特靈科技 (TT) 2009 Q2 法說會逐字稿

Good day and welcome to the Ingersoll-Rand second quarter 2009 earnings conference call. This call is being recorded. At this time, for opening remarks and introduction, I would like to turn the call over to Mr. Bruce Fisher, Investor Relations Vice President. Please go ahead, sir.

Thank you, Kristin. Good morning, everyone and welcome to Ingersoll-Rand second quarter 2009 conference call. As you know, we released earning as 7:00 AM this morning and posted on our web site. Concurrent with our normal phone-in conference call, we are broadcasting through our public web site as well. There you will also find the slide presentation for this call. To participate via the web, go to IngersollRand.com and click on the yellow icon on our home page. Both the call and the presentation will be archived on our web site and be available tomorrow morning at 10:00 AM.

Now, if you would please go to slide number two. 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 on 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 and describing company performance.

Now I'd like to introduce the participants on this morning's call. We have Herb Henkel our Chairman and CEO; Mike Lamach, our President and COO; Steve Shawley, our Senior Vice President and CFO; and Joe Fimbianti, our Director of Investor Relations. Herb and Mike will review our business results, Steve will cover our financial position and Herb will summarize our outlook for the second half and full year. We'll then open the lines for your question.

If you would please go to slide three and I'll hand it over to Herb.

Thank you, Bruce. Good morning. Thanks to everyone who dialed into this morning's call. In the second quarter, we continue 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 the pro forma basis including Trane, excluding four 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. Now on a reported basis, second quarter revenues were up 13%.

Demand in our key end markets continue to decline year-over-year. However, revenues were up about $500 million higher than the first quarter driven primarily by seasonal factors and slow order 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 effects, 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 business and continued to develop and introduce new product which had mitigated some of the weakness we see going forward.

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 would pay 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 second quarter in more detail.

Thanks, Herb. Please go to slide four. 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 pro forma basis, including Trane, revenues declined by about 23%, were down 19% excluding 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'll come back to topic of margins and operating leverage in greater detail on a later slide.

Please go to slide five. This next slide titled year-over-year revenue change provides a look at the trend in our segment sales change and both a reported basis and excluding the impact of currency. We think revenue's excluded currency shown on the bottom of the chart give a better view of our organic sales performance and comments will focus on this measure. After delivering consistent growth for 2007 and 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 looked similar to those we saw in the first quarter.

I'll give you two other views of our second quarter results a geographic split and split between recurring revenue and equipment. On a geographic basis, revenues declined by about 19% in the US and about 29% in the international markets. Equipment revenues declined by about 27% on a comparable basis with last year. Worldwide recurring revenues held up better and were off by about 10%. So our sales like most industrial companies declined significantly in the second quarter because of both lower end market demand and continuing channel inventory reductions. We believe the excess inventory was cleared out in the second quarter and for the rest of the year we anticipate deceleration in the rate of revenue declines as we anniversary the end market decline that began in the second half of 2008.

Please go to slide six. This bridge represents the total of segment operating margin on a pro forma basis and excludes restructuring. This look gives a better view of the true demand looks of our operating margins at the enterprise level. Reported second quarter segment operating margins declined to 7.2% which is off about 4.2 percentage points compared with pro forma adjusted 2008. The combination of declining in volumes, negative foreign exchange and material inflation hurt margins by 7.4 percentage points. We continue to invest in new product development, and those activities coupled with purchase accounting related costs and restructuring expenses reduced margins by 1.4 points. Productivity improvements, restructuring savings, Trane acquisition synergies and carry pricing added about 4.6 margin points. So we were unable to compensate fully for the significant volume decline in the quarter, we were able to offset more than half of the decline and position ourselves for higher margins when our markets do begin to recover.

Please go to slide seven. Slide seven bridges the components of our EPS compared with our previous guidance range from April. And at that time we indicated that we expect to be in the range of $0.30 to $0.50 per share of continuing operations before restructuring with the mid-point value of $0.40 per share. As I mentioned, our revenue came in at the lower end of our forecast range. Our reported revenue excluding currency were about $120 million below the forecast mid-point of 3.6 billion, which equated to a $0.14 per share drag on earnings. We also delivered higher productivity than expected as we accelerated our restructuring, implemented additional costs containment programs and realized additional deflation. These items contributed an additional $0.18 per share. Better than expected pricing and currency each added about $0.02 for a total of $0.04 positive. Finally, our increased cap generation allowed to us reduce borrowings and lower our interest expense by $0.02. So in aggregate, internal drivers offset weaker than expected revenues and drove our improved performance versus the April guidance.

Let's now move to review of our reported segments. Please go to slide eight. This slide lists the highlights for air conditioning systems and services and represents the Trane business that was acquired on June 5, 2008, results from 2008 are on a pro forma basis. Trane's second quarter revenues were $1.8 billion down 16% versus prior year on a reported basis and down 14% excluding the effects of foreign exchange. Global nonresidential HVAC markets declined in the range of 20% in the second quarter with significant reductions in the Americas, Europe and the Middle East. Asia's decline was less, down mid single-digits. Our commercial air conditioning revenues which is a combination of commercial equipment and parts, services and solutions were down 17% reported and 14% excluding three points of FX.

Total Global Commercial Equipment and Systems, which represent about 55% of our commercial HVAC sales for the quarter were in line with global markets, down about 21% excluding FX. The Global Parts Service and Solutions business represents 45% of our commercial sales declined by about 4%, including FX. We saw some deferrals and some shifts from preventive maintenance, to fix-on-fail contracts; however, we expect our service business to rebound in the second half based on current backlogs, which are up 10% over prior year reflecting our increased capabilities selling to direct customers and uptick in energy efficiency projects and pent up service demand. For the full year, we expect our service's business to be roughly flat to the slightly positive year-over-year compared to 2008.

