the incline would be if we exceed the cash that we need to clear the $675 we have a maturity coming due in February of 2010 of $260 million so our first priority would be to keep the cash on the balance sheet to make that maturity payment.

I guess what I am trying to say is that typically your working capital you would build more capital in the second quarter. You have had a great quarter, if we do see again some good news on capital in the second half of the year I am assuming that you would maybe build better cash but pay a bit more debt down. I guess my next question is if you do succeed on your debt reduction covenants on the short term and medium term, does that open up the possibility for second half 2010 to maybe widen your free cash allocation charge to maybe incorporate in some buy back activity?

Absolutely. I mean as we talked about before the fact that we can generate the cash and get the debt paid down the quicker the better, and certainly looking at where we sit today I personally believe that that time frame will be pulled up.

Okay good and on the guidance is there any share contribution from the exchange with bonds in your guidance, I mean given where the share price is right now?

No, there is not.

Okay and then finally, there is a big evolution towards metric cars going forward in vehicles. How are you thinking about the strategic value of that business going forward?

We looked at club car and really it is for us a potential player in the “energy conversation” mode for people’s transportation going forward. We clearly are, and have been for a while now, the market leader in golf, but I will grant you golf in my mind interprets a relatively flat business going forward. We don’t see a whole bunch of extra golf courses being built. So for us the real big potential is how do we wind up going and participating in the electric people mover concept going forward. Also then getting more into what I call recreational type vehicles; people using them who have large properties. So our real bet on new products as we look at this going forward is in this whole area of people moving and to the degree we are able to realize that we will wind up having a company that continues to deliver good growth. If not then we have a company that is a cash cow and we have to decide whether that is good for a one-time source of cash or an ongoing stream of cash.

Your next question comes from David Raso with Isi Group.

My questions are on climate control and potentially on Trane. I am intrigued with the potential operating leverage at climate control and maybe some upside to your sales forecast. When I think about your new refrigerated trailer forecast at $9,000, we have already had 9,700 year-to-date so you are basically implying the second half is weaker than the first. But we have in the back logs already 9,900 units and the orders have actually been strong, at least year-over-year, the last three months. So I am just intrigued by that forecast. If you can shed some color on how you get to 19,000.

What we are doing on that is not trying to take so much in second-guessing on the act data. We look at it and say that I would agree with you mathematically, if we go by our traditional trends, that there would be some upside. But remember how I started this whole conversation about our forecast going forward, let’s bake this in to make sure we have a cost structure and operational focus on what would be perceived as being pretty crummy outside market conditions. Any upside beyond that, believe me, we will cheer as we go and realize continued growth.

One thing about the margins then is you are already at 8.8 and the greatest amount of restructuring you did late last year was in this business.

That’s right.

You also mentioned what the reach in display cases of Hussmann were obviously at higher margin because you have the door on it instead of an open display case. It sounds like your backlog is towards that mix as well. What kind of operating across the margin are you thinking about climate control this year and especially if you get some continued [interposing] of 2010 close to the 12ish peak we saw just a couple of years ago?

Relative to ’09 I would tell you that certainly on a full year basis for climate control something that is 6.5% to 7% range is really what we are looking at there and clearly upside as you said exists if we were able to get stronger transport refrigeration. The trailer units would be up. The other one is we have had good success with some of the engine change outs with some of the California based legislation. We will do something like 4,000 engine replacements this year, so we will have that upside if that continues to work as well. Clearly if we have favorability on both we could potentially be north of 7% for the full year.

The other thing I would add climate control is heavily impacted by what goes on in Europe. If you remember the saga here the European trailer volumes grew to a level that was almost at parity with the US a year ago. So with the European markets being so far off it is really hard to predict at what stage we would get back to the kind of margins you are talking about in the future. I think that is a wild card in addition to the return of the US trailer market.

Okay, I mean just getting the 6.5 margins for the year, I know the first quarter was low, but it clearly seems like a…

It really is driven David. The downside comes from the 70% reduction year-over-year in Europe and if I would tell you that our margins in Europe are running into 17%, 18% type levels. So that kind of volume reduction really hurts. That is the biggest fight that we have at this point in time to overcome.

On Trane, the amortization, the purchase accounting amortization went up this quarter sequentially from 39 to 46. How should we model that going forward? It isn’t a little steadier lately and obviously with that higher amortization it implies a more impressive core margin within Trane before the amortization. So, A) why did it go up and how to model the amortization going forward and B) if you can give us any color in the second quarter how profit margins differed between commercial, parts, and residential.

Let me do the technical piece. The purchase accounting probably took a bit of a jump because we finalized all of the purchase accounting actions in the quarter. One year from the acquisition we had to clean up everything. It was a true up of a number of items including foreign exchange activity on the purchase price. That probably accounted for the quarter. I think that ongoing we should see ongoing amortization in the $40 to $43 million range. Your question on Trane was?

