OPERATOR: Good day and welcome to the Trane Company's first quarter 2008 earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to the Vice President of Strategic Planning and Investor Relations Mr. Bruce Fisher. Please go ahead sir.

BRUCE FISHER, VP, STRATEGIC PLANNING, IR, TRANE INC.: Thank you. Good morning everyone, and welcome to Trane's conference call to discuss our first quarter results and full year forecast. With us this morning, as is our custom are Fred Poses; our Chairman and Chief Executive Officer; and Peter D'Aloia, our Chief Financial Officer. Pete will review our first quarter performance and our outlook for the second quarter. Fred will then share his perspective ad our outlook for the 2008 full year. We will then open the lines for your questions.

Charts that follow the comments we will make this morning are posted on our website. The charts are under the heading Trane's first quarter 2008 results. As shown on chart number 2 that's posted on the website certain forward-looking statements that we will make today are based on management's good faith expectations and belief concerning future developments. Actual results as you know may differ materially from these expectations as a result of many factors, relevant examples of which are set forth in the Company's 2007 annual report on Form 10-K and in the managements discussion and analysis section of the Company's quarterly reports on Form 10-Q and 2007 annual report to shareholders. These remarks also contain certain non-GAAP financial measures as that term is defined by the SEC. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measure are included in reconciliation charts which are attached with the charts that we will discuss this morning. So with that I would like to ask Pete to start us off with his comments.

PETE D'ALOIA, SVP, CFO, TRANE INC.: Thank you Bruce. Good morning everyone. You will notice that the earnings release we issued this morning is oriented to GAAP results. The comments I'll make and the charts that follow along with them contain both GAAP and adjusted numbers. Since we believe that you will gain a fuller understanding of our underlying business performance by adjusting for FX, streamlining, tax items and merger costs. I will also bridge between GAAP and adjusted results so you can see how the two approaches compare. So please turn to chart number three, which summarizes the highlights for the first quarter.

Overall Trane sales were up 6% reported and up 4% excluding foreign exchange. Driven by growth in commercial sales which hit a new first quarter record. Global commercial air conditioning orders were up 7% and our backlog increased 3% year over year. Our price initiatives continue to yield returns as we achieved over 2% price increases year over year which is important as commodities remain high. Adjusted segment margins were 9.2%, down 60 basis points versus last year. Sales and margins improved strongly in commercial while residential dealt with continued difficult market conditions.

Adjusted EBIT was $115 million in line with our guidance and was down 2% versus last year. Adjusted EBIT margins were 6.7%, down 60 basis points versus the first quarter of 2007. Earnings per share for Trane were $0.35 on an adjusted basis, up 22% year over year and $0.01 above the Consensus estimate. Free cash flow for the total Company was a use of $70 million for the quarter, in line with expectations as we build inventory for the upcoming season. We ended the quarter with $356 million of net debt. Additionally in the first quarter we made progress towards completing the sale of the Company's Ingersoll Rand in the second quarter by filing the S4 registration statement with the SEC and we secured all other regulatory approvals required to close the deal. We set April 23, as the record date for Trane shareholders who will vote on the merger and we expect our Board to set Trane's second quarter dividend record and payment dates for sometime in May prior to the anticipated closing of the merger with Ingersoll Rand.

We continue to make good progress on integration planning with Ingersoll Rand and we are putting plans in place to make the process as smooth as possible and to achieve targeted synergies. Overall, we continue to demonstrate momentum in commercial while dealing with a challenging housing market.

Let's take a look at how Trane performed in the first quarter in a little more detail. Chart 4 shows sales for our Trane air conditioning systems and services business. Before I go through the Trane results I'd like to first give you a brief market overview. I'll review the U.S. commercial equipment market first. For the quarter commercial equipment market shipments in the U.S. were up low to mid-single digits year over year. Both the applied and the large commercial unitary markets had mid to high single digit growth. While the overall U.S. commercial markets continued to grow in the quarter, we did see some softening in the light commercial unitary market which was flat year over year. International unitary and applied markets continue to grow in the mid-single digit rates in aggregate excluding foreign exchange. So overall, we would say U.S. growth slowed to low to mid-single digits while the global commercial equipment markets continue to show mid-single digit growth. That's a quick overview of the market, let's turn to -- let's review Trane's results.