Now let's turn to the residential part of our business, which represented close to 25% of the total Trane revenues for the quarter. We estimate that unit shipments to new residential construction were down in the range of minus 30% in the quarter and replacement unit shipments decline high single-digits combing for overall percentage decline of low to mid-teens. For the quarter, our residential product sales were down by 12% as improved mix partially offset lower volumes. Inventories continue to be lean in our channel and expect to get the benefit of the better sell through in the third and fourth quarter. In addition, the US residential market may be approaching an inflection point driven by pent up demand and easier comps. Next looking at orders, total global commercial orders excluding FX were off 18%, slightly better than revenues. Equipment orders declined mid-20s in the Americas, orders for contracting, parts, service and controls were down modestly. We ended the quarter with a global backlog of equipment, contract, service of parts at approximately $1.2 billion. Global backlog was down 13% reported and down 10% excluding foreign exchange. Backlog in the Americas declined roughly 13% while international backlog declined about 5% excluding FX. As I mentioned previously, our backlog for service was up 10% year-over-year.

Next, let's turn to air conditioning margins. For the second quarter 2009, operating margin was 5.9%, including $65 million of purchased accounting, restructuring and incremental allocations negatively impacting margins by 3.7 points. Last year, these items totaled $45 million and adversely affected margins by 2.2 points. The net additional $20 million reduced margins versus prior year by one point. Adjusting for these items, margins were 9.6% and 11.5% for this year and last year respectively. This means operationally, margins decline less than two points as our productivity and cost containment actions offset more than half of the impact of lower volumes, FX and inflation. So in summary, we say that the commercial markets remain weak around the world except China. The US residential market may be bottoming out, and productivity and restructuring actions we've initiated are taking hold.

Please go to slide nine. Climate control revenues in the second quarter were $626 million down 31% on a reported basis and up 26% excluding currency. For the Global Thermo King Transport business revenues decreased by 43% largely due to weak global truck and trailer markets and declining freight rates. Worldwide refrigerator truck and trailer volumes were down over 45% compared with 2008 due to ongoing decline in the worldwide trucking industry. We saw negative sales in all geographies with the most severe declines in the European trailer business where comparisons were against record volumes in the second quarter of 2008. Global bus HVAC shipments and Marine Container sales, also declined substantially due to slowdowns and end market activity. After-market revenues were down, reflecting lower fleet capacity utilization, and inventory management actions through the entire channel. North American after-market revenues increased slightly due to an increase in refri unit change outs driven by new refrigerant emissions regulations on transport refrigeration equipment entering the state of California. Five-pack auxiliary power unit volumes also declined significantly compared to last year as lower diesel prices and declining fleet revenues have limited conversions in 2009.

Looking at Stationary Refrigeration, global sales were down about 15%, and this was driven by a decrease in both display cases and sharp declines in the installation business due to lower supermarket capital expenditures. And a very positive note, Hussmann had year-over-year sales increases and gained market share with major national supermarket customers during the quarter, especially at higher margin reach in display. Hussmann margins also increased significantly compared to last year as productivity and cost containment more than offset the volume decline. Amid this market up cheval, we gained share in trucks, trailers and display cases in North America and continue to introduce new innovations and energy savings products into the marketplace. We also started to gain significant traction and realizing synergies with Trane and are actively working to consolidate the North American field operations, service and installation businesses which should bolster revenue growth and lead to higher margins going forward. Reported operating margin was 7.9% in the quarter and this compares with 12.6% in the second quarter of 2008. The margin contraction was driven by a significant decline of high margin truck and trailer revenues and the impact of currency, which combined caused an 11-point drop in margins. Productively improvements offset some of the margin pressure and helped margins by about seven points.

Please go to slide 10. Industrial technology second quarter revenues were $540 million, down 33% versus the prior year quarter and down 29% excluding currency. Second quarter revenues were also flat sequentially compared with the first quarter of 2009. Revenues for the air and productivity business decreased by 31% due to lower volumes in all geographic regions and negative currency. Air and productivity revenues in the Americas declined 31% during the quarter with a 35% drop in equipment volumes due to the client's in major industrial, process, and fluid handling end markets. Recurring revenues were off about 25% from lower industrial production levels and deferral of maintenance by customers. Air and productivity revenues in overseas markets declined by 32% compared with 2008 primarily due to declines in industrial activity, especially in Europe and a nine point drag from currency translation. Reported European volumes were down 40% and about 26% in constant currency. Revenues in Asia Pacific were off 20%. Club Car revenues decreased 38% compared to last year with declines in all geographic areas due to weakening economic fundamentals in key golf, hospitality and recreation markets and customers deferring replacement of golf cars by extending their leases. Market share increased in a historically very difficult market. Industrials operating income was $38 million representing an operating margin of 7.1%, down from 12.9% in 2008 on a comparable basis. The volume declines in unfavorable currency accounted for 13 points for margin drop. Industrial also had one point of restructuring cost hit there margin in the quarter and improvements in productivity at an eight point favorable impact on margins.