Then the core margins then with the higher amortization, obviously it implies the core business had a better margin than otherwise, so if you can help me between commercial parts and residential some feel between the margins. I am just trying to feel the first and second quarter where the big improvement was. Obviously it must be across all three divisions, but I am just trying to get a feel within in Trane the margin differentials commercial, parts, and residential.

One figure that is going to be, you are going to have rally deflation kicking in in a significant way in Q3 and Q4. I mean one of the draw backs inventories and revenues being lower was we had some higher cost products sitting in inventory, working its way through the income statement in Q2, so there is quite a change happening there in both businesses would be one area. The second, probably the biggest area would be if I look at where does the productivity come from in Q3 and Q4 a lot of that is associated with the two Trane businesses and what they have done relative to the structuring of synergy projects toward the back half of the year. So there is an improvement that we see sequentially there as well.

And to my question about the margin differential? Some parts are pre-amortization double digit and then the key question is commercial versus residential in the quarter. Which had the higher margin?

I guess the first question we probably don’t have an answer to. The second question you had the businesses fairly close. You had commercial, maybe a point above. In Q3 you’ve got the businesses that are literally tens of basis points away from each other so it is a crap shoot, but those businesses are fairly equal for Q3.

Your next question comes from Andrew Casey with Wells Fargo Securities, Llc.

I would like to go back to the question on the energy efficiency projects. Your comment about quoting ability and do you have any updated idea about what the total potential pipeline that you haven’t quoted yet would be?

If you look at sort of the building related stimulus portion it is about $100 Billion and if you add sort of the education funding on top it is probably $120 billion. If you look at a usage factor for the kinds of things that we would do, I would tell you it would be in the 5% range which kind of gives you a $6 billion opportunity. I have heard it quoted as high as 10%. 10% tends to be all piping duct work, wiring etcetera, but for what we do with security and with HVAC 5% is a pretty good number; so, $6 billion probably over a three-year period. Add sort of the market shares that we hope to command or improve that would be sort of the positive view of that. A lot has got to happen including the money getting spent efficiently and in the right way, so we are not putting all of that into our thinking going forward and clearly what you see here is a cost led productivity led plan for the balance of the year and we are still thinking about that going into 2010, is making sure we have structured our cost position as well as we could.

On the residential parts business associated with that market did you see an unusual deferral and if so would that bode well for pent up replacement in 2010?

I didn’t see anything all that unusual in the quarter. Last year we were moving our warehouse from one location to the other and actually had some of that pushed out into the third quarter, so I didn’t see anything as an anomaly this quarter. I think you are seeing between some of the rebate money coming into the market place more of a push there than you are replacement parts. But if it follows historically you should see something as the summer progresses that you would expect to see a bit more than in the past.

Your next question comes from Jeffrey Sprague with Citi.

Just a couple of loose ends, you covered a lot of ground already. I wondered if you could drill into Hussmann a little bit more. The comment that margins were actually up on a year-over-year basis, was that the total Hussmann franchise or just the America’s business?

The America’s was the strongest business there by and large kind of carrying the global business for certain as it relates to margin expansion.

But the whole business was up on a year-over-year basis. Can you give us a sense of the order of magnitude of the change there on a year-over-year basis?

I don’t have it broken out that way Jeff. We will probably have to come back and help you with that.

Then back to the stimulus comment for a minute, Mike. It’s kind of like you suggested some of it, maybe it’s not the majority, but some of it actually related to completely new construction. Did I interpret that right or is it really almost all retrofit and upgrade type activity?

It’s largely retrofit and upgrade, but it’s how you tell you classify a hospital adding a wing, a school adding an addition, so I can’t give you a very exact definition between the two. But it is more retrofit than it is new construction, although we have seen some new construction. We have seen some early inquiries and we have prepared some preliminary proposals on new construction related activity.

Are you guys over the hump on 410-A in terms of actual cash spend and just kind of the internal work? It sounds like you said you were ahead of schedule, but the actual kind of negative drags may be on P&L and E&D spending?

Yes.

Terrific, thanks a lot.

Your next question comes from Andrew Obin with BAS-ML.

The question on restructuring which seemed to have made such a difference in the quarter in terms of operating performance, looking into 2010 how should I be thinking about the split of benefits between the segments i.e.; train versus the old historical Ingersoll. Just because the upside at least versus my model in the heritage Ingersoll businesses was quite a bit more significant than train.

In terms of where we exceeded in the quarter in the area of productivity, thinking about it in three buckets productivity, which would be indirect, and direct material and labor, and second synergy and third restructuring, really that $38 million DEIT we had $25 of it came out of productivity which was direct/indirect material and labor. So the restructuring, what we are finding there is that we are sort of spending better favorably to what we had anticipated in getting the benefits up a little quicker. Synergy I think what the beat here was about $5 million. It is really in the area of just getting good momentum as we start to roll out further down with Latin America, ESA and Asia, so that is where the beat was there. I think in restructuring it has been fairly consistent in our story there and it certainly wraps up at the back end of the year. But it wasn’t the Q2 beat.

I guess what I meant though is you are spending a lot of effort on operations and taking costs and I am just trying to get a sense, in your view, which segment is sort of the most successful. So we are thinking about margin potential for 2010.