The data on chart number four is shown both on a reported basis and adjusted for foreign exchange. To give you a better view of Trane's organic growth. As you can see, we had a good quarter in commercial air conditioning where our combined equipment, systems and services sales were up 8% excluding foreign exchange. Commercial, global commercial equipment and systems representing 48% of our total HVAC sales grew 3% in the first quarter. Applied global equipment sales were up 1% as Europe and the Middle East continue to show strength while the Americas and Asia were flat to down slightly. Our global commercial unitary sales grew 5% with strong performance in Europe and the Middle East and low mid-single digit growth in the Americas and Asia.

In the U.S. we experienced varying performance by vertical markets. We saw strong growth in lodging, government and manufacturing. Office and education segments were flattish and health care and retail had negative growth. We also absorbed a slow down, but not cancellation of some U.S. projects during the quarter. It's difficult to determine whether this was the result of concerns about the U.S. economy, excuse me, the credit situation or just a pause in activity. For the quarter America's equipment and systems sales were up only 1%. Sales in the rest of the world grew 6% yielding 3% growth for total commercial equipment and systems.

Next I'll review our commercial global parts, services and solutions business shown as global service and related on the chart. This part of our business represents about 35 -- 31% of our total sales and continues to perform very well growing 18% in the quarter. This growth rate significantly surpassed the high end of our historical high single, low double digit performance and comes on top of 15% growth in 2007. The strong performance is a result of the successful execution of an expanded service initiative we began in 2006. As we outlined in last quarter's conference call we sharpened our focus on three objectives, capturing more new service agreements on both existing and new equipment systems and controls, broadening our service offerings to provide significant energy efficiency savings, and get paid to extend the life of HVAC equipment in the field. And expanding our capability to deliver more service on a global basis by putting more sales and service people in the field. And helping them be more productive and effective. These programs are helping us sustain growth rates above our historic 9 to 11% growth.

We're also benefiting from favorable legislation and market conditions. Primarily aging infrastructure and rising energy costs to deliver strong revenue growth in areas like performance contracting. As you recall the global market for HVAC parts, controls, contracting and services is significantly larger than equipment and offers us a real opportunity to grow and for growth independent of equipment. These investments in our contracting and service business and the ones we are making to develop the market develop and market new product and systems offerings are paying off as demonstrated by our strong sales growth.

Now let's turn to the residential business, which represented about 21% of our total business. First, let's review the residential market. We estimate that industry shipments to new construction were down in the range of 25% in the quarter while replacement unit shipments showed some softness. These data show how difficult the residential market continues to be. In the quarter we estimate that compressive bearing unit shipments for the total market were down 8 to 10% versus the first quarter of 2007. We also tracked the more inclusive motor bearing unit market which includes compressive bearing units, furnaces, and air handlers. The total motor bearing unit market was down 12 to 13%.

Now let's review the sales performance on residential air conditioning business. For the quarter our residential product sales were down 8% year over year. Here is the composition of our sales. Volume was down about 11 points, a bit better performance than the total motor bearing unit market. Price was flat and mix added 3 points from increased sales of both 14 tier and above air conditioning units and our variable speed and communicating furnaces. We continue to prove our industry leading sales of high efficiency units and systems. So overall for the quarter Trane had sales growth of 6% reported and 4% foreign exchange driven by our continued very strong service growth and broad global presence in commercial equipment, systems and services.

Let's turn to orders and backlog, which are shown on chart number 5. For the quarter global commercial orders overall were healthy, up 7%. Order pacing America slowed to 3% after an unsustainably strong pace in the fourth quarter. In the Americas contracting parts service and controls were strong, up double digits. Equipment orders were down single digits, influenced by a pause we saw early in the quarter as well as a timing of price increases in 2007. For comparison orders were up 31% in the first quarter of 2007. International, which represents one-third of our commercial sales and roughly 25% of total Trane sales continues to grow. Orders were up 17% in the quarter for foreign exchange. We saw 11% growth in Europe and the Middle East and 24% growth in Asia.