Please go to slide 11. Revenues for Security Technology for 532 million down about 20% and down 16% excluding currency compared with strong results last year. Commercial Security worldwide revenues were down 21% primarily resulting from declining building and remodeling markets in US and Europe. Currency accounted for five percentage points of commercials revenue decline in the quarter . Americas revenue in the commercial sector were down 19% with declines in volume partially offset by carryover pricing from 2008. Securities European business was down approximately 28% on a reported basis and 12% excluding currency. Asia revenues declined 15% compared with last year on a constant currency basis. Americas sales in the residential segment declined 14% in the quarter. Residentials results continue to be impacted by the decline in domestic residential building and remodeling activity. Volume gains from South America and new electronic residential home security and energy management products, and revenue gains from prior period price increases helped partially offset the falloff in US residential building and remodeling activity. Operating income for the sector was $105 million for an operating margin of 19.7%. Excluding restructuring cost margins would have been 2.5 points above 2008. Accelerated productivity, strong cost control discipline and prior period pricing actions added eight points to the quarters margins and offset the loss of six margin points from the volume declines and negative currency.

Please go to slide 12. I'd like to switch gears and talk about an area of extreme focus for us, which is productivity. The top half of this slide shows the summary of our cost reduction and productivity actions for the first half and full-year 2009. We have say the long-term goal of delivering 5% plus productivity every year. This compares to our historical productivity rate of 2 to 3% a year.

For 2009, we have targeted total productivity savings of $650 million which is almost double the productivity we achieved for 2008. We got off to a good start in the first quarter with about $128 million of savings, which calculated out to productivity improvement of about 4.2% and exceeded our first quarter plan of 3.8%. In the second quarter, we achieved $193 million in savings against our target of $155 million, which equates to gross productivity of 5.6% and we're confident that we'll reach or perhaps exceed our $650 million goal for total productivity for the year despite lower than expected volumes. We also expect the benefit from commodities deflation in 2009. The view on this chart rips up value of Ingersoll-Rand to the volume of the prices will be locked in and buying the balance of our commodity needs at today's market prices. So we expect to realize roughly $150 million of savings this year, which is in line with our forecast that we gave you last quarter.

Please go to slide 13. This slide shows an update on restructuring actions. Based on the economic slowing that we started to see in the third quarter of 2008 we began taking action then. We instituted a series of about 50 programs covering all of our businesses to streamline our manufacturing footprint and reduce our G&A base. So far, we spent about $120 million and we continue to find additional opportunities and expect to spend an additional $20 million in the second half for a total of $140 million. These additional actions will generate $20 million more in savings for 2009 and another $35 million in savings for 2010. All told, we will realize about $180 million in gross savings this year from our restructuring actions and about $235 million of cumulative savings in 2010.

Please go to slide 14. I'll spend time drilling down into the specifics of our synergy savings. And you might recall that we delivered $105 million of actual savings in 2008 versus our target of $75 million exceeding our target by $30 million. We achieved that performance through better than expected savings in logistics, lower healthcare benefits delivery costs, corporate-wide contracts for indirect spending and lower material costs. As we get further along into this process, we're finding more opportunities and we continue to execute very well on these. We'll continue to drive execution and results in 2009 and our expectation is to deliver roughly $180 million of incremental savings of 2009 on top of the $105 million of savings that we realized in 2008. That means our total benefit, including the modest beginnings of our growth programs will be about $300 million. We already have about 300 approved programs of the pipeline to deliver those projected performance. For the first half of 2009, we delivered an incremental $80 million of synergy savings on top of the carryover of 2008. So in summary, this has been a very challenging quarter, and we expect to have additional challenges for the year. We acted early to bring down our costs and continue to focus on driving productivity and minimize the costs of reach our cash flow forecast.

Please go to slide 15. In addition to our productivity programs we continue to make significant investments in new products and services. Close to $2 billion of our 2009 revenues are from new products and services that we've introduced in the last three years with a number of new offerings in each of our businesses. We'll invest about $500 million this year in R&D, engineering and CapEx, not including marketing and promotional expenses. The slide highlights three of these areas. In Trane, we strengthen our leadership position in integrated systems by introducing a number of new products. We launched our new Global Air-Cooled Chiller line and are manufacturing the product now in each region of use. Simultaneously, our new commercial air handel unit product line also went into production and we're seeing notable order share gains with both product families. Our (inaudible) refrigerant transition remains ahead of schedule and we will be 100% complete by the end of Q3. So in summary we continue to execute our new product development plans and we will emerge with a industry leading product line in terms of breadth, efficiency and customer value. In Climate Control we will launch 23 new products this year. For example, our Hussmann display cases with LED lighting are both energy efficient for customers and eye catching for consumers. One major grocery chain told us that sales of frozen foods more than doubled when displayed in the new cases. We are also introducing a more energy efficient refrigerated trailer which will reduce fuel costs by 25 to 30%. Our Schlage LiNK product hit the "Big Box" market in the second quarter and early results are very positive. We recently ran promotions over a weekend in four key markets and in those markets, the product sold out completely.

In addition, we're very close to an agreement with a major electronics retailer to carry the product line and we will be introducing additional products including a Trane thermostat which can control the home central heating and cooling system remotely. We'll also offer other products which can be linked with lighting and security cameras as well. Reinvesting our business is important and we have a full pipeline of products and services many of which are synergistic and combine capability as cross our businesses. Many of these offerings are unique to us and continue to strengthen our market positions.

Now Steve Shawley will talk about improved balance sheet, cash flow and success in taking down working capital all of which substantially improved our liquidity position. Steve?

