UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


**FORM
      10-K**


(Mark
      One)


x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





**For
      the fiscal year ended December 31, 2007**


or


o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      the
      transition period from ____ to____





**Commission
      File No. 1-985**





**INGERSOLL-RAND
      COMPANY LIMITED**


(Exact
      name of registrant as specified in its charter)





**Bermuda**
            
            **75-2993910***(State
                or other jurisdiction of*
              *incorporation
                or organization)*
            
            *(I.R.S.
                Employer*
              *Identification
                No.)*


**Clarendon
      House**


**2
      Church Street**


**Hamilton
      HM 11, Bermuda**


*(Address
      of principal executive offices)*








Registrant’s
      telephone number, including area code: **(441)
      295-2838**





Securities
      registered pursuant to Section 12(b) of the Act:




**Title
                of each class**
            
            **Name
                of each exchange on which registered**Class
                A Common Shares,
            
            New
                York Stock ExchangePar
                Value $1.00 per Share





Securities
      registered pursuant to Section 12(g) of the Act: None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. YES x NO o





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. YES oNO x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES xNO o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K o




1




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
                accelerated filer x
            Accelerated
                filer oNon-accelerated
                filer o
            Smaller
                reporting company o(Do
                not check if a smaller reporting
                company)





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES oNO x




The
      aggregate market value of common stock held by nonaffiliates on June 30, 2007
      was ** approximately
      $16,085,365,752 based on the closing price of such stock on the New York Stock
      Exchange.





The
      number of Class A Common Shares outstanding as of February 25, 2008
      wa s
      272,645,080.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Portions
      of the registrant’s proxy statement to be filed within 120 days of the close of
      the registrant’s fiscal year in connection with the registrant’s Annual General
      Meeting of Shareholders to be held June 4, 2008 are incorporated by reference
      into Part II and Part III of this Form 10-K.





2




**Form
      10-K**


**For
      the Fiscal Year Ended December 31, 2007**





**TABLE
      OF CONTENTS**





Page**Part
                I**
            Item
                1.
            Business
            4Item
                1A.
            Risk
                Factors
            11Item
                1B.
            Unresolved
                Staff Comments
            16Item
                2.
            Properties
            16Item
                3.
            Legal
                Proceedings
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19**Part II**
            Item
                5.
            Market
                for Registrant's Common Equity, Related Stockholder   Matters and
                Issuer Purchases of Equity Securities
            21Item
                6.
            Selected
                Financial Data
            23Item
                7.
            Management's
                Discussion and Analysis of Financial Condition   and Results of
                Operations
            24Item
                7A.
            Quantitative
                and Qualitative Disclosure About Market Risk
            52Item
                8.
            Financial
                Statements and Supplementary Data
            53Item
                9.
            Changes
                in and Disagreements with Independent Accountants   on Accounting and
                Financial Disclosure
            54Item
                9A.
            Controls
                and Procedures
            54Item
                9B.
            Other
                Information
            54**Part III**
            Item
                14.
            Principal
                Accountant Fees and Services
            55**Part
                IV**
            Item
                15.
            Exhibits
                and Financial Statements Schedule
            56Signatures
            64





3





**CAUTIONARY
      STATEMENT FOR FORWARD LOOKING STATEMENTS**





Certain
      statements in this report, other than purely historical information, are
“forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
      and Section 21E of the Securities Exchange Act of 1934. These
      forward-looking statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,”
“strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will
      continue,” “will likely result,” or the negative thereof or variations thereon
      or similar terminology generally intended to identify forward-looking
      statements.





Forward-looking
      statements may relate to such matters as projections of revenue, margins,
      expenses, tax provisions, earnings, cash flows, benefit obligations, share
      repurchases or other financial items; any statements of the plans, strategies
      and objectives of management for future operations, including those relating
      to
      our proposed acquisition of Trane Inc.; any statements concerning expected
      development, performance or market share relating to our products; any
      statements regarding future economic conditions or performance; any statements
      regarding pending investigations, claims or disputes, including those relating
      to the Internal Revenue Service audit of our consolidated subsidiaries' tax
      filings in 2001 and 2002; any statements of expectation or belief; and any
      statements of assumptions underlying any of the foregoing. These statements
      are
      based on currently available information and our current assumptions,
      expectations and projections about future events. While we believe that our
      assumptions, expectations and projections are reasonable in view of the
      currently available information, you are cautioned not to place undue reliance
      on our forward-looking statements. These statements are not guarantees of future
      performance. They are subject to future events, risks and uncertainties –
many of which are beyond our control – as well as potentially inaccurate
      assumptions, that could cause actual results to differ materially from our
      expectations and projections. Some of the material risks and uncertainties
      that
      could cause actual results to differ materially from our expectations and
      projections are described in Item 1A. “Risk Factors.” You should read that
      information in conjunction with “Management's Discussion and Analysis of
      Financial Condition and Results of Operations” in Item 7 of this report and our
      Consolidated Financial Statements and related notes in Item 8 of this report.
      We
      note such information for investors as permitted by the Private Securities
      Litigation Reform Act of 1995. There also may be other factors that have not
      been anticipated or that are not described in this report, generally because
      we
      do not perceive them to be material, that could cause results to differ
      materially from our expectations.





Forward-looking
      statements speak only as of the date they are made, and we do not undertake
      to
      update these forward-looking statements. You are advised, however, to review
      any
      further disclosures we make on related subjects in our periodic filings with
      the
      Securities and Exchange Commission.




**PART
        I**


Item
      1.   **BUSINESS**





**Overview**


Ingersoll-Rand
      Company Limited (IR Limited), a Bermuda company, and its consolidated
      subsidiaries (we, our, the Company) is a leading innovation and solutions
      provider with strong brands and leading positions within our markets. Our
      business segments consist of Climate Control Technologies, Industrial
      Technologies and Security Technologies. We generate revenue and cash primarily
      through the design, manufacture, sale and service of a diverse portfolio of
      industrial and commercial products that include well-recognized, premium brand
      names such as Club Car®, Hussmann®, Ingersoll-Rand®, Schlage® and Thermo
      King®.




4




We
      seek
      to drive shareholder value by achieving:





·
            *Dramatic
                Growth*,
                by developing innovative products and solutions that improve our
                customers’ operations, expanding highly profitable recurring revenues and
                executing strategic acquisitions;





·
            *Operational
                Excellence*,
                by fostering a lean culture of continuous improvement and cost control;
                and





·
            *Dual
                Citizenship*,
                by encouraging our employees’ active collaboration with colleagues across
                business units and geographic regions to achieve superior business
                results.





To
      achieve these goals and to become a more diversified company with strong growth
      prospects, we transformed our enterprise portfolio by divesting cyclical,
      low-growth and asset-intensive businesses. We continue to focus on increasing
      our recurring revenue stream, which includes revenues from parts, service,
      used
      equipment and rentals. We also intend to continuously improve the efficiencies,
      capabilities, products and services of our high-potential businesses.





**Recent
      Acquisitions and Divestitures**


On
      December 17, 2007, we announced that we had executed a definitive agreement
      to
      acquire Trane Inc., formerly American Standard Companies Inc., in a transaction
      currently valued at approximately $9.5 billion. This transaction, which is
      expected to close during the second quarter of 2008, is subject to approval
      by
      Trane shareholders, regulatory approval and contractual closing conditions.
      There can be no assurance that the acquisition will be consummated.





Trane
      is
      a global leader in indoor climate control systems, services and solutions and
      provides systems and services that enhance the quality and comfort of the air
      in
      homes and buildings around the world. They offer customers a broad range of
      energy-efficient heating, ventilation and air conditioning systems;
      dehumidifying and air cleaning products; service and parts support; advanced
      building controls; and financing solutions. Their systems and services have
      leading positions in commercial, residential, institutional and industrial
      markets; a reputation for reliability, high quality and product innovation;
      and
      a powerful distribution network. Trane has more than 29,000 employees and 34
      production facilities worldwide, with 2007 annual revenues of $7.45 billion.





On
      November 30, 2007, we completed the sale of our Bobcat, Utility Equipment and
      Attachments business units (collectively, Compact Equipment) to Doosan Infracore
      for cash proceeds of approximately $4.9 billion, subject to post-closing
      purchase price adjustments. We recorded a gain on sale of $2,652.0 million
      (net
      of tax of $939.0 million). Compact Equipment manufactured and sold compact
      equipment including skid-steer loaders, compact truck loaders, mini-excavators
      and telescopic tool handlers; portable air compressors, generators, light
      towers; general-purpose light construction equipment; and attachments.





On
      April
      30, 2007, we completed the sale of our Road Development business unit to AB
      Volvo (publ) in all countries except for India, which closed on May 4, 2007,
      for
      cash proceeds of approximately $1.3 billion, subject to post-closing purchase
      price adjustments. We recorded a gain on sale of $634.7 million (net of tax
      of
      $164.4 million). The Road Development business unit manufactures and sells
      asphalt paving equipment, compaction equipment, milling machines and
      construction-related material handling equipment.




5





**2001
      Reorganization**


Our
      predecessor company, Ingersoll-Rand Company ( IR-New
      Jersey) ,
      was
      organized in 1905 under the laws of the State of New Jersey as a consolidation
      of Ingersoll-Sergeant Drill Company and the Rand Drill Company, whose businesses
      were established in the early 1870’s.





We
      are a
      successor to IR-New Jersey following a corporate reorganization that became
      effective on December 31, 2001. We believe that the reorganization has enabled
      us to realize a variety of financial and strategic benefits, including
      to:





·
            help
                enhance business growth;


·
            create
                a more favorable corporate structure for expansion ofourcurrent business;


·
            improve
                expected cash flow for use in investing in the development of
                higher-growth product lines and
                businesses;


·
            improve
                expected cash flow for use in reducing the amount ofour
                debt;


·
            reduce
                ourworldwide effective tax rate;


·
            enableusto
                implement our business strategy more effectively;
                and


·
            expandour
                investor base as ourshares may become more attractive to non-U.S.
                investors.





IR-Limited
      and its subsidiaries continue to conduct the businesses previously conducted
      by
      IR-New Jersey and its subsidiaries. The reorganization has been accounted for
      as
      a reorganization of entities under common control and accordingly, did not
      result in any changes to the consolidated amounts of assets, liabilities and
      shareholders’ equity.





**Business
      Segments**


*Climate
      Control Technologies*


Climate
      Control Technologies provides solutions for customers to transport, preserve,
      store and display temperature-sensitive products by engaging in the design,
      manufacture, sale and service of transport temperature control units,
      refrigerated display merchandisers, beverage coolers, auxiliary power units
      and
      walk-in storage coolers and freezers. This segment includes the Thermo King,
      Hussmann and Koxka brands.





*Industrial
      Technologies*


Industrial
      Technologies is focused on providing solutions to enhance customers’ industrial
      and energy efficiency, mainly by engaging in the design, manufacture, sale
      and
      service of compressed air systems, tools, fluid and material handling, golf
      and
      utility vehicles and energy generation systems. This segment includes the
      Ingersoll Rand and Club Car brands.





*Security
      Technologies*


Security
      Technologies is engaged in the design, manufacture, sale and service of
      mechanical and electronic security products, biometric access control systems
      and security and scheduling software. This segment includes the Schlage, LCN,
      Von Duprin and CISA brands.





**Competitive
      Conditions**


Our
      products are sold in highly competitive markets throughout the world and compete
      against products produced by both U.S. and non-U.S. corporations. The principal
      methods of competition in these markets relate to price, quality, service and
      technology. We believe that we are one of the leading manufacturers in the
      world
      of air compression systems, transport temperature control products, refrigerated
      display merchandisers, refrigeration systems and controls, air tools, and golf
      and utility vehicles. In addition, we believe we are a leading supplier in
      U.S.
      markets for architectural hardware products, mechanical locks and electronic
      and
      biometric access-control technologies.




6




**Distribution**


Our
      products are distributed by a number of methods, which we believe are
      appropriate to the type of product. U.S. sales are made through branch sales
      offices and through distributors, dealers and large retailers across the
      country. Non-U.S. sales are made through numerous subsidiary sales and service
      companies with a supporting chain of distributors throughout the
      world.





**Products**


Our
      principal products by segment include the following:





*Climate
                Control Technologies*Refrigerated
                display casesRefrigeration
                systemsTransport
                temperature control systems*Industrial
                Technologies*Air
                balancers
            
            Fluid-handling
                equipmentAir
                compressors & accessories
            
            Golf
                vehiclesAir
                treatment
            
            Lubrication
                equipmentAir
                motors
            
            Material
                handling equipmentAir
                and electric tools
            
            MicroturbinesBlowers
            
            Piston
                pumpsDiaphragm
                pumps
            
            Utility
                vehiclesEngine-starting
                systems*Security
                Technologies*Automatic
                doors
            
            Electrical
                security productsBiometric
                access control systems
            
            Electronic
                access-control systemsDoor
                closers and controls
            
            Exit
                devicesDoor
                locks, latches and locksets
            
            Portable
                security productsDoors
                and door frames (steel)




These
      products are sold primarily under our name and as well as under other names
      including CISA®, Club Car®, Hussmann®, Koxka®, LCN®, Schlage®, Thermo King® and
      Von Duprin®.





**Working
      Capital**


We
      manufacture products that usually must be readily available to meet our
      customer’s rapid delivery requirements. Such working capital requirements are
      not, however, in the opinion of management, materially different from those
      experienced by our major competitors.





**Customers**


No
      material part of our business is dependent upon a single customer or a small
      group of customers. Therefore, the loss of any one customer would not have
      a
      material adverse effect on our operations.




7




**Operations
      by Geographic Area**


More
      than
      45% of our 2007 net revenues were derived outside the U.S. and sold in more
      than
      100 countries. Therefore, the attendant risks of manufacturing or selling in
      a
      particular country, such as nationalization and establishment of common markets,
      would not be expected to have a significant effect on our non-U.S. operations.
      Additional information concerning our operating segments is contained in Note
      21, Business Segment Information, to the consolidated financial statements.
      For
      a discussion of risks attendant to our non-U.S. operations, see “Risk Factors –
Currency exchange rate and commodity price fluctuations may adversely
      affect our results,” “Risk Factors – Our global operations subject us to
      economic risks,” in Item 1A and “Quantitative and Qualitative Disclosure about
      Market Risk” in Item 7A.





**Raw
      Materials**


We
      manufacture many of the components included in our products. The principal
      raw
      materials required are purchased from numerous suppliers. Although higher prices
      for some raw materials, particularly steel and non-ferrous metals, have caused
      pricing pressures to some of our businesses, we believe that available sources
      of supply will generally be sufficient for the foreseeable future.





**Backlog**


Our
      approximate backlog of orders, believed to be firm, at December 31, 2007 and
      2006, were as follows:





*Dollar
                amounts in millions*
            
            2007
            
            2006Climate
                Control Technologies
            
            $
            507.2
            
            $
            435.8Industrial
                Technologies
            
            
            429.8
            
            
            357.7Security
                Technologies
            
            
            216.5
            
            
            182.8Total
            
            $
            1,153.5
            
            $
            976.3




These
      backlog figures are based on orders received. While the major portion of our
      products are built in advance of order and either shipped or assembled from
      stock, orders for specialized machinery or specific customer application are
      submitted with extensive lead times and are often subject to revision, deferral,
      cancellation or termination. We expect to ship substantially the entire backlog
      at December 31, 2007 during 2008.





**Research
      and Development**


We
      maintain research and development facilities for experimenting, testing and
      developing high quality products. Research and development expenditures,
      including qualifying engineering costs were $128.6 million in 2007, $126.7
      million in 2006 and $120.4 million in 2005.





**Patents
      and Licenses**


We
      own
      numerous patents and patent applications and are licensed under others. While
      we
      consider that in the aggregate our patents and licenses are valuable, we do
      not
      believe that our business is materially dependent on our patents or licenses
      or
      any group of them. In our opinion, engineering and production skills and
      experience are more responsible for our market position than our patents and/or
      licenses.





**Environmental
      Matters**


We
      continue to be dedicated to an environmental program to reduce the utilization
      and generation of hazardous materials during the manufacturing process and
      to
      remediate identified environmental concerns. As to the latter, we are currently
      engaged in site investigations and remediation activities to address
      environmental cleanup from past operations at current and former manufacturing
      facilities.




8




We
      are
      sometimes a party to environmental lawsuits and claims and have received notices
      of potential violations of environmental laws and regulations from the
      Environmental Protection Agency and similar state authorities. We have been
      also
      identified as a potentially responsible party (PRP) for cleanup costs associated
      with off-site waste disposal at federal Superfund and state remediation sites.
      For all such sites, there are other PRPs and, in most instances, our involvement
      is minimal.





In
      estimating our liability, we have assumed we will not bear the entire cost
      of
      remediation of any site to the exclusion of other PRPs who may be jointly and
      severally liable. The ability of other PRPs to participate has been taken into
      account, based generally on the parties’ financial condition and probable
      contributions on a per site basis. Additional lawsuits and claims involving
      environmental matters are likely to arise from time to time in the future.





During
      2007, we spent $5.6 million on capital projects for pollution abatement and
      control, and an additional $11.1 million for environmental remediation
      expenditures at sites presently or formerly owned or leased by us. As of
      December 31, 2007, we have recorded reserves for environmental matters of $101.8
      million. We believe that these expenditures and accrual levels will continue
      and
      may increase over time. Given the evolving nature of environmental laws,
      regulations and technology, the ultimate cost of future compliance is
      uncertain.





For
      a
      further discussion of our potential environmental liabilities, see also Part
      II,
      Item 7, Management’s Discussion and Analysis of Financial Condition and Results
      of Operations, Environmental and Asbestos Matters and also Note 20, Commitments
      and Contingencies, to the consolidated financial statements.





**Asbestos
      Matters**


Certain
      of our wholly owned subsidiaries are named as defendants in asbestos-related
      lawsuits in state and federal courts. In virtually all of the suits, a large
      number of other companies have also been named as defendants. The vast majority
      of those claims has been filed against our wholly owned subsidiary, IR-New
      Jersey, and generally allege injury caused by exposure to asbestos contained
      in
      certain of IR-New Jersey’s products, primarily pumps and compressors. Although
      IR-New Jersey was neither a producer nor a manufacturer of asbestos, some of
      its
      formerly manufactured products utilized asbestos-containing components, such
      as
      gaskets and packings purchased from third-party suppliers.





Prior
      to
      the fourth quarter of 2007, we recorded a liability (which we periodically
      updated) for our actual and anticipated future asbestos settlement costs
      projected seven years into the future. We did not record a liability for future
      asbestos settlement costs beyond the seven-year period covered by our reserve
      because such costs previously were not reasonably estimable.




In
      the
      fourth quarter of 2007, we again reviewed our history and experience with
      asbestos-related litigation and determined that it had now become possible
      to
      make a reasonable estimate of our total liability for pending and unasserted
      potential future asbestos-related claims. This determination was based upon
      our
      analysis of developments in asbestos litigation, including the substantial
      and
      continuing decline in the filing of non-malignancy claims against us, the
      establishment in many jurisdictions of inactive or deferral dockets for such
      claims, the decreased value of non-malignancy claims because of changes in
      the legal and judicial treatment of such claims, increasing focus of the
      asbestos litigation upon malignancy claims, primarily those involving
      mesothelioma, a cancer with a known historical and predictable future annual
      incidence rate, and our substantial accumulated experience with respect to
      the
      resolution of malignancy claims, particularly mesothelioma claims, filed against
      us. With
      the
      aid of an outside expert, we have estimated our total liability for pending
      and
      unasserted future asbestos-related claims through 2053 at $755
      million.




9




As
      a
      result, we recorded a non-cash charge to earnings of discontinued operations
      of
      $449 million ($277 million after tax) which is the difference between
      the amount by which we increased our total estimated liability for pending
      and
      projected future asbestos-related claims and the amount that we expect to
      recover from insurers with respect to that increased liability.





For
      a
      further discussion of asbestos matters, see also Part
      II,
      Item 7, Management’s Discussion and Analysis of Financial Condition and Results
      of Operations, Environmental and Asbestos Matters and also Note 20, Commitments
      and Contingencies, to the consolidated financial statements.





**Employees**


We
      have
      approximately 35,560 employees throughout the world, of which approximately
      49%
      work in the U.S.





**Available
      Information**


We
      file
      annual, quarterly, and current reports, proxy statements, and other documents
      with the Securities and Exchange Commission (SEC) under the Securities Exchange
      Act of 1934. The public may read and copy any materials filed with the SEC
      at
      the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
      The public may obtain information on the operation of the Public Reference
      Room
      by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet
      website that contains reports, proxy and information statements, and other
      information regarding issuers that file electronically with the SEC. The public
      can obtain any documents that are filed by us at
      http://www.sec.gov.





In
      addition, this Annual Report on Form 10-K, as well as our quarterly reports
      on
      Form 10-Q, current reports on Form 8-K and any amendments to all of the
      foregoing reports, are made available free of charge on our Internet website
      ( http://www.ingersollrand.com )
      as soon
      as reasonably practicable after such reports are electronically filed with
      or
      furnished to the SEC. The Board of Directors of the Company has also adopted
      and
      posted in the Investor Relations section of its website our Corporate Governance
      Guidelines and charters for each of the Board’s standing committees. A copy of
      the above filings will also be provided free of charge upon written request
      to
      us.





**Certifications**


*New
      York Stock Exchange Annual Chief Executive Officer
      Certification*


The
      Company’s Chief Executive Officer submitted to the New York Stock Exchange the
      Annual CEO Certification as the Company’s compliance with the New York Stock
      Exchange’s corporate governance listing standards required by Section 303A.12 of
      the New York Stock Exchange’s listing standards.





*Sarbanes-Oxley
      Act Section 302 Certification*


The
      certifications of the Chief Executive Officer and Chief Financial Officer of
      the
      Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been
      filed as exhibits to this Annual Report on Form 10-K.




10




Item
      1A .  **RISK
      FACTORS**





*The
      following are certain risk factors that could affect our business, financial
      condition, results of operations, and cash flows. These risk factors should
      be
      considered in connection with evaluating the forward-looking statements
      contained in this Annual Report on Form 10-K because these factors could cause
      the actual results and conditions to differ materially from those projected
      in
      forward-looking statements. Before you invest in our publicly traded securities,
      you should know that making such an investment involves some risks, including
      the risks described below. If any of the risks actually occur, our business,
      financial condition or results of operations could be negatively affected.
      In
      that case, the trading price of our Class A common shares could decline, and
      you
      may lose all or part of your investment.*





**Risks
      Relating to Our Businesses**





***Currency
      exchange rate and commodity price fluctuations may adversely affect our
      results.***





We
      are
      exposed to a variety of market risks, including the effects of changes in
      non-U.S. currency exchange rates, commodity prices and interest rates. See
      Part II Item 7A. Quantitative and Qualitative Disclosures About Market
      Risk.




More
      than
      45% of our 2007 net revenues were derived outside the U.S., and we expect sales
      to non-U.S. customers to continue to represent a significant portion of our
      consolidated net revenues. Although we enter into currency exchange contracts
      to
      reduce our risk related to currency exchange fluctuations, changes in the
      relative values of currencies occur from time to time and may, in some
      instances, have a significant effect on our results of operations. Because
      we do
      not hedge against all of our currency exposure, our business will continue
      to be
      susceptible to currency fluctuations.





Furthermore,
      the reporting currency for our financial statements is the U.S. dollar. We
      have
      assets, liabilities, revenues and expenses denominated in currencies other
      than
      the U.S. dollar. To prepare our consolidated financial statements, we must
      translate those assets, liabilities, revenues and expenses into U.S. dollars
      at
      the applicable exchange rates. Consequently, increases and decreases in the
      value of the U.S. dollar versus other currencies will affect the amount of
      these
      items in our consolidated financial statements, even if their value has not
      changed in their original currency.





We
      are
      also a large buyer of steel and non-ferrous metals, as well as other commodities
      required for the manufacture of our products. Volatility in the prices of these
      commodities could increase the costs of our products and services. We may not
      be
      able to pass on these costs to our customers and this could have a material
      adverse effect on our results of operations and cash flows. On a limited basis,
      we purchase commodity derivatives which reduce the volatility of the commodity
      prices for supplier contracts where fixed pricing is not available.





***Our
      global operations subject us to economic risks.***





Our
      global operations are dependent upon products manufactured, purchased and sold
      in the U.S. and internationally, including China, Brazil, Africa and Eastern
      Europe. These activities are subject to risks that are inherent in operating
      globally, including the following:




·
              countries
                  could change regulations or impose currency restrictions and other
                  restraints;




11




·
            in
                some countries, there is a risk that the government may expropriate
                assets;





·
            some
                countries impose burdensome tariffs and
                quotas;





·
            national
                and international conflict, including terrorist acts, could significantly
                impact our financial condition and results of operations;
                and




·
            economic
                downturns, political instability and war or civil disturbances may
                disrupt
                production and distribution logistics or limit sales in individual
                markets.