As I mentioned we did see softening in orders in the U.S. early in the quarter. Orders slowed in January and February, but have since picked up. We exited the quarter with good order growth as both March and April U.S. orders together are up 10% plus year over year. Commercial backlog continues to grow on a global basis. We ended the quarter with a global backlog of over $1 billion, a record driven by strong performance in Europe, the Middle East and Asia, partially offset by a decline in the Americas.

Contracting backlog which is additive to the backlog number we published is also at historically high first quarter levels, up double digits and the U.S. which accounts for about 80% of the contracting, global contracting revenues is on track to exceed our plan for the year. We continue to see prequote activity as well as request for bids that would support continued U.S. sales growth in 2008. Less than we had in our plan for equipment and systems but more than we had anticipated in service. Outside the U.S. activity continues to be strong and at levels we built into our plan. So in summary, we would say that our orders and backlog are at levels that support continued growth on a global basis.

Please turn to chart number 6, which shows Trane's financial results for the first quarter and a comparison to last year. This presentation of our financials follows our traditional approach highlighting segment income corporate and other at EBIT. We think it's a useful way to better understand our business performance. EBIT is a useful profit measure which is added to Ingersoll Rand's earnings before interest and taxes. As I mentioned sales were a first quarter record, over $1.7 billion, up 6% reported and up 4% when adjusted for FX. Segment income was flat with last year and segment margins were 9.2%, down 60 basis points in local currency year over year. Segment income and margin benefited from strong commercial volume and price and quantity sales of high efficiency residential products. New investments and low residential volume had a negative impact.

This chart also shows all the items below segment income down to earnings per share, picking highlights net interest expense was $14 million lower on $3 million higher interest income and $11 million lower interest expense from investing the bath and kitchen sales proceeds. Corporate and other and equity income was $2 million worse, primarily because of a currency exchange loss incurred in the first quarter partially offset by lower corporate head count and related cost. While corporate expenses were down over $2 million this reduction doesn't reflect further actions we would have taken to bring our corporate structure in line with the size of Trane as a single focus independent Company. The exchange loss was the result of U.S. dollars accumulating in a euro denominated entity during the quarter. The offset for this loss is on our balance sheet, so it has no economic impact on the Company.

Adjusted EBIT was down 2% in the middle of our guidance range. Without the currency loss adjusted EBIT would have been up 2% exceeding the range we gave in our fourth quarter call. Our tax rate was 32.9%, 340 basis points lower versus last year reflecting a higher proportion of foreign income and tax planning. We had some streamlining actions this year as well as a favorable tax item and merger related costs. Income from continuing operations on a reported basis was $66 million, up 15% year over year.

On an adjusted basis income from continuing operations was up 18%, above our guidance range of 5 to 15%. Earnings per share was $0.35, up 22% after adjusting for streamlining tax and merger related costs. Diluted shares were 200 million for the quarter. Overall considering the economic situation in the United States we had a good quarter with sales up 6% and adjusted earnings per share up 22%.

Turning to chart number seven, I'll now walk you through an analysis of our quarterly change in earnings per share for Trane and how that compares to the first quarter 2007 results. Earnings per share on a continuing operations basis for the first quarter of 2007 was $0.28 per share. In the first quarter 2008 on the same basis EPS was $0.33.

Let's review the key drivers. Our reported sales growth was 6% and contributed $0.11 to our earnings growth. Price was the main contributor as volume increases in commercial were essentially offset by increases in residential. Commodity costs including energy and logistics hurt us by $0.07 for the quarter. The sum of our materials management, Six Sigma and other productivity improved earnings by $0.08 year over year. Labor and other cost increases impacted earnings by $0.06. We made additional investments in our business worth $0.05 primarily for new product development and marketing programs. Other items had a net impact on earnings of $0.06 positive reflecting the impact of lower net interest, lower tax rate, lower corporate and other, and lower share count. Partially offset by the residential inventory related costs we talked about on the fourth quarter call and the impact of the unfavorable FX I mentioned earlier. The net impact of streamlining expenses, tax items and merger released costs was $0.02.