Thanks, Mike. Please go he to slide number 16. As we've 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 initiative, 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 paydown of $241 million and 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 paydown to take place in the second quarter. So the $750 million of credit facilities rolled 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 foot 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 paydown 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 operating income projection of $1.2 billion and working capital reduction of $205 million. Since then, as our markets have declined well below our original plan, we have continued to focus on what it would take to meet the $675 million debt paydown commitment but on a lower earnings base. We have taken actions to optimize our CapEx, lower our dividend payments and drive even lower levels of working capital. This chart shows that these actions have been highly effective to date and have combined to produce over $600 million of available cash through June. Assuming that operating income comes in at the bottom of our earnings range, we fully expect to exceed our orignal cash generation plan for the year. This performance will largely depend on our ability to manage working capital such as it remains flat for the remainder of the year.

Please go to slide number 18. This slide was put together to demonstrate how we expect working capital to behave in 2009 versus 2008 and to anticipate the seasonal impact of our businesses on the timing of cash flow. Earlier, I used the word unprecedented to describe year-to-date cash flows. Our working capital profile for the first six months in the reason why. The $416 million of working capital reduction to date has been driven by an intense focus on operational cash management. Inventories have been reduced by over $250 million. DSOs are holding or improving across all of our businesses. Payables and other goals are being effectively managed relative to volumes. So the working capital as a percent of annualized revenue was reduced to 5.0% in the second quarter. We fully expect to sustain this reduced level of working capital to the remainder of the year. Please, note that the representations presented on slide 17 and 18 exclude any impact of the receivable securitization program that was expanded in the second quarter.

With that, I will now turn it back to Herb for the forecast.

Thanks, Steve. Would you please go to slide number 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 costs and availability of credit caused a notable decline in business in the fourth quarter when the US GDP dropped by 6.3%. The rate of decline continued in the first half of 2009 on both reduced and end market demand and inventory destocking on many of our major customers. Our forecast for the balance of 2009 still has considerable uncertainty due to many current unknowns in the world markets. Most economies are predicting the US GDP won't turn positive until the fourth quarter of 2009 and even then, the recovery will remain hesitant. We're 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. So 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 of 2009. The changes from our prior forecast are the ones noted in red. For US construction, residential building markets appear to be bottoming at very low levels compared with the 2006 peak. We believe nonres construction we 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 nonresidential building has continued to deteriorate as the slower economy and tight credit negatively impact starts. The refri trail on 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 could reach a 19,000 unit shipment year. That's about 1,000 units above our previous guidance last April, but still 29% below 2008 full-year shipments. We find this increase in trailer activity very promising since in each of the previous business cycles, this has been a very, very reliable early indicator of a pending economic recovery.

European truck and trailer market had a sharp downturn in the fourth quarter after a strong first half of 2008. Demand for 2009 continues to deteriorate and we expect total European market volume to be down as much as 70%. Industrial production and capacity utilization had a major dropoff at the end of 2008 and into the first half of 2009. We continue to expect significant year-over-year decline in industrial production and capacity utilization for the balance of 2009 but especially in North America and western Europe. And finally, our forecast is based on a dollar to Euro ratio of 1.37 compared with our previous forecast of 1.31.

In addition to these industry specific drivers we assume the Americas and European economies will experience weak GDP comparisons for the second half of 2009 as inventory liquidations run their course and as government stimulus programs start to kick in. All to forecasting the recovery in China, but declines in the rest of Asia.

Please go to slide number 20. Based on the macro economic review I just gave you, we expect revenues for full-year 2009 to be down 16 to 19% compared with 2008 under pro forma basis, including a two to three point drag from currency translation. We expect climate control and industrial to show declines in the 24 to 27% range with low to mid-teen decline at security and ACSS. This results in a 16 to 19% decline compared to our previous guidance range of down 14 to 19%.

Now please go to slide number 21. Additionally, our forecast is also built on the following assumption. We will benefit from lower commodity costs, especially nonferrous metal. We expect to achieve $180 million of additional Trane acquisition synergies and $111 million of net restructuring benefits. Our productivity programs will continue to lower costs significantly for 2009. Finally, our forecast assumes flat pricing year-over-year which indicates we're building in a modest decline in prices for the second half of the year.

Now please go to slide number 22. Our outlook for revenues and EPS as shown on this slide and adds context by showing 2008 revenues by quarter and the average of 2006 and 2007 quarterly revenues. Second half results will still be adversely influenced by the difficult economic conditions in most of our end markets. And as you can see on our chart the current downturn began in the third quarter of 2008 after a strong first and second quarter.

Compared to this year's forecast, the percentage year-over-year changes get smaller in the second half of 2009, but not because demand is getting notably stronger but because the comps get easier. It is also worth noting that 2009 revenues are still below the last three years results. Third quarter revenues are forecast to be in the range of $3.5 billion to $3.7 billion which is down approximately 14 to 19%, compared to third quarter of 2008. EPS from continuing operations is expected to be in the range of $0.55 to $0.70, excluding restructuring costs of approximately $17 million. We are projecting full-year 2009 EPS from continuing operations and excluding restructuring to be $1.50 to $1.80 per share, including $0.11 of costs associated with discontinued operations, total EPS is projected to be $1.39 to $1.69.

Now, please go to slide number 23. So to sum up our forecast for 2009, we expect 2009 to remain difficult. With activity declines in most of our major end markets. We remain focused on programs which make us a better performing company in both difficult and in the future good economic times. We're delivering cost synergies and expanding our growth synergies. We are organizing our business to take better advantage of market opportunities. We will realize savings from restructuring and are stepping up productivity targets to the 5% level while working to capture material cost savings from our commodities. We solidified our balance sheet in April by refinancing our bridge loan and by reducing our second half dividend. We're dedicated to generating increased levels of available cash and we're continuing to fund high priority project that will focus on growth in our future years.