***We
      face continuing risks relating to settlements with the U.S. Securities and
      Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) arising
      from
      certain payments made in 2000-2003 by foreign subsidiaries in connection with
      the United Nations’ Oil For Food Program.***





On
      November 10, 2004, the SEC issued an Order directing that a number of public
      companies, including us, provide information relating to their participation
      in
      certain transactions under the United Nations’ Oil for Food Program. Upon
      receipt of the Order, we undertook a thorough review of our participation in
      the
      Oil for Food Program and provided the SEC with information responsive to its
      investigation of our participation in the program. On October 31, 2007, we
      announced that we had reached settlements with the SEC and the DOJ relating
      to
      certain payments made by our foreign subsidiaries in 2000-2003 in connection
      with the Oil For Food Program. Pursuant to the settlements with the SEC and
      DOJ,
      we have, among other things, (i) consented to the entry of a civil injunction
      in
      the SEC action, (ii) entered into a three-year deferred prosecution agreement
      with the DOJ, and (iii) agreed to implement improvements to our compliance
      program designed to enhance detection and prevention of violations of the
      Foreign Corrupt Practices Act of 1977 (FCPA) and other applicable
      anti-corruption laws. If the DOJ determines, in its sole discretion, that we
      have committed a federal crime or have otherwise breached the deferred
      prosecution agreement during its three-year term, we may be subject to
      prosecution for any federal criminal violation of which the DOJ has knowledge,
      including, without limitation, violations of the FCPA in connection with the
      Oil
      For Food Program. Breaches of the settlements with SEC and DOJ may also subject
      us to, among other things, further enforcement actions by the SEC or the DOJ,
      securities litigation and a general loss of investor confidence, any one of
      which could adversely affect our business prospects and the market value of
      our
      stock. For a further discussion of the settlements with the SEC and DOJ, see
      “Legal Proceedings.”





***Material
      adverse legal judgments, fines, penalties or settlements could adversely affect
      our financial health.***





We
      estimate that our available cash and our cash flow from operations will be
      adequate to fund our operations for the foreseeable future. In making this
      estimate, we have not assumed the need to make any material payments in
      connection with any pending litigation or investigations. As required by
      generally accepted accounting principles in the United States, we establish
      reserves based on our assessment of contingencies. Subsequent developments
      in
      legal proceedings, including current or future asbestos-related litigation,
      may
      affect our assessment and estimates of the loss contingency recorded as a
      reserve and we may be required to make additional material payments, which
      could
      result in an adverse effect on our results of operations.





Such
      an
      outcome could have important consequences. For example, it could:





·
            increase
                our vulnerability to general adverse economic and industry conditions;




12




·
            limit
                our flexibility in planning for, or reacting to, changes in our businesses
                and the industries in which we operate;





·
            restrict
                our ability to exploit business opportunities;
                and





·
            make
                it more difficult for us to satisfy our payment obligations with
                respect
                to our outstanding indebtedness.





***Significant
      shortages in the raw materials we use in our businesses and higher energy prices
      could increase our operating costs.***





We
      rely
      on suppliers to secure raw materials, particularly steel and non-ferrous metals,
      required for the manufacture of our products. A disruption in deliveries from
      our suppliers or decreased availability of raw materials or commodities could
      have an adverse effect on our ability to meet our commitments to customers
      or
      increase our operating costs. We believe that available sources of supply will
      generally be sufficient for our needs for the foreseeable future. Nonetheless,
      the unavailability of some raw materials may have an adverse effect on our
      results of operations or financial condition.





Additionally,
      we are exposed to large fluctuations for the price of petroleum-based fuel
      due
      to the instability of current market prices. Higher energy costs increase our
      operating costs and the cost of shipping our products to customers around the
      world. Consequently, sharp price increases, the imposition of taxes or an
      interruption of supply, could cause us to lose the ability to effectively manage
      the risk of rising fuel prices and may have an adverse effect on our results
      of
      operations or financial condition.





***Implementing
      our acquisition strategy involves risks and our failure to successfully
      implement this strategy could have a material adverse effect on our
      business.***





One
      of
      our key strategies is to grow our business by selectively pursuing strategic
      acquisitions. Since 2000, we have completed approximately 65 acquisitions,
      and
      we recently announced that we had executed a definitive agreement to acquire
      Trane Inc. in a transaction currently valued at approximately $9.5 billion.
      We
      may continue to actively pursue additional strategic acquisition opportunities.
      Although we have been successful with this strategy in the past, we may not
      be
      able to grow our business in the future through acquisitions for a number of
      reasons, including:




·
            encountering
                difficulties identifying and executing
                acquisitions;




·
            increased
                competition for targets, which may increase acquisition
                costs;




·
            consolidation
                in our industries reducing the number of acquisition
                targets;




·
            competition
                laws and regulations preventing us from making certain acquisitions;
                and




·
            the
                ability to secure necessary
                financing.




In
      addition, there are potential risks associated with growing our business through
      acquisitions, including the failure to successfully integrate and realize the
      expected benefits of an acquisition. For example, with any past or future
      acquisition, there is the possibility that:




13




·
            the
                business culture of the acquired business may not match well with
                our
                culture;




·
            technological
                and product synergies, economies of scale and cost reductions may
                not
                occur as expected;




·
            management
                may be distracted from overseeing existing operations by the need
                to
                integrate acquired businesses;




·
            we
                may acquire or assume unexpected
                liabilities;




·
            unforeseen
                difficulties may arise in integrating operations and
                systems;




·
            we
                may fail to retain and assimilate employees of the acquired business;
                and




·
            we
                may experience problems in retaining customers and integrating customer
                bases.




Failure
      to continue implementing our acquisition strategy, including successfully
      integrating acquired businesses, could have a material adverse effect on our
      business, financial condition and results of operations.





**Risks
      Relating to Our Reorganization as a Bermuda Company**




The
      reorganization exposed us and our shareholders to the risks described below.
      In
      addition, we cannot be assured that the anticipated benefits of the
      reorganization will be realized.





***Changes
      in tax laws, adverse determinations by taxing authorities and changes in our
      status under U.S. or other tax laws could increase our tax burden and affect
      our
      operating results, as well as subject our shareholders to additional taxes.***




The
      realization of any tax benefit related to our reorganization could be impacted
      by changes in tax laws, tax treaties or tax regulations or the interpretation
      or
      enforcement thereof by the Internal Revenue Service (IRS) or any other tax
      authority. From time to time, proposals have been made and/or legislation has
      been introduced to change the U.S. tax law that if enacted could increase our
      tax burden and could have a material adverse impact on our financial condition
      and results of operations.





While
      our
      U.S. operations are subject to U.S. tax, we believe that a significant portion
      of our non-U.S. operations are generally not subject to U.S. tax other than
      withholding taxes. Our conclusions are based on, among other things, our
      determination that we, and a significant portion of our foreign subsidiaries,
      are not currently “controlled foreign corporations” (CFCs) within the meaning of
      the U.S. tax laws, although the IRS or a court may not concur with our
      conclusions. A non-U.S. corporation, such as us, will constitute a CFC for
      U.S.
      federal income tax purposes if certain ownership criteria are met. If the IRS
      or
      a court determined that we (or any of our non-U.S. subsidiaries) were a CFC,
      then each of our U.S. shareholders who own (directly, indirectly, or
      constructively) 10% or more of the total combined voting power of all classes
      of
      our stock (or the stock of any of our non-U.S. subsidiaries) on the last day
      of
      the applicable taxable year (a "10% U.S. Voting Shareholder") would be required
      to include in gross income for U.S. federal income tax purposes its pro rata
      share of our subpart F and other similar types of income (and the subpart F
      and
      other similar types of income of any of our subsidiaries determined to be a
      CFC)
      for the period during which we (and our non-U.S. subsidiaries) were a CFC.
      In
      addition, gain on the sale of our shares realized by such a shareholder may
      be
      treated as ordinary income to the extent of the shareholder's proportionate
      share of our and our CFC subsidiaries' undistributed earnings and profits
      accumulated during the shareholder's holding period of the shares while we
      (or
      any of our non-U.S. subsidiaries) are a CFC. Treatment of us or any of our
      non-U.S. subsidiaries as a CFC could have a material adverse impact on our
      financial condition and results of operations.




14




On
      July
      20, 2007, we, and our consolidated subsidiaries, received a notice from the
      IRS
      containing proposed adjustments to our consolidated subsidiaries’ tax filings in
      connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
      the validity of our reincorporation in Bermuda. The most significant adjustments
      proposed by the IRS involve treating the entire intercompany debt incurred
      in
      connection with our reincorporation in Bermuda as equity. As a result of this
      recharacterization, the IRS has disallowed the deduction of interest paid on
      the
      debt and imposed dividend withholding taxes on the payments denominated as
      interest. Proposed adjustments on this issue, if upheld in their entirety,
      would
      result in additional taxes with respect to the 2002 tax year of approximately
      $190 million plus interest and would require us to record additional charges
      associated with this matter. For
      a
      further discussion of the
      IRS
      audit ,
      see
“Legal Proceedings” and Note
      18,
      Income Taxes, to the consolidated financial statements.





We
      strongly disagree with the view of the IRS and are vigorously contesting these
      proposed adjustments. Although the outcome of this matter cannot be predicted
      with certainty, based upon an analysis of the strength of our position, we
      believe that we have adequately reserved for this matter. At this time, the
      IRS
      has not yet begun their examination of our consolidated subsidiaries’ tax
      filings for years subsequent to the 2002 tax year. We believe it likely, if
      the
      above adjustments or a portion of such adjustments by the IRS are ultimately
      sustained, that these adjustments will also affect subsequent tax
      years.





As
      noted
      above, the IRS did not contest the validity of our reincorporation in Bermuda
      in
      the above-mentioned notice. We believe that neither we nor our consolidated
      subsidiary IR-New Jersey will incur significant U.S. federal income or
      withholding taxes as a result of the transfer of the shares of our subsidiaries
      that occurred as part of the reorganization. However, we cannot give any
      assurances that the IRS will agree with our determination.





The
      inability to realize any anticipated tax benefits related to our reorganization,
      discussed above in this section “Risks Relating to our Reorganization as a
      Bermuda Company”, could have a material adverse impact on our financial
      condition and results of operations.





***Legislation
      regarding non-U.S. chartered companies could adversely affect us and our
      subsidiaries.***





The
      U.S.
      federal government and various other states and municipalities have proposed
      or
      may propose legislation intended to deny government contracts to U.S. companies
      that reincorporate outside of the U.S. For instance, The Homeland Security
      Appropriations Act, signed into law October 18, 2004, includes a provision
      that
      prohibits reincorporated companies from entering into contracts with the
      Department of Homeland Security for funds available under the Homeland Security
      Appropriations Act. In addition, the State of California adopted legislation
      intended to limit the eligibility of certain Bermuda and other non-U.S.
      chartered companies to participate in certain state contracts and the State
      of
      North Carolina enacted a bill that provides a preference for North Carolina
      or
      U.S. products and services. Generally, these types of legislation relate to
      direct sales and distribution, while we typically sell our products through
      distributors. However, we are unable to predict with any level of certainty
      the
      likelihood or final form of these types of legislation, the nature of
      regulations that may be promulgated thereunder, or the impact such enactments
      and increased regulatory scrutiny may have on our business. We cannot provide
      any assurance that the impact on us of any adopted or proposed legislation
      in
      this area will not be materially adverse to our operations.




15




***Bermuda
      law differs from the laws in effect in the United States and may afford less
      protection to holders of our securities.***





We
      are
      organized under the laws of Bermuda. It may not be possible to enforce court
      judgments in Bermuda that are obtained in the U.S. against us or our directors
      or officers in Bermuda based on the civil liability provisions of the U.S.
      federal or state securities laws. We have been advised that the U.S. and Bermuda
      do not currently have a treaty providing for the reciprocal recognition and
      enforcement of judgments in civil and commercial matters. Therefore, a final
      judgment for the payment of money rendered by any U.S. federal or state court
      based on civil liability, whether or not based solely on U.S. federal or state
      securities laws, would not automatically be enforceable in Bermuda.





In
      addition, as a result of Bermuda law, it would be difficult for a holder of
      our
      securities to effect service of process within the United States. However,
      we
      have irrevocably agreed that we may be served with process with respect to
      actions based on offers and sales of securities made in the United States by
      having Ingersoll-Rand Company, 155 Chestnut Ridge Road, Montvale, New Jersey
      07645, be our U.S. agent appointed for that purpose.





Bermuda
      companies are governed by the Companies Act 1981 of Bermuda, which differs
      in
      some material respects from laws generally applicable to U.S. corporations
      and
      shareholders, including, among others, differences relating to interested
      director and officer transactions, shareholder lawsuits and indemnification.
      Under Bermuda law, the duties of directors and officers of a Bermuda company
      are
      generally owed to the company only. Shareholders of Bermuda companies do not
      generally have rights to take action against directors or officers of the
      company, and may only do so in limited circumstances. Under Bermuda law, a
      company may also agree to indemnify directors and officers for any personal
      liability, not involving fraud or dishonesty, incurred in relation to the
      company. Thus, our shareholders may have more difficulty protecting their
      interests than would holders of securities of a corporation incorporated in
      a
      jurisdiction of the U.S.





Item
      1B.   **UNRESOLVED
      STAFF COMMENTS**





None.





Item
      2.   **PROPERTIES**





As
      of
      December 31, 2007, we owned or leased a total of approximately 13.5 million
      square feet of space worldwide. Manufacturing and assembly operations are
      conducted in 29 plants in the United States; 31 plants in Europe; 14 plants
      in
      Asia; 6 plants in Latin America; and 1 plant in Canada. We also maintain various
      warehouses, offices and repair centers throughout the world.





Substantially
      all plant facilities are owned us with the remainder under long-term lease
      arrangements. We believe that our plants have been well maintained, are
      generally in good condition and are suitable for the conduct of our business.
      At
      December 31, 2007, we were productively utilizing the majority of the space
      in
      our facilities.





The
      locations by segment of our major manufacturing facilities at December 31,
      2007
      were as follows:




16




Climate Control TechnologiesAmericas
            
            Europe, Middle East, Africa
            
            Asia PacificLondrina,
                Brazil
            
            Kolin,
                Czech Republic
            
            Luoyang,
                ChinaMonterrey,
                Mexico
            
            Galway,
                Ireland
            
            Shenzen,
                ChinaMexico
                City, Mexico
            
            Barcelona,
                Spain
            
            Suzhou,
                ChinaArecibo,
                Puerto Rico
            
            Pamplona,
                Spain
            
            Tauranga,
                New ZealandCiales,
                Puerto Rico
            
            Peralta,
                SpainChino,
                CaliforniaLouisville,
                GeorgiaSuwanee,
                GeorgiaMinneapolis,
                MinnesotaBridgeton,
                MissouriHastings,
                NebraskaGloversville,
                New York




Industrial TechnologiesAmericas
            
            Europe, Middle East, Africa
            
            Asia PacificMontreal,
                Canada
            
            Douai,
                France
            
            Guanbxi,
                ChinaAugusta,
                Georgia
            
            Wasquehal,
                France
            
            Changzhou,
                ChinaCampbellsville,
                Kentucky
            
            Oberhausen,
                Germany
            
            Nanjing,
                ChinaRochester
                Hills, Michigan
            
            Fogliano
                Redipuglia, Italy
            
            Shanghai,
                ChinaMadison
                Heights, Michigan
            
            Vignate,
                Italy
            
            Ahmadabad,
                IndiaDavidson,
                North Carolina
            
            Pavlovo,
                Russia
            
            New
                Delhi, IndiaMocksville,
                North CarolinaAthens,
                PennsylvaniaWest
                Chester, PennsylvaniaSeattle,
                Washington




Security TechnologiesAmericas
            
            Europe, Middle East, Africa
            
            Asia PacificEnsenada,
                Mexico
            
            Feuquieres,
                France
            
            Shanghai,
                ChinaTecate,
                Mexico
            
            Renchen,
                Germany
            
            Auckland,
                New ZealandSan
                Jose, California
            
            Faenza,
                ItalySecurity,
                Colorado
            
            Monsampolo,
                ItalyNew
                Haven, Connecticut
            
            Duzce,
                TurkeyPrinceton,
                Illinois
            
            Birmingham,
                UKIndianapolis,
                IndianaCincinnati,
                OhioCaracas,
                Venezuela




17




Item
      3.  **** **LEGAL
      PROCEEDINGS**





In
      the
      normal course of business, we are involved in a variety of lawsuits, claims
      and
      legal proceedings, including commercial and contract disputes, employment
      matters, product liability claims, environmental liabilities and intellectual
      property disputes.  In our opinion, pending legal matters are not expected
      to have a material adverse effect on our results of operations, financial
      condition, liquidity or cash flows.





As
      previously reported, on November 10, 2004, the Securities and Exchange
      Commission (SEC) issued an Order directing that a number of public companies,
      including the Company, provide information relating to their participation
      in
      transactions under the United Nations’ Oil for Food Program. Upon receipt of the
      Order, the Company undertook a thorough review of its participation in the
      Oil
      for Food Program, provided the SEC with information responsive to the Order
      and
      provided additional information requested by the SEC. During a March 27, 2007
      meeting with the SEC, at which a representative of the Department of Justice
      (DOJ) was also present, the Company began discussions concerning the resolution
      of this matter with both the SEC and DOJ. On October 31, 2007, the Company
      announced it had reached settlements with the SEC and DOJ relating to this
      matter. Under the terms of the settlements, the Company paid a total of $6.7
      million in penalties, interest and disgorgement of profits. The Company
      consented to the entry of a civil injunction in the SEC action and entered
      into
      a three-year deferred prosecution agreement with the DOJ. Under both
      settlements, the Company has implemented, and will continue to implement,
      improvements to its compliance program that are consistent with its longstanding
      policy against improper payments. In the settlement documents, the Government
      noted that the Company thoroughly cooperated with the investigation, that the
      Company had conducted its own complete investigation of the conduct at issue,
      promptly and thoroughly reported its findings to them, and took prompt remedial
      measures. In a related matter, on July 10, 2007, representatives of the Italian
      Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
      Italiana S.p.A pertaining to certain Oil for Food transactions undertaken by
      that subsidiary of the Company. Such transactions have previously been reported
      to the SEC and DOJ, and the Company will continue to cooperate fully with the
      Italian authorities in this matter.





On
      July
      20, 2007, the Company and its consolidated subsidiaries received a notice from
      the Internal Revenue Service (IRS) containing proposed adjustments to the
      Company’s tax filings in connection with an audit of the 2001 and 2002 tax
      years. The IRS did not contest the validity of the Company’s reincorporation in
      Bermuda. The most significant adjustments proposed by the IRS involve treating
      the entire intercompany debt incurred in connection with the Company’s
      reincorporation in Bermuda as equity. As a result of this recharacterization,
      the IRS has disallowed the deduction of interest paid on the debt and imposed
      dividend withholding taxes on the payments denominated as interest. These
      adjustments proposed by the IRS, if upheld in their entirety, would result
      in
      additional taxes with respect to 2002 of approximately $190 million plus
      interest, and would require the Company to record additional charges associated
      with this matter. At this time, the IRS has not yet begun their examination
      of
      the Company’s tax filings for years subsequent to 2002. However, if these
      adjustments or a portion of these adjustments proposed by the IRS are ultimately
      sustained, it is likely to also affect subsequent tax years.




18




The
      Company strongly disagrees with the view of the IRS and filed a protest with
      the
      IRS in the third quarter of 2007. Going forward, the Company intends to
      vigorously contest these proposed adjustments. The Company, in consultation
      with
      its outside advisors, carefully considered many factors in determining the
      terms
      of the intercompany debt, including the obligor’s ability to service the debt
      and the availability of equivalent financing from unrelated parties, two factors
      prominently cited by the IRS in denying debt treatment. The Company believes
      that its characterization of that obligation as debt for tax purposes was
      supported by the relevant facts and legal authorities at the time of its
      creation. The subsequent financial results of the relevant companies, including
      the actual cash flow generated by operations and the production of significant
      additional cash flow from dispositions have confirmed the ability to service
      this debt. Although the outcome of this matter cannot be predicted with
      certainty, based upon an analysis of the strength of its position, the Company
      believes that it is adequately reserved for this matter. As the Company moves
      forward to resolve this matter with the IRS, it is reasonably possible that
      the
      reserves established may be adjusted within the next 12 months. However, the
      Company does not expect that the ultimate resolution will have a material
      adverse impact on its future results of operations or financial position. See
      Note
      18, Income Taxes, to the consolidated financial statements for a further
      discussion of tax matters.





Certain
      of our wholly owned subsidiaries are named as defendants in asbestos-related
      lawsuits in state and federal courts. In virtually all of the suits, a large
      number of other companies have also been named as defendants. The vast majority
      of those claims has been filed against our wholly owned subsidiary,
      Ingersoll-Rand Company (IR-New Jersey), and generally allege injury caused
      by
      exposure to asbestos contained in certain of IR-New Jersey’s products, primarily
      pumps and compressors. Although IR-New Jersey was neither a producer nor a
      manufacturer of asbestos, some of its formerly manufactured products utilized
      asbestos-containing components, such as gaskets and packings purchased from
      third-party suppliers.





See
      also
      the discussion under Part II, Item 7, Management’s Discussion and Analysis of
      Financial Condition and Results of Operations, Environmental and Asbestos
      Matters and also Note 20, Commitments and Contingencies, and Note 18, Income
      Taxes, to the consolidated financial statements.




Item
      4.   **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of the Company’s security holders during the
      last quarter of its fiscal year ended December 31, 2007.




19




**Executive
      Officers of the Registrant**


Pursuant
      to the General Instruction G(3) of Form 10-K, the following list of executive
      officers of the Company as of February 25, 2008 is included as an unnumbered
      item in Part I of this report in lieu of being included in the Company's Proxy
      Statement for its 2008 Annual General Meeting of Shareholders.




**Name and Age**
            
            **Date of Service as**
              **an Executive Officer**
            
            **Principal Occupation and**
              **Other Information for Past Five Years**Herbert
                L. Henkel (59)
            
            4/5/1999
            
            Chairman
                of Board and Chief Executive Officer, President and DirectorJames
                V. Gelly (48)
            
            10/6/2007
            
            Senior
                Vice President and Chief Financial Officer (since October 2007);
                Rockwell
                Automation, Chief Financial Officer, (2004-2007); Honeywell International,
                Vice President and Treasurer (1999-2003)Marcia
                J. Avedon (46)
            
            2/7/2007
            
            Senior
                Vice President, Human Resources and Communication (since February
                2007);
                (Merck & Co., Inc., Senior Vice President, Human Resources 2003-2006;
                Vice President, Talent Management & Organizational Effectiveness
                2002-2003; Honeywell International, Vice President, Corporate Human
                Resources, 2001-2002)James
                R. Bolch (50)
            
            10/16/2005
            
            Senior
                Vice President and President, Industrial Technologies Sector (since
                October 2005); (Schindler Elevator Corporation, Executive Vice President,
                Service Business 2004-2005; United Technologies Corporation, UTC
                Power,
                Vice President Operations, 2001-2003)William
                B. Gauld (54)
            
            10/2/2006
            
            Senior
                Vice President, Enterprise Services (since October 2006); (Principal,
                The
                W Group, 2005-2006; Pearson, plc, Chief Information Officer,
                2001-2005)Michael
                W. Lamach (44)
            
            2/16/2004
            
            Senior
                Vice President and President, Security Technologies (since February
                2004);
                (Johnson Controls, Inc., Group Vice President and Managing Director
                Europe/Asia 2003-2004; Group Vice President and General Manager,
                Asia
                2002-2003; Group Vice President and General Manager, Customer Business
                Units, 1999-2002)Patricia
                Nachtigal (61)
            
            11/2/1988
            
            Director
                (since January 1, 2002); Senior Vice President and General CounselSteven
                R. Shawley (55)
            
            8/1/2005
            
            Senior
                Vice President and President, Climate Control Technologies (since
                August
                2005); (President Climate Control Americas, 2003-2005; President,
                Thermo
                King North America 2002-2003, Vice President and Controller,
                1998-2002)Richard
                W. Randall (57)
            
            10/1/2002
            
            Vice
                President and Controller (since October 2002); (President, Engineered
                Solutions, Industrial Solutions Sector, April 2002-September 2002;
                Vice
                President, Finance and Sector Controller, Industrial Solutions Sector
                2001-2002; Vice President and Controller, Bearings and Components,
                Industrial Productivity Sector,
                1999-2001)





No
      family
      relationship exists between any of the above-listed executive officers of the
      Company. All officers are elected to hold office for one year or until their
      successors are elected and qualified.




20





**PART
      II**





Item
      5.


**MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER**


**MATTERS
      AND ISSUER PURCHASES OF EQUITY SECURITIES**





Information
      regarding the principal market for our common shares and related shareholder
      matters is as follows:





Our
      Class
      A common shares are traded on the New York Stock Exchange under the symbol
      IR.
      As of February 25, 2008, the approximate number of record holders of Class
      A
      common shares was 6,902. The high and low closing price per share and the
      dividend paid per share for the following periods were as follows:





Common
                shares2007
            
            High
            
            Low
            
            DividendFirst
                quarter
            
            $
            45.42
            
            $
            38.75
            
            $
            0.18Second
                quarter
            
            
            55.99
            
            
            43.61
            
            
            0.18Third
                quarter
            
            
            55.99
            
            
            47.21
            
            
            0.18Fourth
                quarter
            
            
            55.55
            
            
            43.60
            
            
            0.182006First
                quarter
            
            $
            43.65
            
            $
            38.15
            
            $
            0.16Second
                quarter
            
            
            47.63
            
            
            39.47
            
            
            0.16Third
                quarter
            
            
            43.25
            
            
            35.29
            
            
            0.18Fourth
                quarter
            
            
            41.21
            
            
            36.71
            
            
            0.18





The
      Bank
      of New York (Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
      (800) 524-4458) is the transfer agent, registrar and dividend reinvestment
      agent.