In summary, this explains our change in the first quarter reported earnings per share, adjusted earnings per share excludes the items listed in item 7 on the chart and was $0.35. We continue to achieve growth in our commercial business and high end residential products and we continue to invest in the future.

Chart number eight shows our outlook for the second quarter of 2008. Both our second quarter and full year 2008 outlook assumes that Trane is an independent Company for the year, that there are no share repurchases. We anticipated sales growth of 2 to 4% in the second quarter with continued strength in commercial and a sales decline in residential. EBIT is expected to be roughly flat year-over-year as we benefit from higher commercial sales, but continue to work through a tough residential market. We have instituted cost control programs in both commercial and residential and we are reviewing further belt tightening actions while continuing to fund investments which are essential to our continued future growth.

Income from continuing operations is expected to be up in the range of 5 to 10% as we benefit from lower interest expense and an effective tax rate in the range of 33%, about 1 point lower than last year. I'll turn the discussion over to Fred who will review our 2008 full year outlook and give you his perspective on our performance, position and potential. Fred.

FRED POSES, CHAIRMAN, CEO, TRANE INC.: Thanks Pete and good morning. If you turn to page nine, that's the page we're on, it talks about our growth and the sales and the markets that we play in. To put it in perspective we started the year expecting that our sales growth would be 5 to 6% for the total Company.

Let me take you through this page starting on the top with our commercial equipment and by the way, these are excluding foreign exchange. When we entered the year we knew that the commercial equipment market in the Americas would be less robust than 2007. You can see in 2007 some 17%. We thought we were relatively conservative at 6%. I would say we'd probably take that down a little bit now to 3 to 4%. I think that's colored a little bit by the first two months of the year and maybe not fully colored by the second two months, April, March and April where our growth is 10%. But I'm not sure the sustainability of it, so we took it down to about half what we thought it was in the beginning of the year, which was really in some sense a third of what it was in 2007.

We need to continue to work on price as Pete said we got some price in the first quarter, this is price that we have gotten previous to the recent runup of commodities. By the way, in this plan and in our outlook we have assumed no further price increases above what we have in place going into the year. My own judgment is if commodities stay where they are and I'm talking about a whole range of commodities, copper, aluminum, steel and other things, the industry would want and probably deserves another price increase, but that's not built into our estimate, although the higher materials prices are.

When we go to the rest of the world, Europe, Middle East and Asia, we built a plan, last year we grew it with 7%, our estimate for the year was 7%. Given our backlog and given what we see we ought to be at 7 to 8% for the year and again not being too optimistic, but there is a lot of work out there and a lot of backlog out there and we feel good about that range.

If we go to our $2.2 billion part service and solutions business, as Pete mentioned in 2006 and perhaps even a little before we started to realize the opportunities there to gain more customers, to offer more things, to add capabilities and to the extent benefited by higher energy costs which drive customers to do different things, not only energy jobs but replace earlier. We had a very, very strong first quarter. There were some special jobs in there that maybe helped us to that 18%. We entered the year thinking that we would do 10%, we probably stick with that 10% plus 10 to 12% based on a strong first quarter and a good visibility as Pete talked about, the backlog there, and by the way an encouraging part of that is it's not only in the Americas where our business is strong, but we're starting to get momentum after starting a little later in Europe, the Middle East and Asia.

We turn to our residential business, $1.7 billion, we thought it would be flat for the year as we entered the year. I don't think we or many other people understood the depth of new housing coupled with the fact that foreclosures and consumer demand and the ability for people to move houses is probably a lot more severe than we would have anticipated going into the year. Our current estimates for the year is instead of flat we'd be down in the range of 5 to 7% for the year and by the way if you recall we were down 8% in the first quarter, we expect to be down in the range of 12% in the second quarter. Which sort of implies that we will be relatively flat or modestly down in the second half of the year. And we feel comfortable with that because I think if you think about 2007, two things happen, people sort of in the end of the year recognize that housing wasn't going to be what it is and took housing starts down. And I think the industry deinventoried a lot of units in the second half of the year. So we won't have as hard a comparison in the second half of the year in terms of volume, as we do in first half of the year.