In summary, we're taking the necessary actions to both manage through this downturn and to deliver improved margins once the economy begins to recover. Now I would like to open the floor to your questions. Thanks you.

Thank you. (Operator Instructions). We'll take our first question from Alex Blanton from Ingalls & Snyder.

Good morning. I haven't had a chance to fully check this out, I haven't had a chance to fully check this out, but do you know whether the analysts consensus, which was reported reported to be $1.32 or $1.37 depending on who reported it for the year includes or does not include these restructuring costs?

I think they compared Alex to our $1.30 to $1.50 so they were excluding the restructuring.

Compared to which?

What we were giving including restructuring, Alex.

What were restructuring charges per share for the year, $69 million of how much per share?

Approximately 325 million shares.

That's a pretax number, though.

$0.15.

$0.15. Okay. I'm going to ask some questions about the destocking effect, and other companies have had the same experience. Destocking in the supply chain, yours or your customer chain has been very, very rapid cycle compared with any other cycle that I know of, and it's 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. And employment has been reduced much faster, also, for the same reason. But if your customer reduces inventory by cutting orders below his demand level, then just to meet demand he's got to raise his orders if he stops reducing inventory. It doesn't mean he increases inventory it just means 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? Is there going to be a period of recovery and orders and then followed by renewed weakness because of that? What do you think?

It's Mike Lamach. I think it will be cautious in terms of the build back at the distribution level. By any comparison that we've got, they're at very, very low levels. When you start to factor in the pent up demand, and replacement cycle, we know from our forecast and talking with distribution base and dealers that we'll see, a bit of an uptick in that regard. These are very, very low inventory levels in the channel today.

Well, yes. So they have to rebuild a little inventory as well, you're saying? Even if demand continues to fall, it could be what I'm saying is there could be some --

Maybe I can try it this way.

Misleading increases that happened?

Think along the lines that most of the distributors, let's just assume they say I want to have 60 days' worth of inventory. If they wind up going during the period of time, obviously their revenues fall short of what they thought they were going to be and if they see going forward to demand that increase, they can say holy cow, I've got more than 60 days on hand and they start cutting orders. A lot of this really is when people start thinking that they are going forward inventory levels have to be raised because their sales level's going to be raised. That's where we're at, at this point in time.

Thank you.

We'll take our next question from Shannon O'Callaghan from Barclays Capital.

Good morning, guys. I'd like to just get a little more color on your view ever restructuring going forward into next year. Is there more to do? Where would that be and is that something you would be backing out next year including the numbers to give a sense of how much more is left to be done?

We're going to continue to look at things that makes sense for to us do. Through the year, the process has been such that we're able to on a cash basis on a return basis for the year have it be accretive for us. We continue to look at those going forward. We've got a lot of opportunity in the area of capacity utilization. We've taken many actions. We're putting together some more detailed road maps and footprints and make decisions based on that once we're through with that plan. To date, we feel good about what we've been able to do, and we'll continue to look the same -- look at that the same way going forward.

You mean in terms of a policy next year if you were going to do something?

Let me take a shot. The concept would be we would identify incremental projects going into next year if they're there, especially if they provide a return both of the P&L and for the cash for the expenditure. So as we identify more opportunities, this will become part of the process. I would hope that we could get out of , shall we say, cash spend and cash benefits going forward. Benefits will offset the costs in the period. That's what we'd be looking at.

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

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

So for us going forward, you look at the residential side in the HVAC. I think 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's a question of when the customer confidence gets back that we're going to start seeing that replacement cycle going back. That's got tremendous upside. It is going to be tide to when consumers feel confident to their investments.

If I got to solve quick on the conversion of the 350, I mean, are these things that are orders this year but the revenues are really filling up next year? Can you give us a little flavor for the timing of that?

Absolutely. It's a proposal that's gone out, where construction is going to start probably looking at anywhere from 8 to 14 months in a typical cycle, where you see revenue. And where it's a contracting or service, deal, it's going to really be on a complete basis but you are going to see the bulk of that coming next year as well.

Great. Thanks a lot.

Thank you.

We'll take our next question from Eli Lustgarten with Longbow Securities.

Good morning. Couple questions, you talked about 150 million forecast for commodities this year and you said the first and secretary quarter cost savings are still identical. Have you recognized any today and how much in the second half and how's that break out?

There was about a $40 million positive swing that we've 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 in the market, we feel fairly confident about the 150 million at this point.

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

We've been locking in this year looking at throughout the third and fourth quarter but right now we're not locked in 2010 on copper.

In your forecast, you 137, you know, 140, probably going to be this that range for the rest of the year. Is there a big impact on the forecast if you wind up with a 140, 145 instead of a 137-year-old?

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

And absolutely impressive margin performance in security and safety, to be almost close to 20% in this kind of environment, the question is, how sustainable is the kind of performance 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've got a very robust pipeline of activity going on. They've done an outstanding job. I think we'll continue to do that. There's a methodology and process we put in place across the whole company. A lot of defense practices are coming from that organization. That's been good news for us.

So we'll be able to hold down volumes in the markets doing the rest of the year, the new products driving it?

Yes, I think so.

That's our goal.

All right. Thank you very much.

Thanks, Eli.

We'll take our next question with Stephen Tusa of JPMorgan Chase.

Good morning.

Good morning.

Can you talk about the dynamics between applied and unitary within commercial.