Future
      dividends on our Class A common shares, if any, will be at the discretion of
      our
      Board of Directors and will depend on, among other things, our results of
      operations, cash requirements and surplus, financial condition, contractual
      restrictions and other factors that the Board of Directors may deem relevant,
      as
      well as our ability to pay dividends in compliance with the Bermuda Companies
      Act. This Act regulates the payment of dividends and the making of distributions
      from contributed surplus. We may not declare or pay a dividend, or make a
      distribution out of contributed surplus, if there are reasonable grounds for
      believing that: (i) we are, or would be after the payment, unable to pay our
      liabilities as they become due; or (ii) the realizable value of our assets
      would
      thereby be less than the aggregate of our liabilities and issued share capital
      and share premium accounts.





Information
      regarding equity compensation plans required to be disclosed pursuant to this
      Item is incorporated by reference from our definite Proxy Statement for the
      Annual General Meeting of Shareholders.




Shares
      of
      IR-Limited owned by a subsidiary are treated as treasury stock and are recorded
      at cost. During
      2007, we repurchased 39.7 million Class A common shares at a cost $1,999.9
      million under our existing $4 billion share repurchase program. This repurchase
      program was originally authorized by the Board of Directors in December 2006
      to
      repurchase up to $2 billion and subsequently expanded to $4 billion in May
      2007.


21





During
      2006, we completed our original $2 billion share repurchase program by
      repurchasing 27.7 million Class A common shares at a cost of $1,096.3 million.
      This share repurchase program was originally authorized by the Board of
      Directors in August 2004 and subsequently expanded in August 2005.





Total
      share repurchases for the three months ended December 31, 2007 are as
      follows:





Total number of
            
            Approximate dollarshares purchased
            
            value of shares stillTotal number
            
            
            
            as part of the
            
            available to beof shares
            
            Average
            
            publicly announced
            
            purchased underpurchased
            
            price
                paid
            
            program
            
            the programPeriod
            
            (000's)
            
            per share
            
            (000's)
            
            ($000's)10/01/2007
                - 10/31/2007
            
            
            1,097.1
            
            $
            54.01
            
            
            1,097.1
            
            $
            2,000,10011/01/2007
                - 11/30/2007
            
            
            -
            
            
            -
            
            
            -
            
            
            2,000,10012/01/2007
                - 12/31/2007
            
            
            -
            
            
            -
            
            
            -
            
            
            2,000,100Total
            
            
            1,097.1
            
            
            
            
            
            1,097.1





*Performance
      Graph*


The
      following graph compares the cumulative total shareholder return on our Class
      A
      common shares with the cumulative total return on the Standard & Poor’s 500
      Stock Index and the Standard & Poor’s 500 Industrial Machinery Index for the
      five years ended December 31, 2007. The graph assumes an investment of $100
      in
      our Class A common shares, the Standard & Poor’s 500 Stock Index and the
      Standard & Poor’s Industrial Machinery Index on December 31, 2001 and
      assumes the reinvestment of dividends.





INGERSOLL-RAND COMPANY LIMITED


22


Item
      6.   **SELECTED
      FINANCIAL DATA**





In
      millions, except per share amounts:





At
                and for the years ended December 31,
            
            2007
            
            2006
            
            2005
            
            2004
            
            2003Net
                revenues
            
            $
            8,763.1
            
            $
            8,033.7
            
            $
            7,263.7
            
            $
            6,663.2
            
            $
            6,083.4Earnings
                from continuing operations
            
            
            733.1
            
            
            765.0
            
            
            731.8
            
            
            554.2
            
            
            362.5Earnings
                from discontinued operations
            
            
            3,233.6
            
            
            267.5
            
            
            322.4
            
            
            664.5
            
            
            282.0Total
                assets
            
            
            14,376.2
            
            
            12,145.9
            
            
            11,756.4
            
            
            11,414.6
            
            
            10,664.9Total
                debt
            
            
            1,453.7
            
            
            1,984.6
            
            
            2,117.0
            
            
            1,880.4
            
            
            2,315.4Shareholders'
                equity
            
            
            7,907.9
            
            
            5,404.8
            
            
            5,761.9
            
            
            5,733.8
            
            
            4,493.3Basic
                earnings per common share:Continuing
                operations
            
            $
            2.52
            
            $
            2.39
            
            $
            2.17
            
            $
            1.60
            
            $
            1.06Discontinued
                operations
            
            
            11.12
            
            
            0.84
            
            
            0.95
            
            
            1.92
            
            
            0.82Diluted
                earnings per common share:Continuing
                operations
            
            $
            2.48
            
            $
            2.37
            
            $
            2.14
            
            $
            1.58
            
            $
            1.05Discontinued
                operations
            
            
            10.95
            
            
            0.83
            
            
            0.95
            
            
            1.89
            
            
            0.82Dividends
                per common share
            
            $
            0.72
            
            $
            0.68
            
            $
            0.57
            
            $
            0.44
            
            $
            0.36




1.
            Earnings
                and dividends per common share amounts have been restated to reflect
                a
                two-for-one stock split that occurred in August
                2005.





2.
            2006 –
                2003 amounts have been restated to reflect Compact Equipment and
                the Road
                Development business unit as discontinued operations.




23


Item
      7.


**MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**


**AND
      RESULTS OF OPERATIONS**




*The
      following Management’s Discussion and Analysis of Financial Condition and
      Results of Operations contains forward-looking statements that involve risks
      and
      uncertainties. Our actual results may differ materially from the results
      discussed in the forward-looking statements. Factors that might cause a
      difference include, but are not limited to, those discussed under Item 1A.
      Risk
      Factors in this Annual Report on Form 10-K. The following section is qualified
      in its entirety by the more detailed information, including our financial
      statements and the notes thereto, which appears elsewhere in this Annual
      Report.*





**Overview**


***Organization***


Ingersoll-Rand
      Company Limited (IR Limited), a Bermuda company, and its consolidated
      subsidiaries (we, our or the Company) is a leading innovation and solutions
      provider with strong brands and leading positions within our markets. Our
      business segments consist of Climate Control Technologies, Industrial
      Technologies and Security Technologies. We generate revenue and cash primarily
      through the design, manufacture, sale and service of a diverse portfolio of
      industrial and commercial products that include well-recognized, premium brand
      names such as Club Car®, Hussmann®, Ingersoll Rand®, Schlage® and Thermo
      King®.





We
      seek
      to drive shareholder value by achieving:





·
            *Dramatic
                Growth*,
                by developing innovative products and solutions that improve our
                customers’ operations, expanding highly profitable recurring revenues and
                executing strategic acquisitions;





·
            *Operational
                Excellence*,
                by fostering a lean culture of continuous improvement and cost control;
                and





·
            *Dual
                Citizenship*,
                by encouraging our employees’ active collaboration with colleagues across
                business units and geographic regions to achieve superior business
                results.





To
      achieve these goals and to become a more diversified company with strong growth
      prospects, we transformed our enterprise portfolio by divesting cyclical,
      low-growth, and asset-intensive businesses. We continue to focus on increasing
      our recurring revenue stream, which includes revenues from parts, service,
      used
      equipment and rentals. We also intend to continuously improve the efficiencies,
      capabilities, and products and services of our high-potential businesses.





***Acquisitions
      and Divestitures***


On
      December 17, 2007, we announced that we had executed a definitive agreement
      to
      acquire Trane Inc., formerly American Standard Companies Inc., in a transaction
      currently valued at approximately $9.5 billion. This transaction, which is
      expected to close during the second quarter of 2008, is subject to approval
      by
      Trane shareholders, regulatory approval and contractual closing conditions.
      There can be no assurance that the acquisition will be consummated.





Trane
      is
      a global leader in indoor climate control systems, services and solutions and
      provides systems and services that enhance the quality and comfort of the air
      in
      homes and buildings around the world. They offer customers a broad range of
      energy-efficient heating, ventilation and air conditioning systems;
      dehumidifying and air cleaning products; service and parts support; advanced
      building controls; and financing solutions. Their systems and services have
      leading positions in commercial, residential, institutional and industrial
      markets; a reputation for reliability, high quality and product innovation;
      and
      a powerful distribution network. Trane has more than 29,000 employees and 34
      production facilities worldwide, with 2007 annual revenues of $7.45 billion.


24





On
      November 30, 2007, we completed the sale of our Bobcat, Utility Equipment and
      Attachments business units (collectively, Compact Equipment) to Doosan Infracore
      for cash proceeds of approximately $4.9 billion, subject to post-closing
      purchase price adjustments. We recorded a gain on sale of $2,652.0 million
      (net
      of tax of $939.0 million). Compact Equipment manufactures and sells compact
      equipment including skid-steer loaders, compact track loaders, mini-excavators
      and telescopic tool handlers; portable air compressors, generators, light
      towers; general-purpose light construction equipment; and attachments.





On
      April
      30, 2007, we completed the sale of our Road Development business unit to AB
      Volvo (publ) in all countries except for India, which closed on May 4, 2007,
      for
      cash proceeds of approximately $1.3 billion, subject to post-closing purchase
      price adjustments. We recorded a gain on sale of $634.7 million (net of tax
      of
      $164.4 million). The Road Development business unit manufactures and sells
      asphalt paving equipment, compaction equipment, milling machines and
      construction-related material handling equipment.





***Trends
      and Economic Conditions***


We
      are a
      global corporation with worldwide operations. More than 45% of our 2007 net
      revenues are derived outside the U.S. As a global business, our operations
      are
      affected by worldwide, regional and industry-specific economic factors, as
      well
      as political factors, wherever we operate or do business. However, our
      geographic and industry diversity, as well as the diversity of our product
      sales
      and services, has helped limit the impact of any one industry, or the economy
      of
      any single country, on the consolidated operating results. Given the broad
      range
      of products manufactured and geographic markets served, management uses a
      variety of factors to predict the outlook for the Company. We monitor key
      competitors and customers in order to gauge relative performance and the outlook
      for the future. In addition, our order rates are indicative of future revenue
      and thus a key measure of anticipated performance. In those industry segments
      where we are a capital equipment provider, revenues depend on the capital
      expenditure budgets and spending patterns of our customers, who may delay or
      accelerate purchases in reaction to changes in their businesses and in the
      economy.





Our
      revenues from continuing operations for the full-year 2007 increased
      approximately 9% compared with the same period of 2006. Strong international
      markets, new product introductions, increased recurring revenue, higher volumes,
      pricing improvements and a favorable currency impact drove this growth. Our
      major end markets in Europe, Asia and Latin America experienced significant
      growth. This growth helped to drive revenue increases in all three our operating
      segments. We have also been able to increase prices and add surcharges to help
      mitigate the impact of cost inflation during the year. We have generated
      positive cash flows from operating activities during 2007 and expect to continue
      to produce positive operating cash flows for the foreseeable
      future.





For
      2008,
      we expect to see slower growth in North America and Western Europe offset by
      the
      activity levels in the developing economies of Eastern Europe, Asia and Latin
      America. Additionally, we expect to see lower material cost inflation in 2008
      relative to the past few years.





***Significant
      events in 2007***


As
      discussed in Acquisitions and Divestitures above, in 2007, we sold our Compact
      Equipment and Road Development business unit for gross proceeds of approximately
      $6.2 billion.


25





On
      January 11, 2008 we announced that we had taken a non-cash charge in the fourth
      quarter 2007 to earnings of discontinued operations of $449 million ($277
      million after tax) relating to the company's liability for all pending and
      estimated future asbestos claims through 2053. This charge results from an
      increase in our recorded liability for asbestos claims by $538 million, from
      $217 million to $755 million, offset by a corresponding $89 million increase
      in
      its assets for probable asbestos-related insurance recoveries, which now total
      $250 million. For a further discussion of asbestos matters, see Note 20,
      Commitments and Contingencies, to the consolidated financial
      statements.





On
      July
      20, 2007, the Company and its consolidated subsidiaries received a notice from
      the IRS containing proposed adjustments to the Company’s tax filings in
      connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
      the validity of the Company’s reincorporation in Bermuda. The most significant
      adjustments proposed by the IRS involve treating the entire intercompany debt
      incurred in connection with the Company’s reincorporation in Bermuda as equity.
      As a result of this recharacterization, the IRS has disallowed the deduction
      of
      interest paid on the debt and imposed dividend withholding taxes on the payments
      denominated as interest. These adjustments proposed by the IRS, if upheld in
      their entirety, would result in additional taxes with respect to 2002 of
      approximately $190 million plus interest, and would require the Company to
      record additional charges associated with this matter. At this time, the IRS
      has
      not yet begun their examination of the Company’s tax filings for years
      subsequent to 2002. However, if these adjustments or a portion of these
      adjustments proposed by the IRS are ultimately sustained, it is likely to also
      affect subsequent tax years.





The
      Company strongly disagrees with the view of the IRS and filed a protest with
      the
      IRS in the third quarter of 2007. Going forward, the Company intends to
      vigorously contest these proposed adjustments. The Company, in consultation
      with
      its outside advisors, carefully considered many factors in determining the
      terms
      of the intercompany debt, including the obligor’s ability to service the debt
      and the availability of equivalent financing from unrelated parties, two factors
      prominently cited by the IRS in denying debt treatment. The Company believes
      that its characterization of that obligation as debt for tax purposes was
      supported by the relevant facts and legal authorities at the time of its
      creation. The subsequent financial results of the relevant companies, including
      the actual cash flow generated by operations and the production of significant
      additional cash flow from dispositions have confirmed the ability to service
      this debt. Although the outcome of this matter cannot be predicted with
      certainty, based upon an analysis of the strength of its position, the Company
      believes that it is adequately reserved for this matter. As the Company moves
      forward to resolve this matter with the IRS, it is reasonably possible that
      the
      reserves established may be adjusted within the next 12 months. However, the
      Company does not expect that the ultimate resolution will have a material
      adverse impact on its future results of operations or financial position. See
      Note 18, Income Taxes, to the consolidated financial statements for a further
      discussion of tax matters.





During
      2007, we repurchased 39.7 million Class A common shares at a cost $1,999.9
      million under our existing $4 billion share repurchase program. This repurchase
      program was originally authorized by the Board of Directors in December 2006
      to
      repurchase up to $2 billion and subsequently expanded to $4 billion in May
      2007.





***Significant
      Events in 2006***


During
      2006, we completed our original $2 billion share repurchase program by
      repurchasing 27.7 million Class A common shares at a cost of $1,096.3 million.
      This share repurchase program was originally authorized by the Board of
      Directors in August 2004 and subsequently expanded in August 2005. In
      December 2006, the Board of Directors authorized a new share repurchase program
      to repurchase up to $2 billion worth of Class A common shares. No amounts were
      repurchased under the December 2006 authorization as of December 31,
      2006.


26





On
      October 6, 2006, we received a notice from the Internal Revenue Service (IRS)
      containing proposed adjustments to our tax filings in connection with an audit
      of the 1998 through 2000 tax years. The principal proposed adjustments consist
      of the disallowance of certain capital losses taken in our tax returns in 1999
      and 2000. The disallowance would result in additional taxes and penalties of
      approximately $155 million, plus interest through October 6, 2006, of
      approximately $62 million. As a result, in the third quarter of 2006, we added
      approximately $27 million ($0.08 per dilutive share) to previously established
      reserves. In order to reduce the potential interest expense associated with
      this
      matter, we made a payment to the IRS of $217 million in the third quarter of
      2007. See
      Note
      18, Income Taxes, to the consolidated financial statements for a further
      discussion of tax matters.





***Significant
      Events in 2005***


In
      January, we completed the acquisition of the remaining 70% interest in
      Italy-based CISA S.p.A. (CISA) for approximately $267 million in cash and the
      assumption of approximately $244 million of debt. CISA manufactures an array
      of
      security products, including electronic locking systems, cylinders, door
      closers, and emergency exit hardware, and also markets safes and padlocks.





In
      August, we established a joint venture with Taiwan Fu Hsing Industrial Company
      Ltd. (Taiwan Fu Hsing), a leading manufacturer of mechanical locks based in
      Taiwan, for approximately $72 million. We have a majority interest in Taiwan
      Fu
      Hsing’s mechanical door lock manufacturing subsidiaries in China and Malaysia,
      as well as a minority equity interest in Taiwan Fu Hsing.





On
      August
      3, 2005, our Board of Directors declared a two-for-one stock split effected
      in
      the form of a stock distribution to shareholders on September 1, 2005. In
      addition, they also expanded our share repurchase program, which was established
      in August 2004, to $2 billion. During 2005, we repurchased 19.4 million Class
      A
      common shares at a cost of $763.6 million.





During
      the second quarter of 2005, we issued $300 million aggregate principal amount
      of
      our 4.75% Senior Notes due in 2015. The notes are unconditionally guaranteed
      by
      IR-New Jersey.


27


**Results
      of Operations**





%
                of
            
            
            
            %
                of
            
            
            
            %
                of*Dollar* *amounts* *in* *millions, except* *per* *share* *data*
            
            2007
            
            Revenues
            
            2006
            
            Revenues
            
            2005
            
            RevenuesNet
                revenues
            
            $
            8,763.1
            
            
            
            
            $
            8,033.7
            
            
            
            
            $
            7,263.7Cost
                of goods sold
            
            
            6,272.0
            
            
            71.6%
            
            
            5,768.4
            
            
            71.8%
            
            
            5,203.2
            
            
            71.6%Selling
                and administrative expenses
            
            
            1,433.3
            
            
            16.3%
            
            
            1,266.8
            
            
            15.8%
            
            
            1,172.7
            
            
            16.2%Operating
                income
            
            
            1,057.8
            
            
            12.1%
            
            
            998.5
            
            
            12.4%
            
            
            887.8
            
            
            12.2%Interest
                expense
            
            
            (136.2
            )
            
            
            
            
            (133.6
            )
            
            
            
            
            (145.1
            )Other
                income, net
            
            
            15.9
            
            
            
            
            
            (7.3
            )
            
            
            
            
            50.1Earnings
                before income taxes
            
            
            937.5
            
            
            
            
            
            857.6
            
            
            
            
            
            792.8Provision
                for income taxes
            
            
            204.4
            
            
            
            
            
            92.6
            
            
            
            
            
            61.0Earnings
                from continuing operations
            
            
            733.1
            
            
            
            
            
            765.0
            
            
            
            
            
            731.8Discontinued
                operations, net of tax
            
            
            3,233.6
            
            
            
            
            
            267.5
            
            
            
            
            
            322.4Net
                earnings
            
            $
            3,966.7
            
            
            
            
            $
            1,032.5
            
            
            
            
            $
            1,054.2Diluted
                earnings per common share:Continuing
                operations
            
            $
            2.48
            
            
            
            
            $
            2.37
            
            
            
            
            $
            2.14Discontinued
                operations
            
            
            10.95
            
            
            
            
            
            0.83
            
            
            
            
            
            0.95Net
                earnings
            
            $
            13.43
            
            
            
            
            $
            3.20
            
            
            
            
            $
            3.09





***Revenues***


2007
      vs. 2006: Net
      revenues increased by 9% in 2007, or $729.4 million, compared with 2006, which
      primarily resulted from the following:





Volume/product
                mix
            
            
            4.0%Pricing
            
            
            2.0%Currency
                exchange rates
            
            
            2.5%Acquisitions
            
            
            0.5%Total
            
            
            9.0%




Revenues
      increased significantly in the European, Asian and Latin American regions as
      volumes, product mix and pricing all improved during 2007. North American
      revenues increased moderately compared to 2006. These increases occurred in
      each
      of our business segments. Recurring revenues continue to be a source of growth
      as they improved 9% over the prior year and accounted for 18% of net revenues
      in
      2007.





2006
      vs. 2005 :
      Net
      revenues increased by 11% in 2006, or $770.0 million, compared with 2005, which
      primarily resulted from the following:





Volume/product
                mix
            
            
            7.0%Pricing
            
            
            2.0%Acquisitions
            
            
            1.5%Currency
                exchange rates
            
            
            0.5%Total
            
            
            11.0%




28





All
      business segments experienced higher revenues on increased volumes created
      by
      favorable end markets and new product introductions. Revenues from all major
      geographic regions also improved during 2006. Recurring revenues improved 10%
      in
      2006 over the prior year.





***Cost
      of Goods Sold***


2007
      vs. 2006 :
      In
      2007, Cost of goods sold as a percentage of net revenues decreased slightly
      compared with 2006. Increased leverage on higher revenues provided a benefit
      which was offset by unfavorable mix and higher material costs. Restructuring
      costs, which accounted for $25 million of the year-over-year increase, had
      a
      0.3% impact on Cost of goods sold as a percent of revenue.





2006
      vs. 2005 :
      In
      2006, Cost of goods sold as a percentage of net revenues increased slightly
      compared with 2005. Increased leverage on higher revenues was more than offset
      by higher material costs and investments in productivity programs.





***Selling
      and Administrative Expenses***


2007
      vs. 2006 :
      Selling
      and administrative expenses as a percentage of net revenues increased compared
      with 2006. This increase was primarily due to increased costs of $23 million
      associated with the divestiture of Compact Equipment and the Road Development
      business unit. In addition, share-based compensation expense of $20 million
      and
      the prior year adjustment of the allowance for doubtful accounts of $15 million
      also contributed to the increase. These additional costs were partially offset
      by better leverage from higher revenue.




2006
      vs. 2005 :
      Selling
      and administrative expenses as a percentage of net revenues decreased compared
      with 2005. This decrease was primarily due to increased leverage from higher
      revenues, partially offset by increased investments in new product development
      of $30 million and lower productivity of $20 million. In addition, 2006 Selling
      and administrative expenses were favorably impacted by a change in estimate
      of
      the allowance for doubtful accounts reserve during the first quarter of 2006,
      which resulted in a $15 million decrease in Selling and administrative expenses.
      The change in estimate was made in light of various business and economic
      factors, including a significant change in our business portfolio and historical
      and expected write-off experience. In addition, we purchased a new insurance
      policy, which limits our bad debt exposure. This benefit was more than offset
      by
      $20 million of additional share-based compensation costs, which includes $14
      million associated with stock options from the adoption of Statement of
      Financial Accounting Standard No. 123(R).





***Operating
      Income***


2007
      vs. 2006 :
      Operating income increased by $59.3 million or 5.9% in 2007, compared with
      2006.
      The increase in Operating income was mainly attributable to increased revenues,
      productivity improvements, improved pricing and favorable volumes. These
      benefits were partially offset by higher material costs, restructuring costs
      and
      unfavorable product mix.





2006
      vs. 2005 :
      Operating income increased by $110.7 million or 12.5% in 2006, compared with
      2005. The increase in Operating income was mainly attributable to improved
      pricing and higher volumes. These benefits were partially offset by higher
      material costs, investments in new product development and productivity programs
      and restructuring costs.





***Interest
      Expense***


2007
      vs. 2006 :
      Interest expense increased by $2.6 million in 2007, compared with 2006. The
      increase was mainly attributable to higher year-over-year average debt levels
      due to the issuance and subsequent repayment of commercial paper during
      2007.


29





2006
      vs. 2005 :
      Interest expense decreased by $11.5 million in 2006, compared with 2005. The
      decrease was mainly attributable to lower average interest rates and lower
      year-over-year average debt levels resulting from the timing of borrowing and
      repayments in 2006.




***Other
      Income, Net***


Other
      income, net increased by $23.2 million in 2007 and decreased by $57.4 million
      in
      2006, which primarily resulted from the following:





*In
                millions*
            
            2007
            
            2006
            
            2005Interest
                income
            
            $
            36.2
            
            $
            15.9
            
            $
            29.1Exchange
                gain (loss)
            
            
            (2.8
            )
            
            (21.3
            )
            
            6.8Minority
                interests
            
            
            (14.3
            )
            
            (14.9
            )
            
            (12.7
            )Earnings
                from equity investments
            
            
            1.0
            
            
            (0.1
            )
            
            4.1Other
            
            
            (4.2
            )
            
            13.1
            
            
            22.8Other
                income, net
            
            $
            15.9
            
            $
            (7.3
            )
            $
            50.1








2007
      vs. 2006 : **** Other
      income, net increased in 2007 compared with 2006, mainly due to increased
      interest income as result of higher average cash balances during 2007.
      Additionally, Other income, net in 2006 included income from a reduction of
      a
      product liability reserve of approximately $9 million.





2006
      vs. 2005 : **** Other
      income, net decreased in 2006 compared with 2005, mainly due to unfavorable
      foreign exchange movement and lower earnings from equity investments. Also
      interest income decreased as a result of lower average cash balances during
      2006. These decreases were partially offset by a reduction of a $9 million
      product liability reserve in 2006. In addition, Other income, net in 2005
      included income of approximately $10 million from a reduction of a liability
      for
      a business previously divested.