So when you add it all up, ex exchange we ought to be up 3 to 4%, some of that is price. When you compare that with where we started we would probably be down about 1 point or 2 from our expectation. The bulk of that I think certainly is in residential. With some lessening in the Americas and in my own judgment some opportunity to do a little better, both in international and parts and service. But that's our best look for the year.

If you turn to page, page 10, we will talk about the guidance that we gave you on what we call beginning of the year or fourth quarter sale call. Our original guidance as I just talked about was 5 to 6%. Our current outlook including about 1 point of foreign exchange would be 4 to 5% in terms of sales growth. We talked about the causes, we talked about what's taking us down and I think in my judgment we talked about where the upsides are in this estimate. If you think about our EBIT, we took our estimate down about 15%. Nevertheless--?

PETE D'ALOIA: $15 million

FRED POSES: $15 million, thank you Pete. Nevertheless we will still be up 8 to 13%. I think there's about four things that impact it. We talked about the U.S. economy. We talked about no price in this estimate, but commodities being up about $60 million versus our plan. You can think about those commodities as four boxes, all of them about the same, copper being one of those boxes, aluminum being a second box, steel being a third box and other things related to energy and those items being a fourth box, each being about 25% of that $60 million.

We are sharpening our focus on productivity and we certainly are looking as all businesses are to control our costs. They will help us offset the lower volume and wider spread between commodities and price, but nevertheless the combination of less contingency in our plan and a lower estimate make us feel comfortable that our 770 to 815 as far as EBIT concerned up 8 to 13% is a good number and certainly achievable for our Company.

If you go to income from continuing operations on the bottom, we gave you an estimate of 490 to 520 million, up 21 to 28%. We stick with that, because we're able to absorb that $15 million of EBIT reduction by a slightly lower tax rate and our original plan we had 34, we will be around 33. By the way, that's getting us back or not even quite back to where we were in 2006. So when we revise our estimate and look at where we stand we would say EBIT ought to be up 8 to 13% despite a tough residential market, probably much tougher than we thought and a little tougher commercial market than we thought entering the year. And by the way, tougher commodities which we haven't been able to get price yet to offset.

So let me just summarize on page 11, I think when we think about our business we have very good balance in Trane. That balance continues to get better as we continue to drive our commercial sales and service. We see continued growth in commercial, although diminished and I think the if fundamentals are there. It may be all the tougher time in the short term, but the fundamentals of population growth, energy efficiency are there for equipment. And as Pete talked out, I think we're just scratching the surface on what we can do in service. Our orders in backlog support the growth. I want to be optimistic the last two months in commercial are encouraging, but nevertheless I think we should be cautious. And as Pete talked about the acquisition of Trane by Ingersoll Rand is progressing and as we said before we expect our closing in the second quarter of 2008.

Moving to the right side and finishing up, the fundamentals whether we're in 2006 or 2007, 2008 or 2010 remain the same. There's a tremendously large installed base both in commercial and residential. The need for energy and the cost for energy continues to grow. I'm not sure I want to forecast where oil prices are going to be, but we -- the tendency is a lot higher energy prices and air conditioning is a wonderful, wonderful way to reduce the energy cost. Global warming and population growth are fundamentals that I think for our business are undeniably and just as solid if not more solid than they were in the years past. We can see growth in commercial. We are suffering with perhaps the benefits of overbuilding as far as residential is concerned. And suffering perhaps from ease of credit on the part of housing. But the fundamentals of housing are still there and people want to own their homes and over a period of time I wouldn't forecast whether it's within the year or longer than that, housing will recover and will return to a level of building houses in the 1.5 million to 1.6 million homes a year.

As far as profit opportunities, service, sales, or for us continued growth, we haven't scratched the surface I don't think on productivity in sales, service. By the way there's more to do in manufacturing and distribution and operations. And we continue to be optimistic about what the combination of Ingersoll Rand and Trane can be, not only in the short term in the cost takeouts and synergies but in the long term of combining two businesses to create a 17 billion global industrial business. So we had a good first quarter. We're working real hard. We will have a good second quarter. Despite our outlook for residential. And I think we will have a good year. So with that we will turn it back to our moderator and Pete and I would be delighted to answer your questions.