Steve, you would look at unitary as our exposure and market share certainly around commercial office buildings. That's going be sort of down, you know, mid-20s kind of range. We've launched some new product which is helping us in that regard. So a new air pool chiller range in terms of share. Some of that is happening as a result of more owner direct complex solutions where, we're driving an energy efficiency program and pulling through some of the applied equipment as part of that. So that would be sort of how that would line up. All told, you're looking probably at being off in the minus 20 range.

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

Well, the orders are coming from the ship and resources that we've made in the owner direct selling organizations. We actually moved head count and increased head count 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 Herb's point is a little misleading. Volumes aren't where we want them to be but do you get relief in the fourth quarter.

You get relief on the commercial business in the fourth quarter?

Yes, absolutely.

Okay. Great. Thanks a lot.

We'll take our next question from Mark Koznarek with Cleveland Research.

Hi, good morning. The assumption about price utilization, first quarter is up a point, half a point this quarter, so you know, obviously, you're assuming it's going tail off. Could you discuss that a little bit more and where that might be concentrated.

Yes. Mark, the pricing we got in the first half of the year is positive across the organization. It's something less than 1 point. The declines we're seeing will be something less than a negative 1 point. All told we're going to be relatively flat for the year applying a back half which will be weaker. That's going to be moderated by what happens with commodity pricing. It's fluid right now if we see an increase. We're going to get less pressure and pricing and inverse if we see further reduction. So we're looking at flat, and again, plus or minus one point on both sides of the year.

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

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

Okay. And then I've got 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 a while, Mark, at least for this call, but historically, it's run that we had 20 to 30% exposure to new construction, new square footage. About a third of our exposure was through the wholesale channel. The balance really coming through more of the retrofit market, which was one of the new plates, but it was, you know, retrofitting existing space.

And how did the performance during the quarter vary among those categories?

New square footage commercial markets followed the conversation earlier about Trane. Some stay on spending and some money in the school, healthcare markets, coming in, in that area around retrofits and upgrades. Pretty consistent with the HVAC story.

Okay. Great. Thank you.

We'll take our next question from Terry Darling with Goldman Sachs.

First an Trane, the parts and service business. Wonder if could you 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's sort of winding spring on that piece of the business to this point?

Yes, I mean it's follow the historical trend, where you're going see lack of maintenance and deferral pushing through parts and service. Labor and parts would be up in the back half of the year. The real mover for us has been in the area of contracting, mainly around complex solutions or some would say performance contract and energy efficiency type contracts. That's where the big backlog has built the burn rate on contracts so that magnitude are 10 to 14 months. You begin to see on the contracting side more early next year, but certainly contributing on the back half of the year. That's where we get this idea that we'll be flat, 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 the 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 opinion last June was a big month for us. It's been fairly consistent. Initially in the first quarter and early in the second quarter woo he had more untraditional delays with customers making the decision. That seems to be normalizing a bit and we're able, to I think, put in place a little bit better forecast relative to those businesses in the last couple of months.

On the residential side, maybe you're getting a little bit of share this. Wondering if you could talk a little about your approach to the resi market right now. You did mention a little bit of price weakness there as well, and you know, just talk about where you think your resi business is heading here in the back part of the year?

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

Okay then just lastly on the industrial business, that looked a little softer. Looking at the sequential drivers there, Americas 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's going be capacity utilization and if our customers aren't busy, we're not going be busy, either. That's probably the most difficult business to really get a handle on when that'll turn the corner at this point.

How do you feel about your share in that business? It did look like one your competitors was knocked down as much? Do you think that is an anomaly or concerned about share at this point, too?

From the data we saw on Q2, I don't compare notes here, but I think the share might have been okay in the second quarter. First quarter might have been a little weaker, but we're always after share and we've been working on three things this year. It's cash, productivity and share. So I can tell you that that's the focus for all of our businesses and we're monitoring on a monthly basis with as much third-party data as we can. I wouldn't say that the gain or loss is significant one direction or the other.

Thanks very much.

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

Good morning.

Hi, Nigel.

The free cash flow for the rest of the year. Looks like you're projecting 119 million net debt paydown the second half of the year. If I look at your low end of guidance, I see $350 million in earnings. You have $45 million of dividends, $13 million of available cash flow. Keep outlook flat, is there anything other drain on cash I should think about?

As I said in the commentary, we are planning on the put bonds coming back, Nigel, this November. I think that the lower probability of that happening now than it was three months ago.

Right. But that's not net debt, though, right? That's just the between cash and debt.

The game plan 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.

Okay. I guess what I'm trying to say is you typically, your working capital, you build working capital in the second quarter. You've had a great performance this quarter. If we do see, again, good news on working capital of the second half of the year, I'm assuming that you maybe built (inaudible) with the pay down. If you do exceed on debt reduction totals on the short-term and medium-term does that open up the possibility for the second half in 2010 to maybe widen your free cash allocation to maybe incorporate in some buyback activity?

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

Okay. Good. Good. On the guidance, how much -- is there any share count dilution from bonds in your guidance given where the share rice is right now?

No, there's not.

Finally. I guess this is a longer-term question. Club Car, big evolution in the electric cars going forward, electric vehicles, how do you think about the volume of that business going forward?

Nigel, we looked at Club Car, and really, it is for us, a potential player in the energy conservation mode for people transportation going forward. We clearly are and have been for a while of market leader in golf. Golf in my mind in terms of a relatively flat business going forward. We don't see a whole bunch of extra golf courses being built. So for us, how do we wind up going and participating in the electric people mover concept going forward and also then getting into more what I call recreational type vehicles, people using it who have large properties. So our real bet on new products as we look at this going forward is in this whole area, people moving and to the degree having to realize we'll wind up having a company continues to deliver good growth. If not, it becomes a cash cow and we have do decide whether that's good for one-time source of cash or ongoing stream of cash.