First of all, I have a couple of concepts here. One the spend this year is pretty well distributed across the sectors evenly. If you remember the conversation we got into, it is that we are reacting to significant market reductions across the board. So these are actions that were put into place quickly. They were focused on returns this year from both the P&L and cash perspective, as we talked about. So if you look at the future and we become a little more offensive in the way we think about restructuring, what we will be thinking about is increasing our capacity utilization in our factories and if you start taking a look at opportunities to share centers of excellence across multiple sectors I would tell you that our future spend plans would probably be equally distributed across the sectors as we go forward. I don’t know what else to tell you, other than the fact that we are operating under capacity in all of our sectors and it is really an opportunity to better utilize corporate assets going forward.

That was just a very impressive execution. Thanks a lot.

Your next question is a follow up from Mark Koznarek with Cleveland Research Company.

I wanted to follow up on the comment a little bit earlier about the margin outlook for the HVAC business. I am wondering if you could review what the margin targets are for the remaining segments.

We did that last time so you are probably looking for Herbs round up again.

I’m sorry was the climate control margin target you gave, but?

I think with ACSS the Trane business you are probably looking at a combined 5% type number for the full year. Okay? For security they have been wonderfully consistent. We have been consistent about saying where we thought that business would be and I think something in the neighborhood of 18% is a good number there. Relative to industrial I probably just like climate would tell you it is kind of in the 6% to 7% range and again depending on what kind of activity we see, in the very belly end of our forecast is with our end customers in that business so it is probably the one that with a forecast we have more variability.

I would just add to make sure that we are connecting here, all of those numbers or all of those estimates that Mike just gave you include the impact of restructured spending this year, on an as reported basis.

Thanks for the clarification. I appreciate that.

Your next question is a follow up from Stephen Tusa from J.P. Morgan.

I have a quick question on the residential side. You guys talked about being close to an end selection. Given that this is kind of a seasonal business and every year can be different on various factors, whether it is weather or consumer spending; which one of those factors lead you to believe we are close to an inflection. Are people replacing more than they have repaired? Maybe you could just talk about those fundamental dynamics. We all know what housing is doing, we all know what the weather is doing, but maybe those other things that are going on there that has driven such a lower placement rate over the last couple of years?

There are a couple of things. You are definitely seeing this latent demand, this curve having gotten wider and wider over the last 10, 12 quarters and ultimately getting to such a low point in terms of volumes that you begin to turn the corner anyway. Again, it is probably whether it is Q4 or Q1 when you begin to turn the quarter there. Just as a result of equipment failure and the need to replace and certain markets. That I think is a driver. We are seeing some benefit of the rebates driving higher efficiency and a rationale to do something sooner, so that has been positive for us in Q2 and through the balance of the year as well.

What was pricing mix for revy in the quarter separately?

We don’t break that out separately.

So what you are saying is that people are beginning to replace more instead of fixing out there?

Yes, or just not doing either and just deferring. I think that is the piece we are starting to see.

Do you guys have a unit number off the top of your head as far as what has been either fixed or deferred over the last few years and how many maybe have been just deferred? Do you have a unit number off the top of your head that you guys have kind of worked into?

Yes, actually it is something we have presented in the past. We can probably get you a copy of that which looks at the historical trends over a longer period.

But we had shown that the Trane data showed that about 25% of the units would be replaced when it hit year eight. There as a really excellent write up done by one of your colleague analysts that showed that 42% wind up going out after year 12 to 14 and when you look at that data you just add that together and you see a tremendous upside in terms of 10s of 1,000s of units, but I think the comment that is very accurate in there is that if you then go and draw the consumer confidence curve with it you will see that the replacements were historically tied to the consumer confidence as well.

Steve I think that was your analysis. I was hoping that was mine, otherwise there was a plagiarism issue going on.

Guys I didn’t want to (interposing). This is a true story. I personally read all 122 pages or whatever it was and I thought (interposing).

It was actually 150 pages but who is counting? Thanks a lot guys, I appreciate it.

Your final question is a follow up from Eli Lustgarten from Longbow Research.

Most of the surveys we have done say that about 40% of the costs per savings have permanence and the rest are volume related. It seems like what is going on, the potential for permanency of the cost savings would be higher for you guys than what we are seeing at this point. Do you have any feeling for how much of the carry over is volume related and how much is permanent?

The numbers we give you on the restructuring, we only give you the information that is qualified restructuring, number one. Number two, the way we look at it is that only if it reduces fixed costs.

Yes, because the variable piece is totally out of our number, Eli.

So that is all permanent savings you are effectively saying?

Yes.

All right thank you.

At this time I would like to turn the conference back over to Mr. Fisher for any additional or closing remarks.

Thanks, Chris and I would just like to thank everyone on the call and those who are listening in on the web cast. Thank you so much for participating with us. There will be a transcript available in 48 hours on our website if you would like to read the highlights of this call again. Again, thanks so much and we will see you next quarter.

This does conclude today’s conference and we thank you for your participation.