OPERATOR: Thank you. (OPERATOR INSTRUCTIONS) We will go first to Nigel Coe with Deutsche Bank.

NIGEL COE, ANALYST, DEUTSCHE BANK: Thanks, good morning.

FRED POSES: Good morning.

NIGEL COE: I'm shocked I got the first question, I think that's the first time that's ever happened to me. I want to go through the EBIT delta, I just want to make sure the math stacks up.

FRED POSES: Don't be afraid, Nigel, it's okay.

NIGEL COE: So commodities are up [$60] million plan versus the plan, revs down 17 million, so let's call that $50 million of EBIT. So it looks like EBIT is $75 million from those two, negative from those two factors. Just want to understand how much of that offset is coming from cost containment measures and how much is coming from the contingency.

FRED POSES: I think it's a combination of the two. We started the year with reasonable amount of contingency because we knew there was concern about the residential market. I'm not sure we understood completely the concern about the commercial market. So we did reduce our contingency which helped us cover that gap. We do have slightly higher prices than we had in the plant to help us offset that gap and we do have cost containment to help us. You take those altogether and we reduced our EBIT by $15 million. And we still have a reasonable amount of contingency, not the amount of contingency we entered the year with. But I also think we have a much better understanding of what the year's going to look like at this point than when we entered the year.

NIGEL COE: I think you had $75 million entering the year?

FRED POSES: That's right, we have about a third of that left.

NIGEL COE: Okay, great. Your hedging and forward agreements on copper, steel, aluminum, can you give us some color on that?

FRED POSES: Yes, we're unhedged. The color on that would be when we entered the year we knew we had the opportunity to hedge or not hedge, we were concerned that if the market got weak we thought that commodities may weaken also. And therefore we didn't want to get stuck as I would say with high price commodities in a declining market. As it turned out that probably wasn't the smartest thing in the world. On the second part of it, historically, when commodities go up generally this industry has the ability, although somewhat at a lag, to move prices. My own personal belief is that the story hasn't been told there on what's going to happen in the second half of the year on pricing, although in this estimate we have built nothing in for pricing.

NIGEL COE: Okay, thanks.

OPERATOR: Next to Shannon O'Callaghan with Lehman Brothers.

SHANNON O'CALLAGHAN, ANALYST, LEHMAN BROTHERS: Morning.

FRED POSES: Morning.

SHANNON O'CALLAGHAN: Can you talk a little bit about your expectations, for the rest of the year in terms of the margin dynamics in commercial and residential. How much is, do you expect margins to sort of continue to compress in residential and if the America's piece of commercial softening here what are you looking for margins on the commercial side?

FRED POSES: Well, I don't know if we have the exact margins, but I think the way I think of it is Shannon, that the second half of residential is a lot easier comparison for two fundamental reasons. One, we don't have the difficulty in the volume comparison compared the second half of 2007 with our outlook in 2008. In addition, if you recall in the second half of 2007, we had a reasonable amount of warranty costs associated primarily with our recall of Clean Effects. And we had a reasonable amount of costs related to taking down our inventory as we tried to chase down the market in inventory. So I think for the second half of the year our margins may be modestly down in residential, but not in the comparison to the margin erosion in the first half, which I'll bet was probably in the range of 4% in the first quarter.

SHANNON O'CALLAGHAN: Okay.

FRED POSES: Commercial we have reasonable amount of growth. We have reasonable amount of containment. I think we have got a little price there in commercial if there's a margin erosion it would probably be more around the impact of commodities and it will be probably relatively modest.

PETE D'ALOIA: We gained nice margins, that's going to continue. And the depression in margins the first half we're not likely to see in the second half for residential.

SHANNON O'CALLAGHAN: Okay. Can you just talk a little more about this order dynamic so far through the year. I mean, obviously you're saying things sort of picked up, but you still taking the guidance down a good chunk for the commercial equipment piece. What are you seeing in terms of the recent pickup and what keeps you, obviously it seems reasonable to be cautious, but why do you think it picked up after a tough January, February?