***Provision
      for Income Taxes***


Our
      effective tax rate was 21.8%, 10.8% and 7.7% for 2007, 2006 and 2005
      respectively. The table below highlights the major changes in our effective
      tax
      rate as well as provides a reconciliation to the statutory U.S. tax
      rate:





Percent
                of pretax income2007
            
            2006
            
            2005Statutory
                U.S. rate
            
            
            35.0
            %
            
            35.0
            %
            
            35.0
            %Increase
                (decrease) in rates resulting from:Non-U.S.
                operations
            
            
            (21.0
            )
            
            (28.2
            )
            
            (26.4
            )Tax
                reserves
            
            
            8.0
            
            
            4.8
            
            
            2.2Other
                adjustments
            
            
            (0.2
            )
            
            (0.8
            )
            
            (3.1
            )Effective
                tax rate
            
            
            21.8
            %
            
            10.8
            %
            
            7.7
            %




2007
      vs. 2006: The
      effective tax rate increased approximately 11% in 2007 compared with 2006.
      The
      increase in the effective tax rate during 2007 was primarily due to increased
      earnings in higher tax jurisdictions (7.2%) and increased tax reserves (3.2%)
      primarily associated with Financial Accounting Standard Board Interpretation
      No.
      48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
      Statement 109” (FIN 48), a new accounting standard that we adopted in 2007. FIN
      48 prescribes a recognition threshold and measurement process for recording
      in
      the financial statements uncertain tax positions taken or expected to be taken
      in a tax return.




30





2006
      vs. 2005: The
      effective tax rate increased approximately 3.1% in 2007 compared with 2006.
      The
      increase in the effective tax rate during 2006 primarily relates to the $27
      million charge that we recorded in the third quarter of 2006 associated with
      the
      notice received from the IRS, as described under “Significant Events in
      2006”.





**Review
      of Business Segments**


We
      classify our business into three reportable segments based on industry and
      market focus: Climate Control Technologies, Industrial Technologies and Security
      Technologies. The segment discussions that follow describe the significant
      factors contributing to the changes in results for each segment included in
      continuing operations.





***Climate
      Control Technologies***


Climate
      Control Technologies provides solutions for customers to transport, preserve,
      store and display temperature-sensitive products by engaging in the design,
      manufacture, sale and service of transport temperature control units,
      refrigerated display merchandisers, beverage coolers, auxiliary power units
      and
      walk-in storage coolers and freezers. This segment includes the Thermo King,
      Hussmann and Koxka brands.





*Dollar
                amounts in millions*
            
            2007
            
            %
                change
            
            2006
            
            %
                change
            
            2005Net
                revenues
            
            $
            3,372.4
            
            
            6.4%
            
            $
            3,171.0
            
            
            11.1%
            
            $
            2,853.6Operating
                income
            
            
            382.6
            
            
            7.5%
            
            
            356.0
            
            
            13.0%
            
            
            315.1Operating
                margin
            
            
            11.3
            %
            
            
            
            
            11.2
            %
            
            
            
            
            11.0
            %





2007
      vs. 2006: Net
      revenues increased by 6.4% in 2007, or $201.4 million, compared with 2006,
      which
      mainly resulted from favorable currency movement (4%), higher volumes and
      product mix (2%) and improved product pricing. Operating income increased during
      the year due to increased productivity ($68 million), improved product pricing
      ($44 million) and favorable currency movement ($15 million). These increases
      were partially offset by higher material costs ($46 million), investments in
      restructuring ($22 million), unfavorable product mix ($20 million) and new
      product development ($8 million).





Net
      revenues grew in the European, Asian and Latin American regions during the
      year
      ended 2007, benefiting from strong truck and trailer sales and year-over-year
      gains in bus and marine containers. These gains were partially offset by lower
      activity levels in the North American trailer markets. Revenues for service
      and
      installation increased with growth in the North American and Asian markets,
      offsetting weakness in the European market for display cases.





2006
      vs. 2005: Net
      revenues increased by 11.1% in 2006, or $317.4 million, compared with 2005,
      which mainly resulted from higher volumes and product mix (9%) and improved
      product pricing (2%). Operating income increased during the year due to higher
      volumes and product mix ($71 million) and improved product pricing ($46
      million), partially offset by higher material costs ($70 million) and
      investments in new product development and productivity programs ($10 million).





Revenues
      from North American operations for the year ended 2006 increased by
      approximately 13% compared with 2005, due to growth across all of our
      businesses. Revenues were bolstered by the Tripac® auxiliary power unit and
      increased display case sales and stationary refrigeration services revenue.
      Non-U.S. revenues for the year ended 2006 increased 9% compared with 2005,
      as
      the increase in the sales of display cases and refrigerated trailers in Europe
      more than offset the decline in refrigerated cases and the bus air conditioning
      market in Asia.


31





***Industrial
      Technologies***


Industrial
      Technologies is focused on providing solutions to enhance customers’ industrial
      and energy efficiency, mainly by engaging in the design, manufacture, sale
      and
      service of compressed air systems, tools, fluid and material handling, golf
      and
      utility vehicles and energy generation systems. This segment includes the
      Ingersoll Rand and Club Car brands.





*Dollar
                amounts in millions*
            
            2007
            
            %
                change
            
            2006
            
            %
                change
            
            2005Net
                revenues
            
            $
            2,877.1
            
            
            11.6%
            
            $
            2,577.7
            
            
            11.6%
            
            $
            2,310.4Operating
                income
            
            
            392.0
            
            
            11.4%
            
            
            351.8
            
            
            16.6%
            
            
            301.6Operating
                margin
            
            
            13.6
            %
            
            
            
            
            13.6
            %
            
            
            
            
            13.1
            %




2007
      vs. 2006: Net
      revenues increased by 11.6% in 2007, or $299.4 million, compared with 2006,
      mainly due to higher volumes and product mix (5%), a favorable currency impact
      (2%), acquisitions (2%) and improved product pricing (2%). Operating income
      for
      the year ended 2007 was higher due to improved product pricing ($48 million),
      increased productivity ($33 million) and higher volumes ($32 million). These
      gains were partially offset by higher material costs ($63 million) and
      investments in new product development and productivity programs ($13
      million).





Air
      Solutions revenues increased 16% compared with 2006, mainly driven by favorable
      worldwide industrial markets and increased recurring revenues. Productivity
      Solutions revenues increased moderately compared with 2006, mainly due to
      non-U.S. growth in the industrial fluid and handling markets and higher service
      revenues, partially offset by a weak domestic market for tools. Club Car
      revenues increased 10% compared with 2006, mainly due to growth in the sales
      of
      utility, off-road and aftermarket vehicles and ongoing market share gains in
      a
      soft golf market.





2006
      vs. 2005: Net
      revenues increased by 11.6% in 2006, or $267.3 million, compared with 2005,
      mainly due to higher volumes and product mix (9%), improved product pricing
      (2%)
      and acquisitions. Operating income for the year ended 2006 was higher due to
      increased productivity ($51 million), improved product pricing ($40 million)
      and
      higher volumes and product mix ($37 million). These gains were partially offset
      by higher material costs ($59 million), investments in new product development
      and productivity programs ($12 million) and additional costs associated with
      a
      labor dispute in India ($5 million).





Air
      Solutions revenues for the year ended 2006 increased 13% compared with 2005,
      driven by continued strength in worldwide industrial markets, resulting in
      higher revenues in all major geographic regions and growth in recurring
      revenues. Productivity Solutions revenues for the year ended 2006 increased
      by
      9% compared with 2005, as a result of new product growth and increased recurring
      revenues, as well as strong international growth. Club Car revenues for the
      year
      ended 2006 increased by 11% compared with 2005, mainly due to higher sales
      of
      golf cars, transport and utility vehicles, as well as significant growth in
      the
      aftermarket and international markets.





***Security
      Technologies***


Security
      Technologies is engaged in the design, manufacture, sale and service of
      mechanical and electronic security products, biometric access control systems
      and security and scheduling software. This segment includes the Schlage, LCN,
      Von Duprin and CISA brands.


32





*Dollar
                amounts in millions*
            
            2007
            
            %
                change
            
            2006
            
            %
                change
            
            2005Net
                revenues
            
            $
            2,513.6
            
            
            10.0%
            
            $
            2,285.0
            
            
            8.8%
            
            $
            2,099.7Operating
                income
            
            
            433.5
            
            
            8.3%
            
            
            400.2
            
            
            5.1%
            
            
            380.7Operating
                margin
            
            
            17.2
            %
            
            
            
            
            17.5
            %
            
            
            
            
            18.1
            %





2007
      vs. 2006: Net
      revenues increased by 10.0% in 2007, or $228.6 million, compared with 2006,
      mainly due to higher volumes and product mix (5%) and improved product pricing
      (4%). Operating income for the year ended 2007 increased due to improved product
      pricing ($84 million) and increased productivity ($15 million). These gains
      were
      partially offset by higher material costs ($35 million), lower volumes ($16
      million), new product development ($6 million) and investments in restructuring
      ($5 million).





Net
      revenues grew in all regions during the year benefiting from strong worldwide
      commercial construction markets, especially in schools, universities and
      health-care facilities. Revenues from electronic access control and mechanical
      products also increased year-over-year. Market share gains from both the new
      home-builder channel and large retail customers increased revenue along with
      the
      introduction of residential electronic products and new product designs. These
      increases helped offset the effects of a declining North American residential
      market.





2006
      vs. 2005 :
      Net
      revenues increased by 8.8% in 2006, or $185.3 million, compared with 2005,
      mainly due to higher volumes and product mix (4%), acquisitions (3%) and
      improved product pricing (2%). Operating income for the year ended 2006
      increased due to improved product pricing ($55 million), increased productivity
      ($30 million), favorable currency movement and higher volumes and product mix.
      These gains were partially offset by higher material costs ($47 million) and
      investments in new product development and productivity programs ($32
      million).





Net
      revenues grew in all major geographic regions during 2006. North American
      revenues increased 4% due to strong commercial market gains. Revenues in Europe
      increased 12% due to the acquisitions made in 2005, as well as increased pricing
      and higher volumes. Asian revenues were up sharply, primarily due to bolt-on
      acquisitions.





***Discontinued
      Operations***


The
      components of discontinued operations for the years ended December 31 are as
      follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Revenues
            
            $
            2,957.8
            
            $
            3,375.7
            
            $
            3,283.2Pre-tax
                earnings (loss) from operations
            
            
            (82.5
            )
            
            376.6
            
            
            413.6Pre-tax
                gain on sale
            
            
            4,382.6
            
            
            1.1
            
            
            4.4Tax
                expense
            
            
            (1,066.5
            )
            
            (110.2
            )
            
            (95.6
            )Discontinued
                operations, net
            
            $
            3,233.6
            
            $
            267.5
            
            $
            322.4





Pre-tax
      loss from operations in 2007 includes a non-cash charge of $449.0 million
      related to our liability for all pending and estimated future asbestos claims
      through 2053 as discussed below in “Other Discontinued Operations”.





33


Discontinued
        operations by business for the years ended December 31 are as
        follows:


*In
                millions*
            
            2007
            
            2006
            
            2005Compact
                Equipment, net of tax
            
            $
            2,927.1
            
            $
            240.4
            
            $
            284.7Road
                Development, net of tax
            
            
            672.5
            
            
            62.9
            
            
            36.6Other
                discontinued operations, net of tax
            
            
            (366.0
            )
            
            (35.8
            )
            
            1.1Total
                discontinued operations, net of tax
            
            $
            3,233.6
            
            $
            267.5
            
            $
            322.4





*Compact
      Equipment Divestiture*


On
      July
      29, 2007, we agreed to sell our Bobcat, Utility Equipment and Attachments
      business units (collectively, Compact Equipment) to Doosan Infracore for gross
      proceeds of approximately $4.9 billion, subject to post closing purchase price
      adjustments. The sale was completed on November 30, 2007.





Compact
      Equipment manufactures and sells compact equipment, including skid-steer
      loaders, compact track loaders, mini-excavators and telescopic tool handlers;
      portable air compressors, generators and light towers; general-purpose light
      construction equipment; and attachments. We have accounted for Compact Equipment
      as discontinued operations and classified the assets and liabilities as held
      for
      sale for all periods presented in accordance with Statement of Financial
      Accounting Standard No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets” (SFAS 144).





Net
      revenues and after-tax earnings of Compact Equipment for the years ended
      December 31 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Net
                revenues
            
            $
            2,705.9
            
            $
            2,648.4
            
            $
            2,610.1After-tax
                earnings from operations
            
            $
            275.1
            
            $
            240.4
            
            $
            284.7Gain
                on sale, net of tax of $939.0
            
            
            2,652.0
            
            
            -
            
            
            -Total
                discontinued operations, net of tax
            
            $
            2,927.1
            
            $
            240.4
            
            $
            284.7





*Road
      Development Divestiture*


On
      February 27, 2007, we agreed to sell our Road Development business unit to
      AB
      Volvo (publ) for cash proceeds of approximately $1.3 billion, subject to post
      closing purchase price adjustments. The sale was completed on April 30, 2007,
      in
      all countries except for India, which closed on May 4, 2007.





The
      Road
      Development business unit manufactures and sells asphalt paving equipment,
      compaction equipment, milling machines and construction-related material
      handling equipment. We have accounted for the Road Development business unit
      as
      discontinued operations and classified the assets and liabilities sold to AB
      Volvo as held for sale for all periods presented in accordance with SFAS 144.





34


Net
        revenues and after-tax earnings of the Road Development business unit for
        the
        years ended December 31 were as follows:


*In
                millions*
            
            2007
            
            2006
            
            2005Net
                revenues
            
            $
            251.9
            
            $
            727.3
            
            $
            673.1After-tax
                earnings from operations
            
            $
            37.8
            
            $
            62.9
            
            $
            36.6Gain
                on sale, net of tax of $164.4
            
            
            634.7
            
            
            -
            
            
            -Total
                discontinued operations, net of tax
            
            $
            672.5
            
            $
            62.9
            
            $
            36.6





*Other
      Discontinued Operations*


We
      also
      have retained costs from previously sold businesses that mainly include costs
      related to postretirement benefits, product liability and legal costs (mostly
      asbestos-related). The components of other discontinued operations for the
      years
      ended December 31 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Retained
                costs, net of tax
            
            $
            (340.9
            )
            $
            (36.5
            )
            $
            (34.1
            )Net
                gain (loss) on disposals, net of tax
            
            
            (25.1
            )
            
            0.7
            
            
            35.2Total
                discontinued operations, net of tax
            
            $
            (366.0
            )
            $
            (35.8
            )
            $
            1.1





During
      the fourth quarter of 2007, we recorded a non-cash charge of $449.0 million
      ($277 million after tax) related to our liability for all pending and estimated
      future asbestos claims through 2053. Refer to Note 20, Commitments and
      Contingencies, in the consolidated financial statements for further details
      on
      asbestos-related matters.





**Liquidity
      and Capital Resources**


The
      following table reflects the major categories of cash flows for the years ended
      December 31, respectively. For additional details, please see the Consolidated
      Statements of Cash Flows in the consolidated financial statements.





*In
                millions*
            
            2007
            
            2006
            
            2005Operating
                cash flow provided by (used in) continuing operations
            
            $
            829.9
            
            $
            813.1
            
            $
            440.9Investing
                cash flow provided by (used in) continuing operations
            
            
            6,052.4
            
            
            (28.7
            )
            
            (688.6
            )Financing
                cash flow provided by (used in) continuing operations
            
            
            (2,563.1
            )
            
            (1,343.2
            )
            
            (875.7
            )





*Operating
      Activities*


2007
      vs. 2006: Our
      primary source of liquidity is operating cash flows. Net cash provided by
      operating activities from continuing operations increased to $829.9 million
      in
      2007 compared with $813.1 in 2006. The change was primarily due to higher
      cash-based earnings in 2007, partially, offset by the $217 million payment
      to
      the IRS made during 2007. For further details regarding this tax payment, see
      Note 18, Income Taxes in the consolidated financial statements.





2006
      vs. 2005: Net cash
      provided by operating activities from continuing operations increased to $813.1
      million in 2006 compared with $440.9 million in 2005. This change was mainly
      due
      to higher cash-based earnings and a lower investment in our working capital
      in
      2006 compared with 2005.





*Investing
      Activities*


2007
      vs. 2006: Net cash
      provided by investing activities from continuing operations in 2007 was $6,052.4
      million, compared with net cash used in investing activities from continuing
      operations of $28.7 million in 2006. The change in investing activities was
      primarily attributable to the net proceeds of $6,154.3 million from the sale
      of
      Compact Equipment and the Road Development business unit in 2007.


35




2006
      vs. 2005: Net cash
      used in investing activities from continuing operations in 2006 was $28.7
      million compared with $688.6 million in 2005. The change was primarily
      attributable to decreased acquisition activity in 2006. Cash used for
      acquisitions in 2006 was $49.7 million compared with $484.7 million in 2005,
      which included the purchase of CISA S.p.A. and Taiwan Fu Hsing Industrial
      Company Ltd. The decrease was partially offset by increased capital expenditures
      of $144.8 million in 2006 compared with $86.1 million in 2005. Additionally,
      during 2006 we sold $155.8 million of marketable securities that were purchased
      for $152.6 million in 2005.





*Financing
      Activities*


2007
      vs. 2006: Net cash
      used in financing activities from continuing operations in 2007 was $2,563.1
      million compared with $1,343.2 million in 2006. The change in financing
      activities was primarily due to the increase in repurchases of Class A common
      shares and the repayment of $551.7 million of short-term and long-term debt.
      During 2007, we repurchased approximately 39.7 million Class A common shares
      at
      a cost of $1,999.9 million. During 2006, we repurchased 27.7 million Class
      A
      common shares at a cost of $1,096.3 million.





2006
      vs. 2005: Net cash
      used in financing activities from continuing operations in 2006 was $1,343.2
      million compared with $875.7 million in 2005. The change in financing activities
      is primarily due to the increase in repurchases of Class A common shares and
      the
      repayment of $513.7 million of long-term debt. During 2006, the Company
      repurchased approximately 27.7 million Class A common shares at a cost of
      $1,096.3 million. During 2005, the Company repurchased 19.4 million Class A
      common shares at a cost of $763.6 million. Also during 2005, the Company
      repurchased the preferred shares of two subsidiaries for $73.6 million, from
      unrelated third party holders of the shares. The Company has fully consolidated
      these subsidiaries since their initial purchase.





*Other
      Liquidity Measures*


The
      following table contains several key measures to gauge our financial condition
      and liquidity at the period ended December 31:





*In
                millions*
            
            2007
            
            2006
            
            2005Cash
                and cash equivalents
            
            $
            4,735.3
            
            $
            355.8
            
            $
            876.0Total
                debt
            
            
            1,453.7
            
            
            1,984.6
            
            
            2,117.0Total
                shareholders' equity
            
            
            7,907.9
            
            
            5,404.8
            
            
            5,761.9Debt-to-total
                capital ratio
            
            
            15.4
            %
            
            26.6
            %
            
            26.7
            %





Cash
      and
      cash equivalents increased by $4,379.5 million during 2007. The increase is
      mainly attributable to the sale of Compact Equipment and the Road Development
      business unit, which generated proceeds of $6,154.3 million.





Total
      debt levels declined by $530.9 million during 2007 as we repaid $141.8 million
      of long-term debt and $378.0 million of commercial paper.





In
      connection with the proposed Trane acquisition, each share of Trane’s common
      stock (which approximated 195 million at December 31, 2007) will be exchanged
      for a combination of (i) 0.23 of an Ingersoll Rand Class A common share and
      (ii)
      $36.50 in cash, without interest. We intend to use a combination of cash on
      hand
      and debt financing in order to pay for the cash portion of the consideration.
      We
      have secured commitments from JPMorgan Chase Bank, N.A., J.P. Morgan Securities
      Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities (USA)
      LLC,
      Goldman Sachs Bank USA and Goldman Sachs Credit Partners L.P. to provide up
      to
      $3.9 billion in financing through a 364-day senior unsecured bridge facility.
      If
      unused, the debt commitments will expire on September 30, 2008.


36




In
      2007,
      there was significant volatility in the capital markets, which led to an overall
      tightening of the credit markets. During 2008, we intend to refinance the bridge
      financing primarily with a combination of short-term and long-term debt.
      Financing terms will be determined by market conditions at the time of issuance.
      As such, we cannot assess the impact of the financing on our future financial
      results.





Our
      debt-to-total capital ratio at December 31, 2007 decreased significantly
      compared with 2006, due to a substantial increase in Shareholders’ equity as the
      result of the $3,286.7 million gain from the sale of Compact Equipment and
      the
      Road Development business unit. Additionally, the debt-to-capital ratio was
      affected by the repayment of $530.9 million of debt during 2007.





Capital
      expenditures were $119.7 million, $144.8 million and $86.1 million for 2007,
      2006 and 2005, respectively. Our investments continue to improve manufacturing
      productivity, reduce costs and provide environmental enhancements and advanced
      technologies for existing facilities. The capital expenditure program for 2008
      is estimated to be approximately $150 million, including amounts approved in
      prior periods. Many of these projects are subject to review and cancellation
      at
      our option without incurring substantial charges.





For
      financial market risk impacting the Company, see Item 7A. Quantitative and
      Qualitative Disclosure About Market Risk.





*Capitalization*


In
      addition to operating cash flow, we maintain significant credit availability
      under our commercial paper programs. Our ability to borrow at a cost-effective
      rate under the commercial paper programs is contingent upon maintaining an
      investment-grade credit rating. As of December 31, 2007, our credit ratings
      were
      as follows:





Short-term
            
            Long-termMoody's
            
            
            P-2
            
            
            A3Standard
                and Poor's
            
            
            A-2
            
            
            BBB+


*The
      credit ratings set forth above are not a recommendation to buy, sell or hold
      securities and may be subject to revision or withdrawal by the assigning rating
      organization. Each rating should be evaluated independently of any other
      rating.*





We
      have
      additional short-term borrowing alternatives, should the need arise. At December
      31, 2007, our committed revolving credit lines consisted of two five-year lines
      totaling $2.0 billion of which $750 million expires in June 2009 and $1.25
      billion expires in August 2010. These lines were unused and provide support
      for
      our commercial paper program and indirectly provide support for other financing
      instruments, such as letters of credit, as required in the normal course of
      business. We compensate banks for these lines with fees equal to a weighted
      average of .0775% per annum. Available non-U.S. lines of credit were
      $756.9  million,
      of which $620.5 million were unused at December 31, 2007. These lines provide
      support for bank guarantees, letters of credit and other working capital
      purposes.





In
      2008,
      we have long-term debt retirements of $681.1 million, which include $547.9
      million in bonds that may require early repayment at the option of the holders.
      We believe that our cash generation and large unused capacity under our
      committed borrowing facilities provide sufficient capacity to cover all cash
      requirements for capital expenditures, dividends, debt repayments, and operating
      lease and purchase obligations in 2008.


37





In
      August
      2005, our Board of Directors declared a two-for-one stock split effected in
      the
      form of a stock distribution to shareholders on September 1, 2005. All
      references to the number of shares outstanding, per share amounts, and stock
      option data of our common shares were restated in 2005 to reflect the effect
      of
      the stock split. Shareholders’ equity reflects the stock split by reclassifying
      from Retained earnings to Class A common shares an amount equal to the par
      value
      of the additional shares from the split as of the distribution date. The Board
      also authorized in August 2005, an increase of the quarterly dividend on our
      Class A common shares from 12.5 cents to 16 cents per share. In August 2006,
      the
      Board authorized an increase of the quarterly dividend on our Class A common
      shares from 16 cents to 18 cents per share.





**Contractual
      Obligations**


The
      following table summarizes our contractual cash obligations by required payment
      periods, in millions:





Interest
            
            
            
            
            
            Totalpayments on
            
            
            
            
            
            contractualPayments
            
            Short-term
            
            Long-term
            
            
            
            long-term
            
            Purchase
            
            Operating
            
            cashdue
                by period
            
            debt
            
            debt
            
            
            
            debt
            
            obligations
            
            leases
            
            obligationsLess
                than 1 year
            
            $
            59.9
            
            $
            681.1
            
            *
            
            
            $
            84.4
            
            $
            639.0
            
            $
            54.2
            
            $
            1,518.61
                -
                3 years
            
            
            -
            
            
            18.3
            
            
            
            
            
            89.1
            
            
            187.5
            
            
            81.0
            
            
            375.93
                -
                5 years
            
            
            -
            
            
            18.1
            
            
            
            
            
            86.1
            
            
            -
            
            
            43.8
            
            
            148.0More
                than 5 years
            
            
            -
            
            
            676.3
            
            
            
            
            
            316.6
            
            
            -
            
            
            24.8
            
            
            1,017.7Total
            
            $
            59.9
            
            $
            1,393.8
            
            
            
            
            $
            576.2
            
            $
            826.5
            
            $
            203.8
            
            $
            3,060.2




*
      Includes $547.9 million of debt redeemable at the option of the holder. The
      scheduled maturities of these bonds range between 2027 and 2028.





Future
      expected obligations under our pension and postretirement benefit plans, income
      taxes, environmental and asbestos matters have not been included in the
      contractual cash obligations table above.





*Pensions*


In
      2006,
      we adopted Statement of Financial Accounting Standard (SFAS) No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS 158),
      which requires us to record the funded status of our pension plans on the
      balance sheet effective December 31, 2006.