Okay.

We'll go next to David Raso with ISI Group.

On climate control and Trane, I am intrigue by the potential operating leverage at climate control and maybe some upside to your sales forecast. I think about your new refrigerator trailer forecast at 19,000. We already had 9700 year-to-date. You're implying the second half is weaker than the first, but we have in the backlog already 9900 units and the orders have been strong at least year-over-year the last three months. So I'm intrigued by that forecast, can you shed some color?

What we were doing what not trying to take so much second guessing on the act data. We look at it and I would agree with you mathematically if we go by our traditional trends that there would be upside. Remember how we started about the forecast going forward. Let's make sure we have a cost structure and operational focus on what would be considered crumby on the market conditions. Any upside beyond that we will cheer as we go realize continued growth.

When I think about the margins then, already at 8.8, the greatest amount of restructuring did you late last year was in this business.

That's right.

Also mentioned with the reach in display case at Hussmann, we're obviously a higher margin with a door on it instead of open display case. Sounds like your backlog is toward that mix as well.

Correct.

What kind of operating profit margin are you thinking about climate control this year and especially if you get continued improvement in the refrigerated trailers and Hussmann continues to show a good mix. Is 2010 close to the 12ish peak we saw a few years all?

Relative to '09, I would tell you that on a full-year basis our climate control, something 6.5 to 7% range is really what we're looking at this and clearly upside exist if we were able to get stronger transport refrigeration. The other one is we've had good success with some of the engine change outs with some of the California-based legislation. We did something like 4,000 engine replacements this year. So that's a little bit of upside of that continues to work as well. Clearly, if we have favorability in both, we could be 100% for the full year.

The other thing I'd add, climate control is heavily impacted by what goes by in Europe. If you remember the saga there, the European trailer volumes grew to a level that's in parody with the US a year ago. So with the European markets being so far off it's real I had hard to predict at what stage we get back to the kind of margins you're talking about in the future. I think that's a wild card in addition to the return of the US Trailer market.

Okay. Just the 6.5 margins for the year. I know the first quarter was low, but it clearly seems like --

It really is driven. The downside come the 70% reduction year-over-year in Europe. If I would tell you that our margins in Europe were running into 17, 18% level that kind of volume reduction really hurts. That's the biggest fight that we have at this point to overcome.

Quickly on Trane, the purchase accounting amortization went up from 39 to 46. First kind of how should we model that going forward? And obviously with higher amortization, it implies a more impressive core margin. So a, why'd it go up and how to model it going forward the amortization and second, if you can give any color in the second quarter, how profit margins differ between commercial, hearts and residential?

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

And in the core margins then with the higher amortization implies the core business at a better margin than otherwise?

Absolutely.

You can help me between commercial parts and residential, some feel -- I'm just trying to feel the first and second quarter, where was the big improvement. I'm just trying to get a feel within Trane the margin differentials, commercial parts and residential.

One big area, Dave, is going be you're going have really deflation kicking in a significant way. One of the drawbacks in revenues being lower was we had some high-cost products sitting in inventory working its way through the income statement in Q2. So it's quite a change happening there in both businesses would be one area. The second probably biggest area would be a look at, you know, where does the productivity come from in Q3 and Q4. A lot of that is associated with the two Trane businesses and what they've done relative to restructuring and synergy projects toward the back half of the year. So there's improvement sequentially there as well.

And my question about the margin differential, is some parts is pre-amortization double-digit. The key question is commercial versus residential. In the quarter, which had the higher margin?

I guess the first question would probably don't have an answer to, and the second question, you had the businesses fairly close. You had commercial, maybe points above in Q3. You've got the businesses, that are literally tens of basis point as way from each other so it's a crap shoot. Those businesses are fairly equal for Q3.

That's helpful. Thank you very much.

We'll take our next question from Andy Casey with Wells Fargo Securities.

Good morning, everyone.

Good morning.

I guess if I could go back to the question on energy efficiency projects. Your comment about quoting a billion, do you have any updated idea about what the total potential pipeline that you haven't quoted yet would be?

Yes, yes. If you look at sort of the building related Stimulus portion it's about 100 million. If you add sort of the education funding on top it's probably 120 million. Billion, I'm sorry billion. And if you look at the usage factor for the kinds of things we would do, I would tell you would be in the 5% range which gives you a $6 billion opportunity. I've heard it quoted as high as 10%. 10% tends to be all piping, duct work, wiring, et cetera. For what we do with security and HVAC, 5% a good number, 6 billion probably over a three-year period, adds sort of the market shares that we hope to command or approve. That would be sort of the positive view for that. Lots got to happen including the money getting spent efficient in the right way. So we're not putting all of that into our thinking going forward. Clearly, what you see here is a cost-led, productivity led plan for the balance of the year. We're still thinking about that going into 2010 is making sure we structure our cost position, as well as we could.

Okay. Thanks. Lastly on the residential kind of the parts business associated with that market. Did you see an unusual deferral, and if so, would that bode well for pin up replacement in 2010?

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

Thank you very much.

We'll go next to Jeff Sprague with Citi.

Thank you, good morning, everybody. Just a couple loose ends. I wonder if you could drill into Hussmann a little bit more. The comment that margins were up on a year-over-year basis, was that the total Hussmann franchise or just the Americas business?

Americas was the strongest business there by large 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 there on the change there on a year-over-year basis?

We don't have it broke out that way. We have to probably come back and help with that.