FRED POSES: Well, I think the comparisons were particularly tough in the first quarter if I remember. Our sales were up -- orders were up 31%.. So the comparisons were particularly tough. I also think that a lot of this and, and I'm not exactly sure, you get in the credit situation where people are not sure whether they can get projects funded or not, there's sort of a pause there. I don't know if it's permanent or not and I think we don't know. So I did say that the last two months as far as order pace has been encouraging. There is some vitality out there. But maybe we just thought given the tone of the economy that we would be better off being a little conservative on our U.S. growth. But a better picture certainly in the second quarter and if order pace continues at 10% we will probably be a little more optimistic about the year as far as that's concerned.

SHANNON O'CALLAGHAN: Okay, thanks a lot.

OPERATOR: We will move next to Scott Graham with Bear Stearns.

SCOTT GRAHAM, ANALYST, BEAR STEARNS: Yes, good morning Fred, Pete.

FRED POSES: Hi.

SCOTT GRAHAM: I know you're not baking more pricing than what you already have into the guidance, but realistically I think there are some I think expectations out there that given commodities prices are rising there's probably some more in channel expectations for guys like you to increase prices. Could you give us an idea of what specifically the pricing component to your sales looks like right now versus what further increases you're contemplating both regs and comp.

FRED POSES: I don't want to speculate on pricing going forward. I told you that our estimate does not include any price increases. We gave you, in the first quarter our pricing was probably better by a little over 2%. That over time will sort of diminish a little bit because you're talking about a 12 month comparison. So but I do agree with you Scott, that I think this industry since 2004 has been able to increase prices to sort of offset the commodities. And given that these commodities are widespread. I mean I talked about everyone buys copper, everyone buys aluminum, everyone buys steel and everyone is impacted by energy, we will get a better sense in the second quarter of where pricing's going to be in the second half of the year. By the way, it would be in the second half of the year, it wouldn't have much of an impact on the second quarter.

SCOTT GRAHAM: Does the impact of the merger with Ingersoll have anything to do with your not announcing pricing policies yet.

FRED POSES: No. I mean, it's not a question of announcing or not announcing pricing policies, it's just our sensing of the market and where it is and understanding where these commodities are. And we will see where we are. We announced a price increase for residential. We will see how that does. We didn't build it in here, but we will see how it does. By the way, we think that everyone makes a unit out of steel, aluminum and copper.

SCOTT GRAHAM: Thank you both a lot.

OPERATOR: (OPERATOR INSTRUCTIONS) We will move next to Ted Wheeler with Buckingham Research.

TED WHEELER, ANALYST, BUCKINGHAM RESEARCH: Hi, good morning all. Can you hear me all right.

FRED POSES: Yes, Ted.

TED WHEELER: Hi there. I wanted to go back again a little bit on the commodity price questions. The $60 million head wind just seems a little, a little less just anecdotally based on the kinds of increases in the sort of futures markets in commodities relative, because you gave great guidance on all this going back a few years ago. Is that a function, do you have some contracts baked in maybe and if so is there an '09 head wind we need to have in mind if we looked at today's prices?

FRED POSES: Ted, thanks for the question. No, I mean clearly we have steel contracts, but those steel contracts are flexing with steel. So we're not locked in on steel. We didn't hedge aluminum, we didn't hedge copper and we didn't hedge other energies. To use copper as sort of a surrogate for the rest of the stuff, when we entered the year we thought copper would be in the range of 3.50. By the way, you can go back three or four months and copper was 2.90 to $3.

TED WHEELER: Right.

FRED POSES: So we, I mean we just used it's going in the range ever $4, 3.90 to $4. I don't know and that's what we did. I'm convinced Ted that if commodities sort of stay where they are, copper at 3.90 to $4, aluminum at, 1.35, steel going up dramatically, then I'm confident that the $60 million quote unquote is real and is enough.

TED WHEELER: And '09 would basically be a wash if we stayed where we are?