As
      of
      December 31, 2007, we had net obligations on our balance sheet of $71.5 million,
      which consist of long-term prepaid pension costs of $166.9 million and current
      and non-current pension benefits liabilities of $238.4 million. It is our
      objective to contribute to the pension plans to ensure adequate funds are
      available in the plans to make benefit payments to plan participants when
      required. However, certain plans are not or cannot be funded due to either
      legal
      or tax requirements in certain jurisdictions. As of December 31, 2007,
      approximately seven percent of our projected benefit obligation relates to
      plans
      that are unfunded.





Our
      investment objectives in managing defined benefit plan assets are to ensure
      that
      present and future benefit obligations to all participants and beneficiaries
      are
      met as they become due; to provide a total return that, over the long term,
      minimizes the present value of our required contributions, at the appropriate
      levels of risk; and to meet any statutory requirements, laws and local
      regulatory agencies’ requirements. Key investment management decisions reviewed
      regularly are asset allocations, investment manager performance, investment
      advisors and trustees. An asset/liability modeling (ALM) study is used as the
      basis for global asset allocation decisions and updated approximately every
      five
      years or as required. As of December 31, 2007, our strategic global asset
      allocation for the pension plans was 55% in equity securities and 45% in debt
      securities and cash. We set upper limits and lower limits of plus or minus
      5%.
      The asset allocations are reviewed at least quarterly and any appropriate
      adjustments are made. Based on the most recent ALM study, we have begun to
      adjust our strategic global asset allocation for the pension plans to be
      approximately 40% in equity securities and 60% in debt securities, real estate
      and cash.


38




Contributions
      to our pension plans were $25.5 million in 2007, $31.6 million in 2006, and
      $119.4 million in 2005. Our policy allows us to fund an amount, which could
      be
      in excess of the pension cost expensed, subject to the limitations imposed
      by
      current tax regulations. We anticipate funding the plans in 2008 in accordance
      with contributions required by funding regulations or the laws of each
      jurisdiction and currently project that we will be required to contribute
      approximately $30 million to our plans worldwide in 2008.





Our
      pension plans for U.S. non-collectively bargained employees provide benefits
      on
      a final average pay formula. Collectively bargained pension plans principally
      provide benefits based on a flat benefit formula. Non-U.S. plans usually provide
      benefits based on an earnings and years of service formula. Additional
      supplemental benefit plans are maintained by us for officers and other key
      employees. Pension benefit payments are expected to be paid as follows: $167.5
      million in 2008, $168.1 million in 2009, $184.6 million in 2010, $163.4 million
      in 2011, $171.1 million in 2012 and $912.0 million for the years 2013 to
      2017.





Net
      pension cost is based on the weighted-average assumptions used at the end of
      the
      previous year to calculate the pension benefit obligation, adjusted for any
      curtailment and settlement gains or losses. Net periodic pension cost for 2007,
      2006 and 2005 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Net
                periodic pension benefit cost
            
            $
            11.5
            
            $
            32.7
            
            $
            32.4Net
                curtailment and settlement (gains) losses
            
            
            63.5
            
            
            -
            
            
            4.0Net
                periodic pension benefit (income) cost afternet
                curtailment and settlement (gains) losses
            
            $
            75.0
            
            $
            32.7
            
            $
            36.4Amounts
                recorded in continuing operations
            
            $
            20.6
            
            $
            38.3
            
            $
            45.8Amounts
                recorded in discontinued operations
            
            
            54.4
            
            
            (5.6
            )
            
            (9.4
            )Total
            
            $
            75.0
            
            $
            32.7
            
            $
            36.4





Net
      periodic pension cost for 2008 is projected to be approximately $23 million.





*Postretirement
      Benefits Other Than Pensions*


In
      2006,
      we adopted SFAS 158, which requires us to record the funded status of our
      postretirement plans on the balance sheet effective December 31, 2006.





We
      fund
      postretirement benefit costs principally on a pay-as-you-go basis. Benefit
      payments for postretirement benefits, which are net of expected plan participant
      contributions and Medicare Part D subsidy, are expected to be paid as follows:
      $51.1 million in 2008, $52.2 million in 2009, $55.2 million in 2010, $56.2
      million in 2011, $56.3 million in 2012 and $280.4 million for the years 2013
      to
      2017.


39





Net
      periodic postretirement benefit cost is based on the weighted-average
      assumptions used at the end of the previous year to calculate the postretirement
      benefit obligation, adjusted for any curtailment and settlement gains or losses,
      if any. Net periodic postretirement cost for 2007, 2006 and 2005 were as
      follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Net
                periodic postretirement benefit cost
            
            $
            78.1
            
            $
            79.2
            
            $
            74.0Net
                curtailment and settlement (gains) losses
            
            
            (265.9
            )
            
            -
            
            
            -Net
                periodic postretirement benefit (income) cost
              after
                net curtailment and settlement (gains) losses
            
            $
            (187.8
            )
            $
            79.2
            
            $
            74.0Amounts
                recorded in continuing operations
            
            $
            22.7
            
            $
            25.7
            
            $
            25.1Amounts
                recorded in discontinued operations
            
            
            (210.5
            )
            
            53.5
            
            
            48.9Total
            
            $
            (187.8
            )
            $
            79.2
            
            $
            74.0





Net
      periodic postretirement benefit cost for 2008 is projected to be approximately
      $53 million.





*Income
      Taxes*


As
      of
      December 31, 2007, the Company has accrued current income taxes payable of
      approximately $594 million, and expects to pay various taxing authorities a
      substantial portion of the balance in the first quarter of 2008. These large
      tax
      payments are primarily associated with 2007 earnings from operations, as well
      as
      the large gain on the Compact Equipment divestiture during the fourth quarter
      of
      2007.





Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation
      of FASB Statement 109” (FIN 48), which prescribes a recognition threshold and
      measurement process for recording in the financial statements uncertain tax
      positions taken or expected to be taken in a tax return. Additionally, FIN
      48
      provides guidance on the recognition, classification, accounting in interim
      periods and disclosure requirements for uncertain tax positions. As a result
      of
      adopting FIN 48, the company recorded additional liabilities to its previously
      established reserves, and a corresponding decrease in retained earnings of
      $145.6 million. The Company has total unrecognized tax benefits of $379.8
      million as of December 31, 2007.





The
      provision for income taxes involves a significant amount of management judgment
      regarding interpretation of relevant facts and laws in the jurisdictions in
      which the Company operates. Future changes in applicable laws, projected levels
      of taxable income and tax planning could change the effective tax rate and
      tax
      balances recorded by the Company. In addition, U.S. and non-U.S. tax authorities
      periodically review income tax returns filed by the Company and can raise issues
      regarding its filing positions, timing and amount of income or deductions,
      and
      the allocation of income among the jurisdictions in which the Company operates.
      A significant period of time may elapse between the filing of an income tax
      return and the ultimate resolution of an issue raised by a revenue authority
      with respect to that return. In the normal course of business the Company is
      subject to examination by taxing authorities throughout the world, including
      such major jurisdictions as Germany, Italy, the Netherlands Switzerland and
      the
      United States. In general, the examination of the Company’s material tax returns
      is completed for the years prior to 2000.


40




The
        Internal Revenue Service (IRS) has completed the examination of the Company’s
        federal income tax returns through the 2000 tax year and has issued a notice
        proposing adjustments. The principle proposed adjustment relates to the
        disallowance of certain capital losses. The Company disputes the IRS position
        and protests have been filed with the IRS Appeals Division. In order to reduce
        the potential interest expense associated with this matter, the Company made
        a
        payment of $217 million in the third quarter of 2007, which reduced the
        Company’s total liability for uncertain tax positions by $141 million. The
        issues raised by the IRS associated with this payment are not related to
        the
        Company's reorganization in Bermuda, or the Company's intercompany debt
        structure.
 
 On
        July
        20, 2007, the Company and its consolidated subsidiaries received a notice
        from
        the IRS containing proposed adjustments to the Company’s tax filings in
        connection with an audit of the 2001 and 2002 tax years. The IRS did not
        contest
        the validity of the Company’s reincorporation in Bermuda. The most significant
        adjustments proposed by the IRS involve treating the entire intercompany
        debt
        incurred in connection with the Company’s reincorporation in Bermuda as equity.
        As a result of this recharacterization, the IRS has disallowed the deduction
        of
        interest paid on the debt and imposed dividend withholding taxes on the payments
        denominated as interest. These adjustments proposed by the IRS, if upheld
        in
        their entirety, would result in additional taxes with respect to 2002 of
        approximately $190 million plus interest, and would require the Company to
        record additional charges associated with this matter. At this time, the
        IRS has
        not yet begun their examination of the Company’s tax filings for years
        subsequent to 2002. However, if these adjustments or a portion of these
        adjustments proposed by the IRS are ultimately sustained, it is likely to
        also
        affect subsequent tax years.
 
 The
        Company strongly disagrees with the view of the IRS and filed a protest with
        the
        IRS in the third quarter of 2007. Going forward, the Company intends to
        vigorously contest these proposed adjustments. The Company, in consultation
        with
        its outside advisors, carefully considered many factors in determining the
        terms
        of the intercompany debt, including the obligor’s ability to service the debt
        and the availability of equivalent financing from unrelated parties, two
        factors
        prominently cited by the IRS in denying debt treatment. The Company believes
        that its characterization of that obligation as debt for tax purposes was
        supported by the relevant facts and legal authorities at the time of its
        creation. The subsequent financial results of the relevant companies, including
        the actual cash flow generated by operations and the production of significant
        additional cash flow from dispositions have confirmed the ability to service
        this debt. Although the outcome of this matter cannot be predicted with
        certainty, based upon an analysis of the strength of its position, the Company
        believes that it is adequately reserved for this matter. As the Company moves
        forward to resolve this matter with the IRS, it is reasonably possible that
        the
        reserves established may be adjusted within the next 12 months. However,
        the
        Company does not expect that the ultimate resolution will have a material
        adverse impact on its future results of operations or financial
        position.
 
 The
        Company believes that it has adequately provided for any reasonably foreseeable
        resolution of any tax disputes, but will adjust its reserves if events so
        dictate in accordance with FIN 48. To the extent that the ultimate results
        differ from the original or adjusted estimates of the Company, the effect
        will
        be recorded in the provision for income taxes.
 
 *Commitments
        and Contingencies*
 We
        are
        involved in various litigations, claims and administrative proceedings,
        including environmental and product liability matters. Amounts recorded for
        identified contingent liabilities are estimates, which are reviewed periodically
        and adjusted to reflect additional information when it becomes available.
        Subject to the uncertainties inherent in estimating future costs for contingent
        liabilities, management believes that the liability which may result from
        these
        legal matters would not have a material adverse effect on the financial
        condition, results of operations, liquidity or cash flows.
  41
 
 *Environmental
        Matters*
 We
        continue to be dedicated to an environmental program to reduce the utilization
        and generation of hazardous materials during the manufacturing process and
        to
        remediate identified environmental concerns. As to the latter, we are currently
        engaged in site investigations and remediation activities to address
        environmental cleanup from past operations at current and former manufacturing
        facilities.
 
 We
        are
        sometimes a party to environmental lawsuits and claims and have received
        notices
        of potential violations of environmental laws and regulations from the
        Environmental Protection Agency and similar state authorities. We have also
        been
        identified as a potentially responsible party (PRP) for cleanup costs associated
        with off-site waste disposal at federal Superfund and state remediation sites.
        For all such sites, there are other PRPs and, in most instances, our involvement
        is minimal.
 
 In
        estimating our liability, we have assumed we will not bear the entire cost
        of
        remediation of any site to the exclusion of other PRPs who may be jointly
        and
        severally liable. The ability of other PRPs to participate has been taken
        into
        account, based generally on the parties’ financial condition and probable
        contributions on a per site basis. Additional lawsuits and claims involving
        environmental matters are likely to arise from time to time in the future.
 
 During
        2007, we spent $5.6 million on capital projects for pollution abatement and
        control, and an additional $11.1 million for environmental remediation
        expenditures at sites presently or formerly owned or leased by us. As of
        December 31, 2007, we have recorded reserves for environmental matters of
        $101.8
        million. We believe that these expenditures and accrual levels will continue
        and
        may increase over time. Given the evolving nature of environmental laws,
        regulations and technology, the ultimate cost of future compliance is
        uncertain.
 
 For
        a
        further discussion of our potential environmental liabilities, see Note
        20,
        Commitments and Contingencies, to the consolidated financial
        statements.
 
 *Asbestos
        Matters*
 Certain
        wholly owned subsidiaries of the Company are named as defendants in
        asbestos-related lawsuits in state and federal courts. In virtually all of
        the
        suits, a large number of other companies have also been named as defendants.
        The
        vast majority of those claims has been filed against IR-New Jersey and generally
        allege injury caused by exposure to asbestos contained in certain of IR-New
        Jersey’s products, primarily pumps and compressors. Although IR-New Jersey was
        neither a producer nor a manufacturer of asbestos, some of its formerly
        manufactured products utilized asbestos-containing components, such as gaskets
        and packings purchased from third-party suppliers.
  Prior
        to
        the fourth quarter of 2007, the Company recorded a liability (which it
        periodically updated) for its actual and anticipated future asbestos settlement
        costs projected seven years into the future. The Company did not record a
        liability for future asbestos settlement costs beyond the seven-year period
        covered by its reserve because such costs previously were not reasonably
        estimable for the reasons detailed below.
  In
        the
        fourth quarter of 2007, the Company again reviewed its history and experience
        with asbestos-related litigation and determined that it had now become possible
        to make a reasonable estimate of its total liability for pending and unasserted
        potential future asbestos-related claims. This determination was based upon
        the
        Company’s analysis of developments in asbestos litigation, including the
        substantial and continuing decline in the filing of non-malignancy claims
        against the Company, the establishment in many jurisdictions of inactive
        or
        deferral dockets for such claims, the decreased value of non-malignancy
        claims because of changes in the legal and judicial treatment of such claims,
        increasing focus of the asbestos litigation upon malignancy claims, primarily
        those involving mesothelioma, a cancer with a known historical and predictable
        future annual incidence rate, and the Company’s substantial accumulated
        experience with respect to the resolution of malignancy claims, particularly
        mesothelioma claims, filed against it.
 
 42
  Accordingly,
        in the fourth quarter of 2007, the Company retained Dr. Thomas Vasquez of
        Analysis, Research & Planning Corporation (collectively, “ARPC”) to assist
        it in calculating an estimate of the Company’s total liability for pending and
        unasserted future asbestos-related claims. ARPC is a respected expert in
        performing complex calculations such as this. ARPC has been involved in many
        asbestos-related valuations of current and future liabilities, and its valuation
        methodologies have been accepted by numerous courts.
  The
        methodology used by ARPC to project the Company’s total liability for pending
        and unasserted potential future asbestos-related claims relied upon and included
        the following factors, among others:
 
 ·
              ARPC’s
                  interpretation of a widely accepted forecast of the population
                  likely to
                  have been occupationally exposed to
                  asbestos;
 
 ·
              epidemiological
                  studies estimating the number of people likely to develop asbestos-related
                  diseases such as mesothelioma and lung
                  cancer;
 
 ·
              the
                  Company’s historical experience with the filing of non-malignancy claims
                  against it and the historical ratio between the numbers of non-malignancy
                  and lung cancer claims filed against the
                  Company;
 
 ·
              ARPC’s
                  analysis of the number of people likely to file an asbestos-related
                  personal injury claim against the Company based on such epidemiological
                  and historical data and the Company’s most recent three-year claims
                  history;
 
 ·
              an
                  analysis of the Company’s pending cases, by type of disease
                  claimed;
 
 ·
              an
                  analysis of the Company’s most recent three-year history to determine the
                  average settlement and resolution value of claims, by type of disease
                  claimed;
 
 ·
              an
                  adjustment for inflation in the future average settlement value
                  of claims,
                  at a 2.5% annual inflation rate, adjusted downward to 1.5% to take
                  account
                  of the declining value of claims resulting from the aging of the
                  claimant
                  population;
 
 ·
              an
                  analysis of the period over which the Company has and is likely
                  to resolve
                  asbestos-related claims against it in the
                  future.
 
 Based
        on
        these factors, ARPC calculated a total estimated liability of $755 million
        for the Company to resolve all pending and unasserted potential future claims
        through 2053, which is ARPC’s reasonable best estimate of the time it will take
        to resolve asbestos-related claims. This amount is on a pre-tax basis, not
        discounted for the time-value of money, and excludes the Company’s defense fees
        (which will continue to be expensed by the Company as they are incurred).
        After
        considering ARPC’s analysis and the factors listed above, in the fourth quarter
        of 2007, the Company increased its recorded liability for asbestos claims
        by
        $538 million, from $217 million to $755 million.
 
 43
  In
        addition, during the fourth quarter of 2007, the Company recorded an
        $89 million increase in its assets for probable asbestos-related insurance
        recoveries to $250 million. This represents amounts due to the Company for
        previously paid and settled claims and the probable reimbursements relating
        to
        its estimated liability for pending and future claims. In calculating this
        amount, the Company used the estimated asbestos liability for pending and
        projected future claims calculated by ARPC. It also considered the amount
        of
        insurance available, gaps in coverage, allocation methodologies, solvency
        ratings and creditworthiness of the insurers, the amounts already recovered
        from
        and the potential for settlements with insurers, and the terms of existing
        settlement agreements with insurers.
  During
        the fourth quarter of 2007, the Company recorded a non-cash charge to earnings
        of discontinued operations of $449 million ($277 million after tax),
        which is the difference between the amount by which the Company increased
        its
        total estimated liability for pending and projected future asbestos-related
        claims and the amount that the Company expects to recover from insurers with
        respect to that increased liability.
  The
        amounts recorded by the Company for asbestos-related liabilities and
        insurance-related assets are based on currently available information. The
        Company’s actual liabilities or insurance recoveries could be significantly
        higher or lower than those recorded if assumptions used in the Company’s or
        ARPC’s calculations vary significantly from actual results. Key variables in
        these assumptions are identified above and include the number and type of
        new
        claims to be filed each year, the average cost of resolution of each such
        new
        claim, the resolution of coverage issues with insurance carriers, and the
        solvency risk with respect to the Company’s insurance carriers. Furthermore,
        predictions with respect to these variables are subject to greater uncertainty
        as the projection period lengthens. Other factors that may affect the Company’s
        liability include uncertainties surrounding the litigation process from
        jurisdiction to jurisdiction and from case to case, reforms that may be made
        by
        state and federal courts, and the passage of state or federal tort reform
        legislation.
  The
        aggregate amount of the stated limits in insurance policies available to
        the
        Company for asbestos-related claims, acquired over many years and from many
        different carriers, is substantial. However, limitations in that coverage,
        primarily due to the considerations described above, are expected to result
        in
        the projected total liability to claimants substantially exceeding the probable
        insurance recovery.
 
 From
        receipt of its first asbestos claims more than 25 years ago to December 31,
        2007, the Company has resolved (by settlement or by dismissal) approximately
        208,000 claims. The total amount of all settlements paid by the Company
        (excluding insurance recoveries) and by its insurance carriers is approximately
        $308 million, for an average payment per resolved claim of $1,480. The
        average payment per claim resolved during the year ended December 31, 2007
        was
        $7,491. This amount reflects the Company’s emphasis on resolution of higher
        value malignancy claims, particularly mesothelioma claims, rather than lower
        value non-malignancy claims, which are more heavily represented in the Company’s
        historical settlements. The table below provides additional information
        regarding asbestos-related claims filed against the Company:
  2002
              
              2003
              
              2004
              
              2005
              
              2006
              
              2007Open
                  claims - January 1
              
              
              77,675
              
              
              96,294
              
              
              104,513
              
              
              105,811
              
              
              102,968
              
              
              101,709New
                  claims filed
              
              
              37,172
              
              
              30,843
              
              
              13,541
              
              
              11,132
              
              
              6,457
              
              
              5,398Claims
                  settled
              
              
              (16,443
              )
              
              (21,096
              )
              
              (11,503
              )
              
              (12,505
              )
              
              (6,558
              )
              
              (5,005
              )Claims
                  dismissed
              
              
              (2,110
              )
              
              (1,528
              )
              
              (740
              )
              
              (1,470
              )
              
              (1,158
              )
              
              (1,479
              )Open
                  claims - December 31
              
              
              96,294
              
              
              104,513
              
              
              105,811
              
              
              102,968
              
              
              101,709
              
              
              100,623
 
 44
  Over
        90
        percent of the open claims against the Company are non-malignancy claims,
        many
        of which have been placed on inactive or deferral dockets and the vast majority
        of which have little or no settlement value against the Company, particularly
        in
        light of recent changes in the legal and judicial treatment of such claims.
  Malignancy
        claims accounted for: approximately 73 percent of the Company’s total
        asbestos-related settlement payments during the three-year period ended December
        31, 2004; approximately 87 percent during the three-year period ended December
        31, 2007; and approximately 93 percent in 2007. Non-malignancy claims accounted
        for: approximately 27 percent of the Company’s total asbestos-related settlement
        payments during the three-year period ended December 31, 2004;
        approximately 13 percent during the three-year period ended December 31,
        2007; and approximately seven percent in 2007.
  For
        the
        twelve-month period ended December 31, 2007, total costs for the settlement
        and defense of asbestos claims after insurance recoveries and net of tax
        were
        approximately $37 million.
 
 *Other
        Matters*
 As
        previously reported, on November 10, 2004, the Securities and Exchange
        Commission (SEC) issued an Order directing that a number of public companies,
        including the Company, provide information relating to their participation
        in
        transactions under the United Nations’ Oil for Food Program. Upon receipt of the
        Order, the Company undertook a thorough review of its participation in the
        Oil
        for Food Program, provided the SEC with information responsive to the Order
        and
        provided additional information requested by the SEC. During a March 27,
        2007
        meeting with the SEC, at which a representative of the Department of Justice
        (DOJ) was also present, the Company began discussions concerning the resolution
        of this matter with both the SEC and DOJ. On October 31, 2007, the Company
        announced it had reached settlements with the SEC and DOJ relating to this
        matter. Under the terms of the settlements, the Company paid a total of $6.7
        million in penalties, interest and disgorgement of profits. The Company
        consented to the entry of a civil injunction in the SEC action and entered
        into
        a three-year deferred prosecution agreement with the DOJ. Under both
        settlements, the Company has implemented, and will continue to implement,
        improvements to its compliance program that are consistent with its longstanding
        policy against improper payments. In the settlement documents, the Government
        noted that the Company thoroughly cooperated with the investigation, that
        the
        Company had conducted its own complete investigation of the conduct at issue,
        promptly and thoroughly reported its findings to them, and took prompt remedial
        measures. In a related matter, on July 10, 2007, representatives of the Italian
        Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
        Italiana S.p.A pertaining to certain Oil for Food transactions undertaken
        by
        that subsidiary of the Company. Such transactions have previously been reported
        to the SEC and DOJ, and the Company will continue to cooperate fully with
        the
        Italian authorities in this matter.
 
 We
        sell
        product on a continuous basis under various arrangements through institutions
        that provide leasing and product financing alternatives to retail and wholesale
        customers. Under these arrangements, we are contingently liable for loan
        guarantees and residual values of equipment of $5.0 million, including
        consideration of ultimate net loss provisions. The risk of loss to us is
        minimal
        and, historically, only immaterial losses have been incurred relating to
        these
        arrangements since the fair value of the underlying equipment that serves
        as
        collateral is generally in excess of the contingent liability. We believe
        these
        guarantees will not adversely affect the condensed consolidated financial
        statements.
 
 We
        are
        contingently liable for customs duties in certain non-U.S. countries which
        totaled $11.9 million as of December 31, 2007. These amounts are not accrued
        as
        we intend on exporting the product to another country for final
        sale.
  45
 
 We
        also
        have other contingent liabilities for $10.5 million. These liabilities primarily
        result from performance bonds, guarantees and stand-by letters of credit
        associated with the prior sale of products from divested
        businesses.
 
 The
        following represents the changes in our product warranty liability for 2007
        and
        2006:
 
 *In
                  millions*
              
              2007
              
              2006Balance
                  at beginning of year
              
              $
              137.1
              
              $
              135.2Reductions
                  for payments
              
              
              (68.5
              )
              
              (61.7
              )Accruals
                  for warranties issued during the current period
              
              
              80.1
              
              
              66.1Changes
                  for accruals related to preexisting warranties
              
              
              (7.8
              )
              
              (6.9
              )Acquisitions
              
              
              -
              
              
              0.4Translation
              
              
              6.0
              
              
              4.0Balance
                  at end of the year
              
              $
              146.9
              
              $
              137.1
  Certain
        office and warehouse facilities, transportation vehicles and data processing
        equipment are leased. Total rental expense was $72.2 million in 2007, $68.2
        million in 2006 and $57.8 million in 2005. Minimum lease payments required
        under
        non-cancelable operating leases with terms in excess of one year for the
        next
        five years and thereafter, are as follows: $54.2 million in 2008, $46.2 million
        in 2009, $34.8 million in 2010, $24.3 million in 2011, $19.5 million in 2012
        and
        $24.8 million thereafter.
 