And then just back to the Stimulus comment for a minute. Mike, it sounds 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?

It's largely retrofit and upgrade. How you classify the hospital adding a wing, a school adding an addition. I can't give you an exact definition between the two. It's more retrofit than new construction. All though we have seen new construction. We have seen early inquiries and focus on new construction activity.

Are you guys over the hump on 410A in terms of actual cash spend and the internal work? Sounds like you said you're ahead of schedule. The actual negative drags may be on P&L and E&D spending.

Yes.

Terrific. Thanks a lot.

Thank you.

We'll take our next question from Andrew Hove of Bank of America. Mr. Hove, your line is open. Please check your mute function.

Can you hear me? Hello?

Yes.

Hello?

We hear you, Andrew.

Yes. So the question on restructuring which seem 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.. Trane versus, the old historical Ingersoll just because the upside, at versus my model in the heritage Ingersoll business was quite a bit more significant than Trane.

Probably tell that you in interprets of where we exceeded in the quarter and area of productive it I, thinking about three buckets, productivity, which would be indirect, material label. Second synergy, and third restructuring. Really that $38 million gate we had, 25 of it came out of productivity, which was direct, indirect material and labor. So the restructuring, what we're finding there is that we're sort of spending better favorably to what we had anticipated in getting the benefits up a little quicker. Synergy, you negotiation I think what the beat there was about 5 million. It's really in the area of just getting good momentum as we roll out farther down with Latin America, Eastern Asia. So that's where the beat was this. Restructuring has been fairly consistent our story there, certainly wraps up to the back end of the year. So it wasn't Q2 beat.

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

Andrew, this is Steve. First of all, a couple concepts here. One, the spend this year is well distributed across the sectors evenly. If you remember, we are reacting to certain market conditions across the board. So these are actions put in 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, what we'll be thinking about is increasing our capacity utilization in our factories. If you look at synergy as cross multiple sectors, I would tell that you our future spend plans would be equally distributed across the sectors as we go forward. So I don't know what else to tell you. It's the fact that we're operating under capacity this all of our sectors, it's really an opportunity to better utilize corporate assets going forward.

That was just very impressive execution. Thanks a lot.

Thank you.

And as a reminder, if you would like to ask a question, it's star one. We'll take a follow-up from Mark Koznarek with Cleveland Research.

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

Herb's, round up again.

I'm sorry, was it climate control margin target you gave.

Yes, I think with , the form of the Trane business, you're probably looking at a combined sort of 5% type number for the full year, okay? For security, they've been wonderfully consistent. We've been consistent about saying where we thought that business would be and I think something in the neighborhood of 18%,a good number there. Relative to industrial, I probably just like climate tell you it's probably in the 6 to 7% range. Depending on the kind of activity we see, in the very building our forecast is with our end customers in that business so it's probably one that with the forecast we've got more variability.

I just added to make sure we're connected here. All those numbers or all those systems that Mike just gave you include the impact of restructure spending this year.

Those are on an as-reported basis?

As reported.

Great. Thanks for the clarification. Appreciate that.

We'll take a follow-up from Stephen Tusa with JPMorgan.

Sorry, a quick one on the residential side. You guys talked about being close to an inflection. Given this is a kind of seasonal business and every year can be different on factors when it's consumer spending. Which one of those factors lead to you believe that we're close to an inflection, are people replacing more than they've repaired? Maybe just talk about those fundamental dynamics. We all know what housing's doing. We all know what the weather's doing but maybe there's other things going on that has driven such a lower replacement rate over the last couple years.

I mean, a couple things. Definitely seeing this late demand, this curve having gotten wider and wider over the last 10, 12 quarters and ultimately getting such a low point in terms of volumes that you begin to turn the corner anyway. It's probably Q1 as you begin to turn the corner there. That I think,a driver. We are seeing benefit of the rebates driving higher efficiency, and a rationale to do something sooner. So that's been positive for us in Q2 and through the balance of the year as well.

What was price and mix for resi in the quarter? Separately?

I don't know that we really -- Steve, we don't break that out separately. Okay.

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

Yes.

Or not doing either. Just deferring.

How many of, I know this is hard but do you guys have a unit number on the top of your head as far as what's been either fix or deferred over the last few years. How many have been deferred, do you have a unit number?

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

We have shown the Trane data shows that about 25% of the units will be replaced when year hit '08. There was a really excellent writeup done by the colleague analysts shows that the 42% winds up going out of the year 12 to 14. When you look at that data. Just add that together and you see a tremendous upside in terms of 10 of 1000 units. If you then go and draw the consumer confidence curve with it, you'll see the replacement rates directly tied to the consumer confidence as well.

Steve, I think that was your analysis.

I was hoping that was mine, otherwise there would have been plagiarism issue going on.

True story. I personally read all 122 pages whatever it was --

I can give you the area milicurve.

It was actually 150 pages but who's counting. Thanks a lot, guys. Appreciate it.

On that note, I think there's one final question.

We will take a final question. A follow-up from Eli Lustgarten from Longbow Research.

Most the survey's we have done say there's 40% of cost the cost saving would be (inaudible) There's 40% of cost the cost saving would be higher for you guys than what was saving at this point. We have any feeling for how much of a carry would be?

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

So that is permanent savings?

Yes.

All right, thank you.

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

Thanks, Kristin. I'd like to thank everyone on the call and listening in on the webcast. Thank you for participating with us. There will be a transcript available in 48 hours on our web site if you would like to read the highlights of the call again. And again, thanks so much and we'll see you next quarter.

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