FRED POSES: Well, I think if fundamentally we would be a little, we're slightly lower in the first quarter. There's a little lag on as we see it in the second quarter. But '09 would if fundamentally be the same run rate fundamentally as the second half of the year.

TED WHEELER: Okay, thanks very much for that clarification. I guess another question I had, you talked about proposing and bidding pipeline so to speak or, your forward-look at the activity levels and you're a little cautious I think on the sustainability of this 10% for the last two months orders. I guess that is, that's giving us a read on what you see in those pipeline-ish indications, is that correct?

FRED POSES: Well, I think the more months that we can put 10% behind us the better we will feel. And we're really talking about the Americas, we're really talking about the United States. And I think there's a lot of uncertainty out there. And I think there are projects out there, I was talking to one general contractor about three weeks ago and he says there's a pause in funding. And if there's a pause in funding there may be a pause in initiation of these projects.

TED WHEELER: But these conversations that you folks are having do not really show that slow down yet?

FRED POSES: Well, I think -- well, I mean our order pace is our order pace. There is work out there, probably not at the pace of 2007 but nor did we expect it to be at the pace of 2007. But I think there's work out there. The other thing I would point out, that we are a lot driven by replacement and renovation even in commercial. Some 60% of what we do. And I think energy prices ought to bode well for those kinds of projects and that is helping us also offset what may be a certain uncertainty about new construction in commercial.

TED WHEELER: And you talked in I think the comments again about bidding future conversation for future relationships in business, that you track this on the service product line.

FRED POSES: Well, we track it, I mean we watch it both on service and equipment. I think Pete's comment was in some senses a lot of vitality in service and we can see that vitality at a high level continuing.

TED WHEELER: That was my question, thank you. Great quarter, I know it's a tough time. It's pretty good margin performance if you can do it for the rest of the year.

FRED POSES: Well, we're confident we can, so we will keep working at it.

OPERATOR: Thank you. Ladies and gentlemen, we have time for one final question. We will go next to Jeff Hammond with KeyBanc Capital.

JEFF HAMMOND, ANALYST, KEYBANC CAPITAL: Hi, good morning guys.

FRED POSES: Morning guy.

JEFF HAMMOND: Hey, just wanted to understand the commercial shipments in the first quarter, a little bit lighter just given how strong the backlog had been. Is there anything, is that just timing of shipments or was there more to that?

FRED POSES: I think it's not a timing of shipments particularly. I think it's a tough comparison versus the first quarter of last year, Jeff. I mean, in the first quarter, I mean, I think our light commercial boost was sort of flat this quarter, off something that was up 31% light commercial in the first quarter of last year. So we have got some tough comparisons even in commercial. So, I don't think we would say that the world has stopped in commercial in the U.S. at all. And remember, I come back and as I said to Ted I think there's a lot of replacement out there and we will see how it goes. And by the way, it's picked up in the last two months. So I don't know. We have got a realistic outlook and we will stick with it.

JEFF HAMMOND: And then just in terms of sub, Pete you mentioned the sub vertical trends in the first quarter. Can you tie that into orders and is there anything definitive one way or the other, where something's -- some sub verticals are proving much more resilient and some are maybe declining more surprisingly.

PETE D'ALOIA: Jeff, I think it's hard to say. I think some of it has to do with where our strengths might lie, too. So it's a little difficult to really draw any conclusions from that.

JEFF HAMMOND: Okay. Then just final clarification on price, you announced a price increase in revs of I think 4 to 6, is any of that incorporated into the guidance.

FRED POSES: I think we have been conservative about pricing and that is incorporated into the guidance.

JEFF HAMMOND: Have you announced anything in terms of follow on commercial increases?

FRED POSES: We haven't announced anything yet.

JEFF HAMMOND: Okay. Thanks a lot.

FRED POSES: Okay. Thanks Jeff.

OPERATOR: And that will conclude our question and answer session. I would like to turn the conference back over for any additional or closing remarks.

FRED POSES: Our closing remarks is we have a good business, we will continue to work at it and either we or someone else will see you next quarter. Thank you.

OPERATOR: Thank you. Ladies and gentlemen, that will conclude today's conference. We do thank you for your participation and you may disconnect at this time.

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