 *Guarantees*
 As
        part
        of its reorganization in 2001, we have fully and unconditionally guaranteed
        payment of all of the issued public debt securities of IR-New Jersey. No
        other
        subsidiary of ours guarantees these securities.
 
 IR-New
        Jersey has unconditionally guaranteed payment of the principal, premium,
        if any,
        and interest on our 4.75% Senior Notes due in 2015 in aggregate principal
        amount
        of $300 million. The guarantee is unsecured and provided on an unsubordinated
        basis. The guarantee ranks equally in right of payment with all of the existing
        and future unsecured and unsubordinated debt of IR-New Jersey.
 
 **Critical
        Accounting Policies**
 The
        notes
        to the consolidated financial statements include a summary of significant
        accounting policies and methods used in the preparation of the consolidated
        financial statements and the following summarizes what we believe are the
        critical accounting policies and methods used by us:
 
 ·
              Allowance
                  for doubtful accounts – The Company has provided an allowance for
                  doubtful accounts receivable which represents the best estimate
                  of
                  probable loss inherent in the Company’s accounts receivable portfolio.
                  This estimate is based upon the Company’s policy, derived from its
                  knowledge of its end markets, customer base and
                  products.
 
 In
        the
        first quarter of 2006, the Company changed its estimate of the allowance
        for
        doubtful accounts in light of various business and economic factors, including
        a
        significant change in its business portfolio and historical and expected
        write-off experience. In addition, the Company signed a new insurance policy
        which limits its bad debt exposure. As a result, the Company reduced its
        allowance by $14.6 million, or $13.0 million after-tax, which increased first
        quarter 2006 diluted earnings per share by $0.04.
 
 46
 ·
              Goodwill
                  and indefinite-lived intangible assets – The Company has significant
                  goodwill and other intangible assets on its balance sheet related
                  to
                  acquisitions. The valuation and classification of these assets
                  involves
                  significant judgments and the use of estimates. The testing of
                  these
                  intangibles under established accounting guidelines for impairment
                  also
                  requires significant use of judgment and assumptions, particularly
                  as it
                  relates to the determination of fair market value. The Company’s goodwill
                  and other indefinite-lived intangible assets are tested and reviewed
                  annually for impairment or when there is a significant change in
                  circumstances. The Company believes that its use of estimates and
                  assumptions are reasonable and comply with generally accepted accounting
                  principles. Changes in business conditions could potentially require
                  future adjustments to these valuations.
 
 ·
              Long-lived
                  assets and finite-lived intangibles - Long-lived assets and finite-lived
                  intangibles are reviewed for impairment whenever events or changes
                  in
                  circumstances indicate that the carrying amount of an asset may
                  not be
                  recoverable. Assets are grouped with other assets and liabilities
                  at the
                  lowest level for which identifiable cash flows can be generated.
                  Impairment in the carrying value of an asset would be recognized
                  whenever
                  anticipated future undiscounted cash flows from an asset are less
                  than its
                  carrying value. The impairment is measured as the amount by which
                  the
                  carrying value exceeds the fair value of the asset as determined
                  by an
                  estimate of discounted cash flows. The Company believes that its
                  use of
                  estimates and assumptions are reasonable and comply with generally
                  accepted accounting principles. Changes in business conditions
                  could
                  potentially require future adjustments to these valuations.
 
 ·
              Loss
                  contingencies – Liabilities are recorded for various contingencies arising
                  in the normal course of business, including litigation and administrative
                  proceedings, environmental and asbestos matters and product liability,
                  product warranty, worker’s compensation and other claims. The Company has
                  recorded reserves in the financial statements related to these
                  matters,
                  which are developed using input derived from actuarial estimates
                  and
                  historical and anticipated experience data depending on the nature
                  of the
                  reserve, and in certain instances with consultation of legal counsel,
                  internal and external consultants and engineers. Subject to the
                  uncertainties inherent in estimating future costs for these types
                  of
                  liabilities, the Company believes its estimated reserves are reasonable
                  and does not believe the final determination of the liabilities
                  with
                  respect to these matters would have a material effect on the financial
                  condition, results of operations, liquidity or cash flows of the
                  Company
                  for any year.
 
 ·
              Asbestos
                  Matters - Certain wholly owned subsidiaries of the Company are
                  named as
                  defendants in asbestos-related lawsuits in state and federal courts.
                  The
                  Company records a liability for its actual and anticipated future
                  claims
                  as well as an asset for anticipated insurance settlements. Although
                  the
                  Company was neither a manufacturer or producer of asbestos, some
                  of its
                  formerly manufactured components from third party suppliers utilized
                  asbestos related components. As a result, amounts related to asbestos
                  are
                  recorded within Discontinued operations, net of tax. Refer to Note
                  20,
                  Commitments and Contingencies, in the consolidated financial statements
                  for further details of asbestos-related
                  matters.
 
 ·
              Revenue
                  Recognition – Revenue is recognized and earned when all of the following
                  criteria are satisfied: (a) persuasive evidence of a sales arrangement
                  exists; (b) price is fixed or determinable; (c) collectibility
                  is
                  reasonably assured; and (d) delivery has occurred or service has
                  been
                  rendered. Delivery generally occurs when the title and the risks
                  and
                  rewards of ownership have substantially transferred to the customer.
                  Revenue from maintenance contracts or extended warranties is recognized
                  on
                  a straight-line basis over the life of the contract, unless another
                  method
                  is more representative of the costs incurred. The Company enters
                  into
                  agreements that contain multiple elements, such as equipment, installation
                  and service revenue. For multiple-element arrangements, the Company
                  recognizes revenue for delivered elements when the delivered item
                  has
                  stand-alone value to the customer, fair values of undelivered elements
                  are
                  known, customer acceptance has occurred, and there are only customary
                  refund or return rights related to the delivered elements.
 
 47
 ·
              Income
                  taxes - Deferred tax assets and liabilities are determined based
                  on
                  temporary differences between financial reporting and tax bases
                  of assets
                  and liabilities, applying enacted tax rates expected to be in effect
                  for
                  the year in which the differences are expected to reverse. The
                  Company
                  recognizes future tax benefits, such as net operating losses and
                  non-U.S.
                  tax credits, to the extent that realizing these benefits is considered
                  in
                  its judgment to be more likely than not. The Company regularly
                  reviews the
                  recoverability of its deferred tax assets considering its historic
                  profitability, projected future taxable income, timing of the reversals
                  of
                  existing temporary differences and the feasibility of its tax planning
                  strategies. Where appropriate, the Company records a valuation
                  allowance
                  with respect to a future tax
                  benefit.
 
 The
        provision for income taxes involves a significant amount of management judgment
        regarding interpretation of relevant facts and laws in the jurisdictions
        in
        which the Company operates. Future changes in applicable laws, projected
        levels
        of taxable income, and tax planning could change the effective tax rate and
        tax
        balances recorded by the Company. In addition, U.S. and non-U.S. tax authorities
        periodically review income tax returns filed by the Company and can raise
        issues
        regarding its filing positions, timing and amount of income or deductions,
        and
        the allocation of income among the jurisdictions in which the Company operates.
        A significant period of time may elapse between the filing of an income tax
        return and the ultimate resolution of an issue raised by a revenue authority
        with respect to that return. The Company believes that it has adequately
        provided for any reasonably foreseeable resolution of these matters. The
        Company
        will adjust its estimate if significant events so dictate. To the extent
        that
        the ultimate results differ from the original or adjusted estimates of the
        Company, the effect will be recorded in the provision for income taxes in
        the
        period that the matter is finally resolved.
 
 ·
              Employee
                  benefit plans – The Company provides a range of benefits to eligible
                  employees and retired employees, including pensions, postretirement
                  and
                  postemployment benefits. Determining the cost associated with such
                  benefits is dependent on various actuarial assumptions including
                  discount
                  rates, expected return on plan assets, compensation increases,
                  employee
                  mortality and turnover rates and health-care cost trend rates.
                  Actuarial
                  valuations are performed to determine expense in accordance with
                  generally
                  accepted accounting principles in the United States. Actual results
                  may
                  differ from the actuarial assumptions and are generally accumulated
                  and
                  amortized into earnings over future periods. Effective December
                  31, 2006,
                  these effects are generally recognized in shareholders’ equity on an
                  annual basis, due to the adoption of SFAS 158. The Company reviews
                  its
                  actuarial assumptions at each measurement date and makes modifications
                  to
                  the assumptions based on current rates and trends, if appropriate.
                  The
                  discount rate, the rate of compensation increase and the expected
                  long-term rates of return on plan assets are determined as of the
                  measurement date. The discount rate reflects a rate at which pension
                  benefits could be effectively settled. It is established and based
                  primarily on the yields of high-quality fixed-income investments
                  available
                  and expected to be available during the life of the plans, a study
                  based
                  on the Citigroup Pension Liability index, and a review of the current
                  yields reported by Moody’s on AA corporate bonds. The rate of compensation
                  increase is dependent on expected future compensation levels. The
                  expected
                  long-term rates of return are projected to be the rates of return
                  to be
                  earned over the period until the benefits are paid, which should
                  reflect
                  the rates of return on present investments, and on reinvestments
                  over the
                  period. The expected long-term rate of return on plan assets is
                  based on
                  what is achievable given the plan’s investment policy and the types of
                  assets held. Historical asset return trends for the larger plans
                  are
                  reviewed over fifteen, ten and five-year periods. The actual rates
                  of
                  return for plan assets over the last fifteen-year period have exceeded
                  the
                  expected rates of return used. The Company believes that the assumptions
                  utilized in recording its obligations under its plans are reasonable
                  based
                  on input from its actuaries, outside investment advisors and information
                  as to assumptions used by plan
                  sponsors.
 
 48
 Changes
        in any of the assumptions can have an impact on the net periodic pension
        cost or
        postretirement benefit cost. Estimated sensitivities to the net periodic
        pension
        cost of a 0.25% rate decrease in the three basic assumptions are as follows:
        the
        discount rate would increase expense by approximately $6.0 million; the rate
        of
        compensation increase would decrease expense by approximately $3.4 million;
        and
        the estimated return on assets assumption would increase expense by
        approximately $6.1 million. A 0.25% rate decrease in the discount rate for
        postretirement benefits would increase net periodic postretirement benefit
        cost
        by $0.8 million and a 1.0% increase in the health-care cost trend rate would
        increase the cost by approximately $1.7 million.
 
 In
        2006,
        the Company adopted SFAS 158, which requires the Company to record the funded
        status of its pension and other postretirement plans on its balance sheet
        effective December 31, 2006. Refer to Notes 13 and 14 in the consolidated
        financial statements and the Liquidity and Capital Resources section for
        further
        details of the impact of SFAS 158.
 
 The
        preparation of financial statements includes the use of estimates and
        assumptions that affect a number of amounts included in the Company’s
        consolidated financial statements. If actual amounts are ultimately different
        from previous estimates, the revisions are included in the Company’s results for
        the period in which the actual amounts become known. Historically, the aggregate
        differences, if any, between the Company’s estimates and actual amounts in any
        year have not had a material impact on the consolidated financial
        statements.
 
 **Recently
        Adopted Accounting Pronouncements:** In
        May
        2005, the Financial Accounting Standards Board (FASB) issued Statement of
        Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error
        Corrections” (SFAS 154) which replaces APB No. 20, “Accounting Changes,” and
        SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - An
        Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting
        for, and reporting of, accounting changes and error corrections. It establishes
        a retrospective application, or the latest practicable date, as the required
        method for reporting a change in accounting principle and the reporting of
        a
        correction of an error. SFAS 154 was effective for the Company on January
        1,
        2006. The adoption of SFAS 154 did not have a material impact on its
        consolidated financial position and results of operations.
 
 Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
        Payment,” (SFAS 123(R)) using the modified prospective method of adoption. SFAS
        123(R) requires companies to recognize compensation expense for an amount
        equal
        to the fair value of the share-based payment issued. Under the modified
        prospective method, financial statement amounts for prior periods have not
        been
        restated to reflect the fair value method of recognizing compensation cost
        relating to stock options.
 
 In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
        No. 87, 88, 106 and 132(R)” (SFAS 158). SFAS 158 requires an entity to recognize
        in its balance sheet the funded status of its defined benefit pension and
        postretirement plans. The standard also requires an entity to recognize changes
        in the funded status within Accumulated other comprehensive income, net of
        tax,
        to the extent such changes are not recognized in earnings as components of
        periodic net benefit cost. At December 31, 2006, the Company adopted the
        provisions of SFAS 158 for its postretirement and pension plans. The adoption
        of
        SFAS 158 resulted in a decrease of Total assets of $476.0 million and
        Shareholders’ equity of $472.8 million (net of tax of $268.2 million) and an
        increase of Total liabilities of $265.0 million.
 
 49
  In
        September 2006, the Securities and Exchange Commission (SEC) issued Staff
        Accounting Bulletin No. 108, “Considering the Effects of Prior Year
        Misstatements when Quantifying Misstatements in Current Year Financial
        Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects
        of the carryover or reversal of prior year misstatements should be considered
        in
        quantifying a current year misstatement. The SEC staff believes that registrants
        should quantify errors using both a balance sheet and an income statement
        approach and evaluate whether either approach results in quantifying a
        misstatement that, when all relevant quantitative and qualitative factors
        are
        considered, is material. SAB 108 is effective for the Company for the fiscal
        year ended December 31, 2006. SAB 108 did not have a material impact on the
        Company’s financial statements.
 
 Effective
        January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (FIN 48),
        which prescribes a recognition threshold and measurement process for recording
        in the financial statements uncertain tax positions taken or expected to
        be
        taken in a tax return. As a result of adopting FIN 48 as of January 1, 2007,
        the
        Company recorded additional liabilities to its previously established reserves,
        and corresponding decrease in Retained earnings of $145.6 million.
  **Recently
        Issued Accounting Pronouncements:** In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
        157). SFAS 157 establishes a framework for measuring fair value that is based
        on
        the assumptions market participants would use when pricing an asset or liability
        and establishes a fair value hierarchy that prioritizes the information to
        develop those assumptions. Additionally, the standard expands the disclosures
        about fair value measurements to include disclosing the fair value measurements
        of assets or liabilities within each level of the fair value hierarchy. SFAS
        157
        is effective for the Company starting on January 1, 2008. The Company is
        currently evaluating the impact of adopting SFAS 157 on its financial
        statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits
        companies the option, at specified election dates, to measure financial assets
        and liabilities at their current fair value, with the corresponding changes
        in
        fair value from period to period recognized in the income statement.
        Additionally, SFAS 159 establishes presentation and disclosure requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar assets and liabilities. SFAS 159 is effective
        for the Company starting on January 1, 2008. The Company is currently evaluating
        the impact of adopting SFAS 159 on its financial statements.
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
        Combinations,” (SFAS 141 (R)). This statement addresses financial accounting and
        reporting for business combinations and supersedes SFAS 141, “Business
        Combinations.” SFAS 141(R) retains the fundamental requirements set forth in
        SFAS 141 regarding the purchase method of accounting, but expands the guidance
        in order to properly recognize and measure, at fair value, the identifiable
        assets acquired, liabilities assumed and any noncontrolling interest in the
        acquired business. In addition, the statement introduces new accounting guidance
        on how to recognize and measure contingent consideration, contingencies,
        acquisition and restructuring costs. SFAS 141(R) is effective for acquisitions
        occurring after January 1, 2009.
 
 50
  In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements – an amendment of ARB No 51.” It clarifies
        that a noncontrolling interest in a subsidiary represents an ownership interest
        that should be reported as equity in the consolidated financial statements.
        In
        addition, the statement requires expanded income statement presentation and
        disclosures that clearly identify and distinguish between the interests of
        the
        Company and the interests of the non-controlling owners of the subsidiary.
        SFAS
        160 is effective for the Company starting on January 1, 2009. The Company
        is
        currently evaluating the impact of adopting SFAS 160 on its financial
        statements.
  51
  Item
        7A.   **QUANTITATIVE
        AND QUALITATIVE DISCLOSURE**  **ABOUT
        MARKET**  **RISK**
 
 We
        are
        exposed to fluctuations in non-U.S. currency exchange rates, interest rates
        and
        commodity prices which could impact our results of operations and financial
        condition. To manage certain of those exposures, we use derivative instruments,
        primarily forward contracts. Derivative instruments utilized by us in our
        hedging activities are viewed as risk management tools, involve little
        complexity and are not used for trading or speculative purposes. To minimize
        the
        risk of counter party non-performance, derivative instrument agreements are
        made
        only through major financial institutions with significant experience in
        such
        derivative instruments.
 
 **Foreign
        Currency Exposures**
 We
        have
        operations throughout the world that manufacture and sell their products
        in
        various international markets. As a result, we are exposed to movements in
        exchange rates of various currencies against the U.S. dollar as well as against
        other currencies throughout the world. We actively manage the currency exposures
        that are associated with non-U.S. currency purchases and sales and other
        assets
        and liabilities at the operating unit level. Exposures that cannot be naturally
        offset within an operating unit to an insignificant amount are hedged with
        foreign currency derivatives. We also have non-U.S. currency net asset
        exposures, which we currently do not hedge with any derivative
        instrument.
 
 We
        evaluate our exposure to changes in currency exchange rates using a sensitivity
        analysis. The sensitivity analysis is a measurement of the potential gain
        or
        loss in fair value based on a percentage increase or decrease in exchange
        rates
        against the U.S. dollar. Based on the firmly committed currency derivative
        instruments in place at December 31, 2007, a hypothetical change in fair
        value
        of those derivative instruments assuming a 10% increase in exchange rates
        against the U.S. dollar would result in an unrealized gain of approximately
        $17.2 million, as compared with an unrealized loss of $27.7 million at December
        31, 2006. These amounts would be offset by changes in the fair value of the
        underlying currency transactions.
 
 **Commodity
        Price Exposures**
 We
        are
        exposed to volatility in the prices of raw materials used in some of our
        products and use both fixed price contracts and derivative contracts, in
        limited
        circumstances, to manage this exposure. We evaluate our exposure to changes
        in
        commodity prices using a sensitivity analysis. The sensitivity analysis is
        a
        measurement of the potential gain or loss in fair value based on a percentage
        increase or decrease in commodity prices. Based on the firmly committed
        commodity derivative instruments in place at December 31, 2007, a hypothetical
        change in fair value of those derivative instruments assuming a 10% decrease
        in
        commodity prices would result in an unrealized loss of approximately $2.4
        million. At December 31, 2006 we did not have any derivative instruments
        hedging
        our commodity exposure. These amounts would be offset by changes in the fair
        value of underlying the commodity transactions.
 
 **Interest
        Rate Exposure**
 Our
        long-term debt portfolio mainly consists of fixed-rate instruments. From
        time to
        time we participate in the debt markets through the issuance of commercial
        paper, which, by its terms, has a maturity of less than a year. As such,
        we are
        exposed to interest rate risk.
  52
  Item
        8.  **FINANCIAL
        STATEMENTS AND SUPPLEMENTARY DATA**
 
 (a)  The
        following consolidated financial statements and the report thereon of
        PricewaterhouseCoopers LLP dated February 25, 2008, are presented following
        Item
        15 of this Annual Report on Form 10-K.
 
 Consolidated
        Financial Statements:
 Report
        of
        independent registered public accounting firm
 Consolidated
        statements of income for the years ended December 31, 2007, 2006 and
        2005
 Consolidated
        balance sheets at December 31, 2007 and 2006
 For
        the
        years ended December 31, 2007, 2006 and 2005:
 Consolidated
        statements of shareholders’ equity
 Consolidated
        statements of cash flows
 Notes
        to
        consolidated financial statements
 
 Financial
        Statement Schedule:
 Consolidated
        schedule for the years ended December 31, 2007, 2006 and 2005:
 Schedule
        II — Valuation and Qualifying Accounts
 
 (b)  The
        unaudited quarterly financial data for the two years ended December 31, is
        as
        follows:
 *In
                    millions, except per share amounts*
                
                2007First
                  Quarter
                
                Second
                  Quarter
                
                Third
                  Quarter
                
                Fourth
                  QuarterNet
                    revenues
                
                $
                1,976.2
                
                $
                2,224.6
                
                $
                2,239.0
                
                $
                2,323.3Cost
                    of goods sold
                
                
                1,416.0
                
                
                1,589.7
                
                
                1,608.2
                
                
                1,658.1Operating
                    income
                
                
                208.6
                
                
                274.1
                
                
                276.3
                
                
                298.8Net
                    earnings
                
                
                217.5
                
                
                964.1
                
                
                266.6
                
                
                2,518.5Earnings
                    per common share:Basic
                
                $
                0.71
                
                $
                3.21
                
                $
                0.94
                
                $
                9.23Diluted
                
                $
                0.70
                
                $
                3.17
                
                $
                0.92
                
                $
                9.062006First
                  Quarter
                
                
                Second
                  Quarter
                
                
                Third
                  Quarter
                
                
                Fourth
                  QuarterNet
                    revenues
                
                $
                1,804.6
                
                $
                2,048.1
                
                $
                2,038.0
                
                $
                2,143.0Cost
                    of goods sold
                
                
                1,300.7
                
                
                1,463.1
                
                
                1,465.3
                
                
                1,539.3Operating
                    income
                
                
                197.9
                
                
                252.5
                
                
                269.0
                
                
                279.1Net
                    earnings
                
                
                253.2
                
                
                313.5
                
                
                243.8
                
                
                222.0Earnings
                    per common share:Basic
                
                $
                0.77
                
                $
                0.96
                
                $
                0.77
                
                $
                0.72Diluted
                
                $
                0.76
                
                $
                0.95
                
                $
                0.76
                
                $
                0.72
 
 1.
              In
                  the second quarter of 2007, basic and diluted earnings per common
                  share
                  included $2.25 and $2.22, respectively, related to the gain on
                  sale of
                  discontinued operations. For a further discussion of discontinued
                  operations, see Footnote 4, Divestitures and Discontinued Operations,
                  to
                  the consolidated financial
                  statements.
 
 2.
              In
                  the fourth quarter of 2007, basic and diluted earnings per common
                  share
                  included $9.48 and $9.30, respectively, related to the gain on
                  sale of
                  discontinued operations. In addition, basic and diluted earnings
                  per
                  common share included a charge of $1.02 and $1.00, respectively
                  relating
                  to asbestos matters for a previously divested business of the Company.
                  For
                  a further description of discontinued operations and asbestos matters,
                  see
                  Footnote 4, Divestitures and Discontinued Operations, and Footnote
                  20,
                  Commitments and Contingencies, respectively, to the consolidated
                  financial
                  statements.
  53
  Item
        9.
 **CHANGES
        IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING**
 **AND
        FINANCIAL DISCLOSURE**
 
 None.
 
 Item
        9A **** ****  **CONTROLS
        AND PROCEDURES**
 
 ***Disclosure
        Controls and Procedures***
 The
        Company’s management, including its Chief Executive Officer and Chief Financial
        Officer, have conducted an evaluation of the effectiveness of disclosure
        controls and procedures (as such term is defined in Rules 13a-15(e) and
        15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
        Act)), as of the end of the period covered by this Annual Report on Form
        10-K.
        Based on that evaluation, the Chief Executive Officer and Chief Financial
        Officer concluded as of December 31, 2007, that the disclosure controls and
        procedures are effective in ensuring that all material information required
        to
        be filed in this Annual Report on Form 10-K has been recorded, processed,
        summarized and reported when required and the information is accumulated
        and
        communicated, as appropriate, to allow timely decisions regarding required
        disclosure.
  ***Management’s
        Report on Internal Control Over Financial Reporting***
 The
        Company’s management is responsible for establishing and maintaining adequate
        internal control over financial reporting as such term is defined under Exchange
        Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies and procedures may deteriorate.
 
 Management
        has assessed the effectiveness of internal control over financial reporting
        as
        of December 31, 2007. In making its assessment, management has utilized the
        criteria set forth by the Committee of Sponsoring Organizations (COSO) of
        the
        Treadway Commission in *Internal
        Control*–*Integrated Framework.* Management concluded that based on its assessment, the Company’s internal
        control over financial reporting was effective as of December 31, 2007.
 
 ***Changes
        in Internal Control Over Financial Reporting***
 There
        has
        been no change in the Company's internal controls over financial reporting
        during the quarter ended December 31, 2007 that has materially affected,
        or is
        reasonably likely to materially affect, the Company's internal control over
        financial reporting.
 
 Item
        9B. ****  **OTHER
        INFORMATION**
 
 None.
  54
  **PART
        III**
 
 The
        information called for by Part III (Items 10, 11, 12, and 13) of Form 10-K
        will
        be included in the Company’s Proxy Statement for the Company’s 2008 Annual
        General Meeting of Shareholders, which the Company intends to file within
        120
        days after the close of its fiscal year ended December 31, 2007 and is hereby
        incorporated by reference to such Proxy Statement, except that the information
        as to the Company’s executive officers which follows Item 4 in this Annual
        Report on Form 10-K, is incorporated by reference into Items 10 and 12,
        respectively, of this Report.
 
 Item
        14. ****  **PRINCIPAL
        ACCOUNTANT FEES AND SERVICES**
 
 The
        information required by this item is incorporated herein by reference to
        the
        information contained under the caption “Audit and Non-Audit Fees” in our 2007
        Proxy Statement.
  55
  **PART
        IV**
 
 Item
        15.  **EXHIBITS
        AND FINANCIAL STATEMENTS SCHEDULE**
 
 (a) 1. and 2.
              Financial
                  statements and financial statement scheduleSee
                  Item 8.3.
              ExhibitsThe
                  exhibits listed on the accompanying index to exhibits are filed
                  as part of
                  this Annual Report on Form 10-K.
  56
  **INGERSOLL-RAND
        COMPANY LIMITED**
 **INDEX
        TO EXHIBITS**
 **(Item
        15(a))**
 
 **Description**
 
 2.1
              Agreement
                  and Plan of Merger, dated as of October 31, 2001, among Ingersoll-Rand
                  Company Limited, Ingersoll-Rand Company and IR Merger Corporation.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Amendment No. 1 to the Registration Statement on Form
                  S-4 (No.
                  333-71642), filed October 30, 2001, and incorporated herein by
                  reference.)
  2.2
              Stock
                  and Asset Purchase Agreement, dated as of October 16, 2002, between
                  Ingersoll-Rand Company Limited, on behalf of itself and certain
                  of its
                  subsidiaries and The Timken Company, on behalf of itself and certain
                  of
                  its subsidiaries. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Form 8-K dated October 16, 2002, filed
                  October
                  17, 2002, and incorporated herein by
                  reference.)
 
 2.3
              Amendment
                  to the Stock and Asset Purchase Agreement, dated as of February
                  18, 2003,
                  amending the Stock Purchase Agreement, dated as of October 16,
                  2002,
                  between Ingersoll-Rand Company Limited, on behalf of itself and
                  certain of
                  its subsidiaries and The Timken Company, on behalf of itself and
                  certain
                  of its subsidiaries. (Previously filed with the Securities and
                  Exchange
                  Commission as an exhibit to Form Schedule 13D, filed February 28,
                  2003 by
                  Ingersoll-Rand Company and incorporated herein by
                  reference.)
 
 2.4
              Equity
                  Purchase Agreement between FRC Acquisition LLC, on behalf of itself
                  and
                  the other buyers named therein, and Ingersoll-Rand Company Limited,
                  on
                  behalf of itself and the other sellers named therein, dated August
                  25,
                  2004, in connection with the divestiture of Dresser-Rand. (Previously
                  filed with the Securities and Exchange Commission as an exhibit
                  to Form
                  8-K dated August 25, 2004, filed August 26, 2004, and incorporated
                  herein
                  by reference.)
 
 2.5
              Pricing
                  Agreement, dated as of May 24, 2005 among Ingersoll-Rand Company
                  Limited,
                  Banc of America Securities, LLC, Deutsche Bank Securities Inc.
                  and
                  Ingersoll-Rand Company. (Previously filed with the Securities and
                  Exchange
                  Commission as an exhibit to Form 8-K dated May 24, 2005, filed
                  May 27,
                  2005, and incorporated herein by
                  reference.)
 
 2.6
              Asset
                  and Stock Purchase Agreement, dated as of February 27, 2007, among
                  Ingersoll-Rand Company limited, on behalf of itself and the other
                  sellers
                  named therein, and AB Volvo (publ), on behalf of itself and the
                  other
                  buyers named therein. (Previously
                  filed with the Securities and Exchange Commission as an exhibitto
                  Form 8-K dated February 27, 2007, filed February 28, 2007,and
                  incorporated herein by reference.)
 
 2.7
              Asset
                  and Stock Purchase Agreement, dated as of July 29, 2007, among
                  Ingersoll-Rand Company Limited, on behalf of itself and certain
                  of its
                  subsidiaries, and Doosan Infracore Co., Ltd. and Doosan Engine
                  Co.,
                  Ltd.,
                  on behalf of themselves and certain of their subsidiaries.
                  (Previously
                  filed with the Securities and Exchange Commission as an exhibitto
                  Form 8-K dated July 29, 2007, filed July 31, 2007,and
                  incorporated herein by reference.)
  57
  2.8
              Agreement
                  and Plan of Merger, dated as of December 15, 2007, among Ingersoll-Rand
                  Company Limited, Indian Merger Sub, Inc. and Trane Inc.(Previously
                  filed with the Securities and Exchange Commission as an exhibitto
                  Form 8-K dated December 15, 2007, filed December 17, 2007,and
                  incorporated herein by reference.)
 
 3.1
              Memorandum
                  of Association of Ingersoll-Rand Company Limited. (Previously filed
                  with
                  the Securities and Exchange Commission as an exhibit to Amendment
                  No. 1 to
                  the Registration Statement on Form S-4 (No. 333-71642), filed October
                  30,
                  2001, and incorporated herein by
                  reference.)
 
 3.2
              Amended
                  and Restated Bye-Laws of Ingersoll-Rand Company Limited, dated
                  June 1,
                  2005. (Previously filed with the Securities and Exchange Commission
                  as an
                  exhibit to Form 10-Q for the quarter ended June 30, 2005, filed
                  August 5,
                  2005, and incorporated herein by
                  reference.)
 
 4.1
              Certificate
                  of Designation, Preferences and Rights of Series A Preference Shares
                  of
                  Ingersoll-Rand Company Limited. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Amendment No. 1 to the Registration
                  Statement on Form S-4 (No. 333-71642), filed October 30, 2001,
                  and
                  incorporated herein by reference.)
 
 4.2
              Rights
                  Agreement between Ingersoll-Rand Company Limited and The Bank of
                  New York,
                  as Rights Agent. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Amendment No. 1 to the Registration
                  Statement
                  on Form S-4 (No. 333-71642), filed October 30, 2001, and incorporated
                  herein by reference.)
 
 4.3
              Voting
                  Agreement between Ingersoll-Rand Company Limited and Ingersoll-Rand
                  Company. (Previously filed with the Securities and Exchange Commission
                  as
                  an exhibit to Amendment No. 1 to the Registration Statement on
                  Form S-4
                  (No. 333-71642), filed October 30, 2001, and incorporated herein
                  by
                  reference.)
  4.4
              Indenture
                  dated as of August 1, 1986, between Ingersoll-Rand Company and
                  The Bank of
                  New York, as Trustee, as supplemented by first, second and third
                  supplemental indentures. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Ingersoll-Rand Company’s Registration
                  Statement on Form S-3 (No. 333-39474), filed March 18, 1991, and
                  incorporated herein by reference, and to Ingersoll-Rand Company’s
                  Registration Statement on Form S-3 (No. 333-50902), filed November
                  29,
                  2000, and incorporated herein by
                  reference.)
 
 4.5
              Fourth
                  Supplemental Indenture, dated as of December 31, 2001, among
                  Ingersoll-Rand Company Limited, Ingersoll-Rand Company and The
                  Bank of New
                  York, as trustee. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Form 10-K for the year ended December
                  31,
                  2001, filed March 13, 2002, and incorporated herein by
                  reference.)
 
 4.6
              Credit
                  Agreement dated as ofAugust
                  12, 2005,among Ingersoll-Rand Companyand Ingersoll-Rand Company Limited,
                  the banks listed therein,and
                  Citicorp USA, Inc., asSyndicationAgent,
                  andBank ofAmerica,
                  N.A., Deutsche Bank Securities Inc., TheBank of Tokyo-Mitsubishi,
                  Ltd., New York Branch and UBS Securities LLC, as Documentation
                  Agents, and
                  JPMorgan Chase Bank, N.A.,
                  as Administrative Agent,and
                  J.P. Morgan Securities Inc. and Citigroup Global Markets Inc.,
                  as Lead
                  Arrangers and Bookrunners. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 10-K for the year ended
                  December
                  31, 2006, filed March 1, 2006,
                  and incorporated herein by reference.)
  58
  4.7
              Credit
                  Agreement, dated as of June 25, 2004, among Ingersoll-Rand Company
                  and
                  Ingersoll-Rand Company Limited, the banks listed therein, The JPMorgan
                  Chase Bank, as Administrative Agent, Citibank N.A., and Deutsche
                  Bank
                  Securities Inc., as Co-Syndication Agents, and The Bank of
                  Tokyo-Mitsubishi, Ltd, as Documentation Agent, and J.P. Morgan
                  Securities
                  Inc., as Lead Arranger and Bookrunner. (Previously filed with the
                  Securities and Exchange Commission as an exhibit to Form 10-K for
                  the year
                  ended December 31, 2004, filed March 16, 2005, and incorporated
                  herein by
                  reference.)
 
 4.8
              Ingersoll-Rand
                  Company Limited and its subsidiaries are parties to several long-term
                  debt
                  instruments under which in each case the total amount of securities
                  authorized does not exceed 10% of the total assets of Ingersoll-Rand
                  Company Limited and its subsidiaries on a consolidated basis. (Pursuant
                  to
                  paragraph 4(iii) of Item 601(b) of Regulation S-K, Ingersoll-Rand
                  Company
                  Limited agrees to furnish a copy of such instruments to the Securities
                  and
                  Exchange Commission upon request.)
 
 4.9
              Indenture
                  dated as of May 24, 2005 among Ingersoll-Rand Company Limited,
                  Ingersoll-Rand Company and Wells Fargo Bank, N.A., as trustee.
                  (Previously
                  filed with the Securities and Exchange Commission as an exhibit
                  to Form
                  8-K dated May 24, 2005, filed May 27, 2005, and incorporated herein
                  by
                  reference.)
 
 10.1
              Management
                  Incentive Unit Plan of Ingersoll-Rand Company. Amendment to the
                  Management
                  Incentive Unit Plan, effective January 1, 1982. Amendment to the
                  Management Incentive Unit Plan, effective January 1, 1987. Amendment
                  to
                  the Management Incentive Unit Plan, effective June 3, 1987. (Previously
                  filed with the Securities and Exchange Commission as an exhibit
                  to Form
                  10-K of Ingersoll-Rand Company for the year ended December 31,
                  1993, filed
                  March 30, 1994, and incorporated herein by
                  reference.)
 
 10.2
              Reorganization
                  Amendment to Management Incentive Unit Plan, dated December 31,
                  2001.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2001, filed
                  March 13,
                  2002, and incorporated herein by
                  reference.)
 
 10.3
              Description
                  of Annual Incentive Arrangements for Chairman, President, Sector
                  Presidents and other Staff Officers of Ingersoll-Rand Company Limited.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2005, filed
                  March 1,
                  2006, and incorporated herein by
                  reference.)
 
 10.4
              Description
                  of Performance Share Program for Chairman, President and Chief
                  Executive
                  Officer and the other Participants of Ingersoll-Rand Company Limited.
                  Filed herewith.
 10.5
                Form
                    of Change in Control Agreement with Tier 1 Officers of Ingersoll-Rand
                    Company Limited, dated as of December 1, 2006. (Previously filed
                    with the
                    Securities and Exchange Commission as an exhibit to Form 8-K
                    dated
                    November 30, 2006, filed December 4, 2006, and incorporated herein
                    by
                    reference.)
 
 10.6
              Form
                  of Change in Control Agreement with Tier 2 Officers of Ingersoll-Rand
                  Company Limited, dated as of December 1, 2006. (Previously filed
                  with the
                  Securities and Exchange Commission as an exhibit to Form 8-K dated
                  November 30, 2006, filed December 4, 2006, and incorporated herein
                  by
                  reference.)
 
 59
 10.7
              Executive
                  Supplementary Retirement Agreement for selected executive officers
                  of
                  Ingersoll- Rand Company. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 10-K of Ingersoll-Rand
                  Company
                  for the year ended December 31, 1993, filed March 30, 1994, and
                  incorporated herein by reference.)
 
 10.8
              Executive
                  Supplementary Retirement Agreement for selected executive officers
                  of
                  Ingersoll-Rand Company. (Previously filed with the Securities and
                  Exchange
                  Commission as an exhibit to Form 10-K of Ingersoll-Rand Company
                  for the
                  year ended December 31, 1996, filed March 26, 1997, and incorporated
                  herein by reference.)
 
 10.9
              Forms
                  of insurance and related letter agreements with certain executive
                  officers
                  of Ingersoll-Rand Company. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 10-K of Ingersoll-Rand
                  Company
                  for the year ended December 31, 1993, filed March 30, 1994, and
                  incorporated herein by reference.)
 
 10.10
              Amended
                  and Restated Supplemental Pension Plan, dated January 1, 2003.
                  (Previously
                  filed with the Securities and Exchange Commission as an exhibit
                  to Form
                  10-K for the year ended December 31, 2002, filed March 5, 2003,
                  and
                  incorporated herein by reference.)
 
 10.11
              First
                  Amendment to the Amended and Restated Supplemental Pension Plan,
                  dated
                  January 1, 2003. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Form 10-K for the year ended December
                  31,
                  2003, filed February 27, 2004, and incorporated herein by
                  reference.)
 
 10.12
              Amended
                  and Restated Supplemental Employee Savings Plan, dated January
                  1, 2003.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2002, filed
                  March 5,
                  2003, and incorporated herein by
                  reference.)
 
 10.13
              First
                  Amendment to the Amended and Restated Supplemental Employee Savings
                  Plan,
                  datedJanuary
                  1, 2003. (Previously filed with the Securities and Exchange Commission
                  as
                  an exhibit to Form 10-K for the year ended December 31, 2003, filed
                  February 27, 2004, and incorporated herein by
                  reference.)
 
 10.14
              Incentive
                  Stock Plan of 1995. (Previously filed with the Securities and Exchange
                  Commission as Appendix A to the Notice of 1995 Annual Meeting of
                  Shareholders and Proxy Statement of Ingersoll-Rand Company dated
                  March 15,
                  1995, and incorporated herein by
                  reference.)
 
 10.15
              Reorganization
                  Amendment to Incentive Stock Plan of 1995, dated December 21, 2001.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2001, filed March 13,
                  2002, and incorporated herein by
                  reference.)
 
 10.16
              Senior
                  Executive Performance Plan. (Previously filed with the Securities
                  and
                  Exchange Commission as Appendix A to the Notice of 2000 Annual
                  Meeting of
                  Shareholders and Proxy Statement of Ingersoll-Rand Company, dated
                  March 7,
                  2000, and incorporated herein by
                  reference.)
 
 10.17
              Amended
                  and Restated Elected Officers Supplemental Plan, dated December
                  31, 2004.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2004, filed
                  March 16,
                  2005, and incorporated herein by
                  reference.)
  60
  10.18
              Amendment,
                  dated February 1, 2006, to Amended and Restated Elected Officers
                  Supplemental Plan, dated December 31, 2004. (Previously filed with
                  the
                  Securities and Exchange Commission as an exhibit to Form 10-K for
                  the year
                  ended December 31, 2005, filed March 1, 2006, and incorporated
                  herein by
                  reference.)
 
 10.19
              Elected
                  Officers Supplemental Plan II, dated February 1, 2006. (Previously
                  filed
                  with the Securities and Exchange Commission as an exhibit to Form
                  10-K for
                  the year ended December 31, 2005, filed March 1, 2006, and incorporated
                  herein by reference.)
  10.20
                  Amended
                      and Restated Incentive Stock Plan of 1998. (Previously filed
                      with the
                      Securities and Exchange Commission as an exhibit to the Registration
                      Statement on Form S-8 (No. 333-130047), filed December 1, 2005,
                      and
                      incorporated herein by
                      reference.)
 
 10.21
              Amendment
                  to the Ingersoll-Rand Company Limited Amended and Restated Incentive
                  Stock
                  Plan of 1998, dated December 7, 2005. (Previously filed with the
                  Securities and Exchange Commission as an exhibit****to
                  Form 8-K dated December 7, 2005, filed December 9, 2005, and incorporated
                  herein by reference.)
 
 10.22
              Composite
                  Employment Agreement with Chief Executive Officer.****(Previously
                  filed with the Securities and Exchange Commission as an
                  exhibit****to
                  Form 10-K of Ingersoll-Rand Company for the year ended December
                  31, 1999,
                  filed March 30, 2000, and incorporated herein by
                  reference.)
 
 10.23
              Employment
                  Agreement with Michael Lamach, Senior Vice President. (Previously
                  filed
                  with the Securities and Exchange Commission as an exhibit to Form
                  10-K for
                  the year ended December 31, 2003, filed February 27, 2004, and
                  incorporated herein by reference.)
 
 10.24
              Employment
                  Agreement with James R. Bolch, Senior Vice President. (Previously
                  filed
                  with the Securities and Exchange Commission as an exhibit to Form
                  10-K for
                  the year ended December 31, 2005, filed March 1, 2006, and incorporated
                  herein by reference.)
 
 10.25
              Addendum,
                  dated December 8, 2005, to Employment Agreement with James R. Bolch.
                  (Previously filed with the Securities and Exchange Commission as
                  an
                  exhibit to Form 10-K for the year ended December 31, 2005, filed
                  March 1,
                  2006, and incorporated herein by
                  reference.)
 
 10.26
              Amended
                  and Restated Estate Enhancement Program, dated June 1, 1998, and
                  the
                  related form agreements. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 10-Q for the quarter
                  ended March
                  31, 2006, filed May 5, 2006, and incorporated herein by
                  reference.)
 
 10.27
              First
                  Amendment to the Amended and Restated Estate Enhancement Program,
                  dated
                  December 31, 2001. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Form 10-Q for the quarter ended March
                  31,
                  2006, filed May 5, 2006, and incorporated herein by
                  reference.)
 
 10.28
              Employment
                  Agreement with William Gauld, Senior Vice President, dated September
                  7,
                  2006. (Previously filed with the Securities and Exchange Commission
                  as an
                  exhibit to Form 10-K for the year ended December 31, 2006, filed
                  March 1,
                  2007, and incorporated herein by reference.)
 
 61
 10.29
              Employment
                  Agreement with Marcia J. Avedon, Senior Vice President, dated January
                  8,
                  2007. (Previously filed with the Securities and Exchange Commission
                  as an
                  exhibit to Form 10-K for the year ended December 31, 2006, filed
                  March 1,
                  2007, and incorporated herein by reference.)
 
 10.30
              Ingersoll-Rand
                  Company Limited Incentive Stock Plan of 2007. (Previously filed
                  with the
                  Securities and Exchange Commission as an exhibit to the Registration
                  Statement on Form S-8 (No. 333-143716), filed June 13, 2007, and
                  incorporated herein by reference.)
 
 10.31
              Director
                  Deferred Compensation Plan and Stock Award Plan, as amended and
                  restated
                  effective August 1, 2007. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 8-K dated August 1, 2007,
                  filed
                  August 3, 2007, and incorporated herein by
                  reference.)
 
 10.32
              Director
                  Deferred Compensation Plan and Stock Award Plan II, as amended
                  and
                  restated effective August 1, 2007. (Previously filed with the Securities
                  and Exchange Commission as an exhibit to Form 8-K dated August
                  1, 2007,
                  filed August 3, 2007, and incorporated herein by
                  reference.)
 
 10.33
              Executive
                  Deferred Compensation Plan, as amended and restated effective August
                  1,
                  2007. (Previously filed with the Securities and Exchange Commission
                  as an
                  exhibit to Form 8-K dated August 1, 2007, filed August 3, 2007,
                  and
                  incorporated herein by reference.)
 
 10.34
              Executive
                  Deferred Compensation Plan II, as amended and restated effective
                  August 1,
                  2007. (Previously filed with the Securities and Exchange Commission
                  as an
                  exhibit to Form 8-K dated August 1, 2007, filed August 3, 2007,
                  and
                  incorporated herein by reference.)
 
 10.35
              Employment
                  Agreement with James V. Gelly dated September 24, 2007 and revised
                  September 28, 2007. (Previously filed with the Securities and Exchange
                  Commission as an exhibit to Form 8-K dated October 6, 2007, filed
                  October
                  9, 2007, and incorporated herein by
                  reference.)
 
 10.36
              Deferred
                  Prosecution Agreement between Ingersoll-Rand Company Limited and
                  the
                  United States Department of Justice, Criminal Division, Fraud Section
                  filed as of October 31, 2007. (Previously filed with the Securities
                  and
                  Exchange Commission as an exhibit to Form 8-K dated October 31,
                  2007,
                  filed November 1, 2007, and incorporated herein by
                  reference.)
 
 10.37
              Debt
                  Commitment Letter from JPMorgan Chase Bank, N.A., J.P. Morgan Securities
                  Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities
                  (USA)
                  LLC, Goldman Sachs Bank USA and Goldman Sachs Credit Partners L.P.,
                  dated
                  as of December 15, 2007.(Previously
                  filed with the Securities and Exchange Commission as an exhibitto
                  Form 8-K dated December 15, 2007, filed December 17, 2007,and
                  incorporated herein by reference.)
  12
                Computations
                    of Ratios of Earnings to Fixed Charges. Filed
                    herewith.
 21
              List
                  of Subsidiaries of Ingersoll-Rand Company Limited. Filed
                  herewith.
 
 23.1
              Consent
                  of Independent Registered Public Accounting Firm. Filed
                  herewith.
 
 23.2
              Consent
                  of Analysis, Research & Planning Corporation. Filed
                  herewith.
 
 31.1
              Certification
                  of Chief Executive Officer Pursuant to Rule 13a–14(a) or Rule 15d–14(a),
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
                  Filed herewith.
  62
  31.2
              Certification
                  of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a),
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
                  Filed herewith.
 
 32
              Certifications
                  of Chief Executive Officer and Chief Financial Officer Pursuant
                  to Rule
                  13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed
                  herewith.
 
 63
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized.
 
 **INGERSOLL
                  RAND COMPANY LIMITED**(Registrant)By:
              /S/
                    Herbert L. Henkel(Herbert
                  L. Henkel)Chief Executive OfficerDate:
              February 29, 2008
 
 Pursuant
        to the requirement of the Securities Exchange Act of 1934, this report has
        been
        signed by the following persons on behalf of the registrant and in the
        capacities and on the dates indicated.
 
 **Signature**
              
              **Title**
              
              **Date**Chairman,
                  President, Chief/S/
                    Herbert L. Henkel
              
              Executive
                  Officer and Director(Herbert L. Henkel)
              
              (Principal
                  Executive Officer)
              
              February
                  29, 2008Senior
                  Vice President and/S/
                    James V. Gelly
              
              Chief
                  Financial Officer(James V. Gelly)
              
              (Principal
                  Financial Officer)
              
              February
                  29, 2008/S/
                    Richard W. Randall
              
              Vice
                  President and Controller(Richard W. Randall)
              
              (Principal
                  Accounting Officer)
              
              February
                  29, 2008/S/
                    Ann C. Berzin(Ann C. Berzin)
              
              Director
              
              February
                  29, 2008/S/
                    Gary D. Forsee(Gary D. Forsee)
              
              Director
              
              February
                  29, 2008/S/
                    Peter C. Godsoe(Peter C. Godsoe)
              
              Director
              
              February
                  29, 2008/S/
                    Constance Horner(Constance Horner)
              
              Director
              
              February
                  29, 2008/S/
                    H. William Lichtenberger(H. William Lichtenberger)
              
              Director
              
              February
                  29, 2008/S/
                    Theodore E. Martin(Theodore E. Martin)
              
              Director
              
              February
                  29, 2008/S/
                    Patricia Nachtigal(Patricia Nachtigal)
              
              Director
              
              February
                  29, 2008/S/
                    Orin R. Smith(Orin R. Smith)
              
              Director
              
              February
                  29, 2008/S/
                    Richard J. Swift(Richard J. Swift)
              
              Director
              
              February
                  29, 2008/S/
                    Tony L. White(Tony L. White)
              
              Director
              
              February
                  29, 2008
 
 64




**INGERSOLL-RAND
      COMPANY LIMITED**


**Index
      to Consolidated Financial Statements**





PageReport
                of Independent Registered Public Accounting Firm
            66Consolidated
                Statements of Income
            67Consolidated
                Balance Sheets
            68Consolidated
                Statements of Shareholders' Equity
            69Consolidated
                Statements of Cash Flows
            70Notes
                to Consolidated Financial Statements
            71Schedule
                II - Valuation and Qualifying Accounts
            118




65


**Report
      of Independent Registered Public Accounting Firm**





To **** the
      Board
      of Directors and Shareholders of Ingersoll-Rand Company Limited:





In
      our
      opinion, the consolidated financial statements listed in the index appearing
      under Item 15 (a)(1) present fairly, in all material respects, the financial
      position of Ingersoll-Rand Company Limited and its subsidiaries at December
      31,
      2007 and 2006, and the results of their operations and their cash flows for
      each
      of the three years in the period ended December 31, 2007 in conformity with
      accounting principles generally accepted in the United States of America. In
      addition, in our opinion, the financial statement schedule listed in the index
      appearing under Item 15 (a)(2), present fairly, in all material respects, the
      information set forth therein when read in conjunction with the related
      consolidated financial statements.  Also in our opinion, the Company
      maintained, in all material respects, effective internal control over financial
      reporting as of December 31, 2007, based on criteria established in Internal
      Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). The Company's management is
      responsible for these financial statements and financial statement schedule,
      for
      maintaining effective internal control over financial reporting and for its
      assessment of the effectiveness of internal control over financial reporting,
      included in Management's Report on Internal Control over Financial Reporting
      appearing under Item 9A. Our responsibility is to express opinions on these
      financial statements, on the financial statement schedule and on the
      Company's internal control over financial reporting based on our integrated
      audits. We conducted our audits in accordance with the standards of the Public
      Company Accounting Oversight Board (United States). Those standards require
      that
      we plan and perform the audits to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement and whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audits of the financial statements included examining, on a test
      basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      Our audit of internal control over financial reporting included obtaining an
      understanding of internal control over financial reporting, assessing the risk
      that a material weakness exists, and testing and evaluating the design and
      operating effectiveness of internal control based on the assessed risk. Our
      audits also included performing such other procedures as we considered necessary
      in the circumstances. We believe that our audits provide a reasonable basis
      for
      our opinions.





As
      discussed in Note 2 to the consolidated financial statements, the Company has
      changed the manner in which it accounts for stock based compensation effective
      January 1, 2006, the manner in which it accounts for defined benefit pension
      and
      other postretirement plans effective December 31, 2006, and the manner in which
      it accounts for uncertainty in income taxes effective January 1,
      2007.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (i) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (ii) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (iii) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.








PricewaterhouseCoopers
      LLP


Florham
      Park, New Jersey


February
      29, 2008




66





**Ingersoll-Rand
      Company
      Limited**


**Consolidated
      Statements of Income**


*In
      millions, except per share amounts*




For
                the years ended December 31,
            
            2007
            
            2006
            
            2005Net
                revenues
            
            $
            8,763.1
            
            $
            8,033.7
            
            $
            7,263.7Cost
                of goods sold
            
            
            6,272.0
            
            
            5,768.4
            
            
            5,203.2Selling
                and administrative expenses
            
            
            1,433.3
            
            
            1,266.8
            
            
            1,172.7Operating
                income
            
            
            1,057.8
            
            
            998.5
            
            
            887.8Interest
                expense
            
            
            (136.2
            )
            
            (133.6
            )
            
            (145.1
            )Other
                income, net
            
            
            15.9
            
            
            (7.3
            )
            
            50.1Earnings
                before income taxes
            
            
            937.5
            
            
            857.6
            
            
            792.8Provision
                for income taxes
            
            
            204.4
            
            
            92.6
            
            
            61.0Earnings
                from continuing operations
            
            
            733.1
            
            
            765.0
            
            
            731.8Discontinued
                operations, net of tax
            
            
            3,233.6
            
            
            267.5
            
            
            322.4Net
                earnings
            
            $
            3,966.7
            
            $
            1,032.5
            
            $
            1,054.2Basic
                earnings per common share:Continuing
                operations
            
            $
            2.52
            
            $
            2.39
            
            $
            2.17Discontinued
                operations
            
            
            11.12
            
            
            0.84
            
            
            0.95Net
                earnings
            
            $
            13.64
            
            $
            3.23
            
            $
            3.12Diluted
                earnings per common share:Continuing
                operations
            
            $
            2.48
            
            $
            2.37
            
            $
            2.14Discontinued
                operations
            
            
            10.95
            
            
            0.83
            
            
            0.95Net
                earnings
            
            $
            13.43
            
            $
            3.20
            
            $
            3.09





*See
      accompanying notes to consolidated financial statements.*





67





**Ingersoll-Rand
      Company Limited**


**Consolidated
      Balance Sheets**


*In
      million, except share amounts*




December
                31,
            
            2007
            
            2006**ASSETS****Current
                assets:**Cash
                and cash equivalents
            
            $
            4,735.3
            
            $
            355.8Marketable
                securities
            
            
            0.1
            
            
            0.7Accounts
                and notes receivable, less allowance of $12.2 and $8.3 at December
                31,
                2007 and 2006, respectively
            
            
            1,660.7
            
            
            1,481.7Inventories
            
            
            827.2
            
            
            837.7Other
                current assets
            
            
            477.4
            
            
            355.8Assets
                held for sale
            
            
            -
            
            
            2,506.1Total
                current assets
            
            
            7,700.7
            
            
            5,537.8Property,
                plant and equipment, net
            
            
            904.9
            
            
            868.2Goodwill
            
            
            3,993.3
            
            
            3,837.2Intangible
                assets, net
            
            
            724.6
            
            
            712.8Other
                noncurrent assets
            
            
            1,052.7
            
            
            1,189.9Total
                assets
            
            $
            14,376.2
            
            $
            12,145.9**LIABILITIES
                AND EQUITY****Current
                liabilities:**Accounts
                payable
            
            $
            721.2
            
            $
            757.6Accrued
                compensation and benefits
            
            
            338.9
            
            
            306.4Accrued
                expenses and other current liabilities
            
            
            1,434.6
            
            
            794.1Short-term
                borrowings and current maturities of long-term debt
            
            
            741.0
            
            
            1,079.4Liabilities
                held for sale
            
            
            -
            
            
            1,174.9Total
                current liabilities
            
            
            3,235.7
            
            
            4,112.4Long-term
                debt
            
            
            712.7
            
            
            905.2Postemployment
                and other benefit liabilities
            
            
            941.9
            
            
            1,047.1Other
                noncurrent liabilities
            
            
            1,480.5
            
            
            602.8Minority
                interests
            
            
            97.5
            
            
            73.6**Shareholders'
                equity:**Class
                A common shares, $1 par value (370,035,087 and364,426,276
                shares issued at December 31, 2007 and2006,
                respectively, and net of 97,421,234 and 57,699,279shares
                owned by subsidiary at December 31, 2007 and 2006,
                respectively)
            
            
            272.6
            
            
            306.8Retained
                earnings
            
            
            7,388.8
            
            
            5,456.1Accumulated
                other comprehensive income (loss)
            
            
            246.5
            
            
            (358.1
            )Total
                shareholders' equity
            
            
            7,907.9
            
            
            5,404.8Total
                liabilities and shareholders' equity
            
            $
            14,376.2
            
            $
            12,145.9





*See
      accompanying notes to consolidated financial statements.*




68


**Ingersoll-Rand
      Company Limited**


**Consolidated
      Statements of Shareholders' Equity**





Total
            
            
            
            Capital
                in
            
            
            
            Accumulated othershareholders'
            
            Common
                stock
            
            excess
                of
            
            Retained
            
            comprehensive
            
            Comprehensive*In
                millions, except per share amounts*
            
            equity
            
            Amount
            
            Shares
            
            par
                value
            
            earnings
            
            income
                (loss)
            
            incomeBalance
                at December 31, 2004
            
            $
            5,733.8
            
            $
            173.1
            
            
            173.1
            
            
            
            $
            469.6
            
            $
            5,028.3
            
            $
            62.8Net
                earnings
            
            
            1,054.2
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,054.2
            
            
            
            
            $
            1,054.2Currency
                translation
            
            
            (267.7
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (267.7
            )
            
            (267.7
            )Change
                in fair value of derivatives qualifyingas
                cash flow hedges, net of tax of $2.0
            
            
            5.7
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5.7
            
            
            5.7Minimum
                pension liability adjustment, net of tax of $35.6
            
            
            71.6
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            71.6
            
            
            71.6Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            863.8Shares
                issued under incentive stock plans
            
            
            120.0
            
            
            2.3
            
            
            2.3
            
            
            
            
            117.7Repurchase
                of common shares by subsidiary
            
            
            (763.6
            )
            
            (19.4
            )
            
            (19.4
            )
            
            
            
            (587.3
            )
            
            (156.9
            )Stock
                split
            
            
            -
            
            
            174.7
            
            
            174.7
            
            
            
            
            
            
            
            (174.7
            )Cash
                dividends, declared and paid ($0.57 per share)
            
            
            (192.1
            )
            
            
            
            
            
            
            
            
            
            
            
            
            (192.1
            )Balance
                at December 31, 2005
            
            
            5,761.9
            
            
            330.7
            
            
            330.7
            
            
            
            
            -
            
            
            5,558.8
            
            
            (127.6
            )Net
                earnings
            
            
            1,032.5
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,032.5
            
            
            
            
            $
            1,032.5Currency
                translation
            
            
            258.8
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            258.8
            
            
            258.8Change
                in fair value of marketable securities andderivatives
                qualifying as cash flow hedges,net
                of tax of $0.8
            
            
            (7.3
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7.3
            )
            
            (7.3
            )Minimum
                pension liability adjustment, net of tax of $3.2
            
            
            (9.2
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9.2
            )
            
            (9.2
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,274.8Adoption
                of FASB Statement No. 158, net of tax of $268.2
            
            
            (472.8
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (472.8
            )Shares
                issued under incentive stock plans
            
            
            111.2
            
            
            3.8
            
            
            3.8
            
            
            
            
            107.4Repurchase
                of common shares by subsidiary
            
            
            (1,096.3
            )
            
            (27.7
            )
            
            (27.7
            )
            
            
            
            (151.0
            )
            
            (917.6
            )Share-based
                compensation
            
            
            43.6
            
            
            
            
            
            
            
            
            
            
            43.6Cash
                dividends, declared and paid ($0.68 per share)
            
            
            (217.6
            )
            
            
            
            
            
            
            
            
            
            
            
            
            (217.6
            )Balance
                at December 31, 2006
            
            
            5,404.8
            
            
            306.8
            
            
            306.8
            
            
            
            
            -
            
            
            5,456.1
            
            
            (358.1
            )Adoption
                of FIN 48
            
            
            (145.6
            )
            
            
            
            
            
            
            
            
            
            
            
            
            (145.6
            )Net
                earnings
            
            
            3,966.7
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,966.7
            
            
            
            
            $
            3,966.7Currency
                translation
            
            
            411.9
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            411.9
            
            
            411.9Change
                in fair value of marketable securities and derivatives qualifying as
                cash flow hedges, net of tax of $1.7
            
            
            (2.2
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2.2
            )
            
            (2.2
            )Pension
                and OPEB adjustments, net of tax of $130.0
            
            
            194.9
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            194.9
            
            
            194.9Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            4,571.3Shares
                issued under incentive stock plans
            
            
            196.6
            
            
            5.5
            
            
            5.5
            
            
            
            
            191.1Repurchase
                of common shares by subsidiary
            
            
            (1,999.9
            )
            
            (39.7
            )
            
            (39.7
            )
            
            
            
            (281.6
            )
            
            (1,678.6
            )Share-based
                compensation
            
            
            90.5
            
            
            
            
            
            
            
            
            
            
            90.5Cash
                dividends, declared and paid ($0.72 per share)
            
            
            (209.8
            )
            
            
            
            
            
            
            
            
            
            
            
            
            (209.8
            )Balance
                at December 31, 2007
            
            $
            7,907.9
            
            $
            272.6
            
            
            272.6
            
            
            
            $
            -
            
            $
            7,388.8
            
            $
            246.5





*See
      accompanying notes to consolidated financial statements.*





69


**Ingersoll-Rand
      Company Limited**


**Consolidated
      Statements of Cash Flows**


*In
      millions*




For
                the years ended December 31,
            
            2007
            
            2006
            
            2005**Cash
                flows from operating activities:**Net
                earnings
            
            $
            3,966.7
            
            $
            1,032.5
            
            $
            1,054.2Income
                from discontinued operations, net of tax
            
            
            (3,233.6
            )
            
            (267.5
            )
            
            (322.4
            )Adjustments
                to arrive at net cash provided by operating activities:Depreciation
                and amortization
            
            
            138.8
            
            
            148.8
            
            
            156.7(Gain)/loss
                on sale of businesses
            
            
            -
            
            
            -
            
            
            (1.5
            )(Gain)/loss
                on sale of property, plant and equipment
            
            
            (0.7
            )
            
            0.2
            
            
            (3.1
            )Minority
                interests, net of dividends
            
            
            17.9
            
            
            9.2
            
            
            (1.3
            )Equity
                earnings, net of dividends
            
            
            (1.0
            )
            
            0.1
            
            
            0.4Stock
                settled share based compensation
            
            
            31.0
            
            
            20.7
            
            
            -Deferred
                income taxes
            
            
            146.6
            
            
            27.8
            
            
            26.2Other
                items
            
            
            30.6
            
            
            (12.2
            )
            
            (49.0
            )Changes
                in other assets and liabilities(Increase)
                decrease in:Accounts
                and notes receivable
            
            
            46.2
            
            
            (94.4
            )
            
            (115.1
            )Inventories
            
            
            75.4
            
            
            (21.4
            )
            
            20.6Other
                current and noncurrent assets
            
            
            (32.3
            )
            
            (93.6
            )
            
            (222.4
            )Increase
                (decrease) in:Accounts
                payable
            
            
            (88.1
            )
            
            182.1
            
            
            5.7Other
                current and noncurrent liabilities
            
            
            (267.6
            )
            
            (119.2
            )
            
            (108.1
            )Net
                cash (used in) provided by continuing operating activities
            
            
            829.9
            
            
            813.1
            
            
            440.9Net
                cash (used in) provided by discontinued operating
                activities
            
            
            66.2
            
            
            141.7
            
            
            399.8**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (119.7
            )
            
            (144.8
            )
            
            (86.1
            )Proceeds
                from sale of property, plant and equipment
            
            
            14.2
            
            
            9.6
            
            
            16.3Acquisitions,
                net of cash acquired
            
            
            (25.7
            )
            
            (49.7
            )
            
            (484.7
            )Proceeds
                from business dispositions, net of cash
            
            
            6,154.3
            
            
            -
            
            
            11.4Proceeds
                from sales and maturities of marketable securities
            
            
            0.7
            
            
            155.8
            
            
            -Purchase
                of marketable securities
            
            
            -
            
            
            -
            
            
            (152.6
            )Other
            
            
            28.6
            
            
            0.4
            
            
            7.1Net
                cash (used in) provided by continuing investing activities
            
            
            6,052.4
            
            
            (28.7
            )
            
            (688.6
            )Net
                cash (used in) provided by discontinued investing
                activities
            
            
            (57.7
            )
            
            (132.5
            )
            
            (83.1
            )**Cash
                flows from financing activities:**Increase
                (decrease) in short-term borrowings
            
            
            (409.9
            )
            
            369.2
            
            
            (40.2
            )Proceeds
                from long-term debt
            
            
            2.0
            
            
            4.0
            
            
            301.7Payments
                of long-term debt
            
            
            (141.8
            )
            
            (513.7
            )
            
            (198.8
            )Net
                change in debt
            
            
            (549.7
            )
            
            (140.5
            )
            
            62.7Redemption
                of preferred stock of subsidiaries
            
            
            -
            
            
            -
            
            
            (73.6
            )Proceeds
                from exercise of stock options
            
            
            160.2
            
            
            95.7
            
            
            90.9Excess
                tax benefit from share based compensation
            
            
            36.1
            
            
            15.5
            
            
            -Dividends
                paid
            
            
            (209.8
            )
            
            (217.6
            )
            
            (192.1
            )Repurchase
                of common shares by subsidiary
            
            
            (1,999.9
            )
            
            (1,096.3
            )
            
            (763.6
            )Net
                cash (used in) provided by continuing financing activities
            
            
            (2,563.1
            )
            
            (1,343.2
            )
            
            (875.7
            )Net
                cash (used in) provided by discontinued financing
                activities
            
            
            -
            
            
            -
            
            
            -**Effect
                of exchange rate changes on cash and cash
                equivalents**
            
            
            51.8
            
            
            29.4
            
            
            (14.2
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            4,379.5
            
            
            (520.2
            )
            
            (820.9
            )Cash
                and cash equivalents - beginning of period
            
            
            355.8
            
            
            876.0
            
            
            1,696.9Cash
                and cash equivalents - end of period
            
            $
            4,735.3
            
            $
            355.8
            
            $
            876.0**Cash
                paid during the year for:**Interest,
                net of amounts capitalized
            
            $
            95.3
            
            $
            105.2
            
            $
            131.2Income
                taxes, net of refunds
            
            $
            470.1
            
            $
            195.3
            
            $
            270.0





*See
      accompanying notes to consolidated financial statements.*




70


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1 – DESCRIPTION OF COMPANY**


Ingersoll-Rand
      Company Limited (IR-Limited), a Bermuda company, and its consolidated
      subsidiaries (the Company) is a leading innovation and solutions provider with
      strong brands and leading positions within our markets. The Company’s business
      segments consist of Climate Control Technologies, Industrial Technologies and
      Security Technologies. The Company generates revenue and cash primarily through
      the design, manufacture, sale and service of a diverse portfolio of industrial
      and commercial products that include well-recognized, premium brand names such
      as Club Car®, Hussmann®, Ingersoll-Rand®, Schlage® and Thermo
      King®.





**NOTE
      2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**


A
      summary
      of significant accounting policies used in the preparation of the accompanying
      financial statements follows:





**Basis
      of Presentation:** The
      financial statements of the Company have been prepared in accordance with
      generally accepted accounting principles in the United States.





**2001
      Reorganization:** IR-Limited
      is the successor to Ingersoll-Rand Company, a New Jersey corporation (IR-New
      Jersey), following a corporate reorganization (the reorganization) that became
      effective on December 31, 2001. The reorganization was accomplished through
      a
      merger of a newly formed merger subsidiary of IR-Limited. IR-Limited and its
      subsidiaries continue to conduct the businesses previously conducted by IR-New
      Jersey and its subsidiaries. The reorganization has been accounted for as a
      reorganization of entities under common control and accordingly, did not result
      in any changes to the consolidated amounts of assets, liabilities and
      shareholders’ equity.





**Principles
      of Consolidation:** The
      consolidated financial statements include all majority-owned subsidiaries of
      the
      Company. Partially owned equity affiliates are accounted for under the equity
      method. The Company is also required to consolidate variable interest entities
      in which it bears a majority of the risk to the entities’ potential losses or
      stands to gain from a majority of the entities’ expected returns. Intercompany
      accounts and transactions have been eliminated. The assets, liabilities, results
      of operations and cash flows of all discontinued operations have been separately
      reported as discontinued operations and held for sale for all periods presented.
      Certain prior year amounts have been reclassified to conform to the current
      year
      presentation.





**Use
      of Estimates:** The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      the disclosures of contingent assets and liabilities at the date of the
      financial statements as well as the reported amounts of revenues and expenses
      during the reporting period. Estimates are based on several factors including
      the facts and circumstances available at the time the estimates are made,
      historical experience, risk of loss, general economic conditions and trends,
      and
      the assessment of the probable future outcome. Some of the more significant
      estimates include accounting for doubtful accounts, useful lives of property,
      plant and equipment and intangible assets, purchase price allocations of
      acquired businesses, valuation of assets including goodwill and other intangible
      assets, product warranties, sales allowances, pension plans, postretirement
      benefits other than pensions, taxes, environmental costs, product liability,
      asbestos matters and other contingencies. Actual results could differ from
      those
      estimates. Estimates and assumptions are reviewed periodically, and the effects
      of changes, if any, are reflected in the statement of operations in the period
      that they are determined.




71




**Currency
      Translation:** Assets
      and liabilities of non-U.S. subsidiaries, where the functional currency is
      not
      the U.S. dollar, have been translated at year-end exchange rates, and income
      and
      expenses accounts have been translated using average exchange rates throughout
      the year. Adjustments resulting from the process of translating an entity’s
      financial statements into the U.S. dollar have been recorded in the equity
      section of the balance sheet within Accumulated other comprehensive income
      (loss). Transactions that are denominated in a currency other than an entity’s
      functional currency are subject to changes in exchange rates with the resulting
      gains and losses recorded within net earnings.





**Cash
      and Cash Equivalents:** Cash
      and
      cash equivalents include cash on hand, demand deposits and all highly liquid
      investments with original maturities at the time of purchase of three months
      or
      less.




**Marketable
      Securities:** The
      Company has classified its marketable securities as available-for-sale in
      accordance with the guidance under Statement of Financial Accounting Standards
      (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity
      Securities.” Available-for-sale marketable securities are accounted for at
      market prices, with the unrealized gain or loss, less applicable deferred income
      taxes, recorded within Accumulated other comprehensive income
      (loss).





**Inventories:** Depending
      on the business, U.S. inventories are stated at the lower of cost or market
      using the last-in, first-out (LIFO) method or the lower of cost or market using
      the first-in, first-out (FIFO) method. Non-U.S. inventories are primarily stated
      at the lower of cost or market using the FIFO method. At December 31, 2007
      and
      2006, approximately 20% of all inventory utilized the LIFO method.





**Allowance
      for Doubtful Accounts** :
      The
      Company has provided an allowance for doubtful accounts reserve which represents
      the best estimate of probable loss inherent in the Company’s account receivables
      portfolio. This estimate is based upon company policy, derived from knowledge
      of
      its end markets, customer base and products.





In
      the
      first quarter of 2006, the Company changed its estimate of the allowance for
      doubtful accounts in light of various business and economic factors, including
      a
      significant change in its business portfolio and historical and expected
      write-off experience. In addition, the Company signed a new insurance policy
      which limits its bad debt exposure. As a result, the Company reduced its
      allowance by $14.6 million, or $13.0 million after-tax, which increased first
      quarter 2006 diluted earnings per share by $0.04.





**Property,
      Plant and Equipment:** Property,
      plant and equipment are stated at cost, less accumulated depreciation. Assets
      placed in service are recorded at cost and depreciated using the straight-line
      method over the estimated useful life of the asset except for leasehold
      improvements, which are depreciated over the shorter of their economic useful
      life or their lease term. The range of useful lives used to depreciate property,
      plant and equipment is as follows:


Buildings
            
            
            10 to 50
                yearsMachinery
                and equipment
            
            
            3
                to 12 yearsSoftware
            
            
            2
                to 7 years





Repair
      and maintenance costs that do not extend the useful life of the asset are
      charged against earnings as incurred. Major replacements and significant
      improvements that increase asset values and extend useful lives are
      capitalized.




72




The
      Company assesses the recoverability of the carrying value of its property,
      plant
      and equipment whenever events or changes in circumstances indicate that the
      carrying amount of the asset may not be recoverable. Recoverability is measured
      by a comparison of the carrying amount of an asset to the future net
      undiscounted cash flows expected to be generated by the asset. If the
      undiscounted cash flows are less than the carrying amount of the asset, an
      impairment loss is recognized for the amount by which the carrying value of
      the
      asset exceeds the fair value of the assets.





**Goodwill
      and Intangible Assets:** The
      Company initially records as goodwill the excess of the purchase price over
      the
      preliminary fair value of the net assets acquired. Once the final valuation
      has
      been performed for each acquisition, adjustments may be recorded.





In
      accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill
      and other intangible assets with indefinite useful lives are not amortized,
      but
      instead are tested for impairment at least annually or whenever events or
      changes in circumstances indicate that the carrying amount of the asset may
      not
      be recoverable. The Company tests for impairment during the fourth quarter
      of
      its fiscal year using September 30th balances.





Recoverability
      of goodwill is measured at the reporting unit level and determined using a
      two
      step process. The first step compares the carrying amount of the reporting
      unit
      to its estimated fair value. To the extent that the carrying value of the
      reporting unit exceeds its estimated fair value, a second step is performed,
      wherein the reporting unit’s carrying value of goodwill is compared to the
      implied fair value of goodwill. To the extent that the carrying value exceeds
      the fair value, impairment exists and an impairment loss must be recognized.
      Recoverability of other intangible assets with indefinite useful lives is
      measured by a comparison of the carrying amount of the intangible assets to
      the
      fair value of the respective intangible assets. Any excess of the carrying
      value
      over the fair value is recognized as an impairment loss.





Intangible
      assets such as patents, customer-related intangible assets and other intangible
      assets with finite useful lives are amortized on a straight-line basis over
      their estimated economic lives. The range of useful lives is as
      follows:


Customer
                relationships
            
            
            20
                - 40 yearsTrademarks
            
            
            20
                - 25 yearsPatents
            
            
            5
                - 15 yearsOther
            
            
            5
                - 20 years





Recoverability
      of intangible assets with finite useful lives is assessed in the same manner
      as
      property, plant and equipment as described above.




**Income
      Taxes:** Deferred
      tax assets and liabilities are determined based on temporary differences between
      financial reporting and tax bases of assets and liabilities, applying enacted
      tax rates expected to be in effect for the year in which the differences are
      expected to reverse. The Company recognizes future tax benefits, such as net
      operating losses and non-U.S. tax credits, to the extent that realizing these
      benefits is considered in its judgment to be more likely than not. The Company
      regularly reviews the recoverability of its deferred tax assets considering
      its
      historic profitability, projected future taxable income, timing of the reversals
      of existing temporary differences and the feasibility of its tax planning
      strategies. Where appropriate, the Company records a valuation allowance with
      respect to a future tax benefit.




73




**Product
      Warranties:** Warranty
      accruals are recorded at the time of sale and are estimated based upon product
      warranty terms and historical experience. The Company assesses the adequacy
      of
      its liabilities and will make adjustments as necessary based on known or
      anticipated warranty claims, or as new information becomes
      available.





**Treasury
      Stock:** The
      Company, through one of its consolidated subsidiaries, repurchases IR Limited’s
      Class A common shares from time to time in the open market and in privately
      negotiated transactions as authorized by the Board of Directors. These
      repurchases are based upon current market conditions and the discretion of
      management. Amounts are recorded at cost and included within the Shareholders’
equity section. For the year ended December 31, 2007 and 2006, Class A common
      shares owned by the Company amounted to 97.4 million and 57.7 million,
      respectively.





**Revenue
      Recognition:** Revenue
      is recognized and earned when all of the following criteria are satisfied:
      (a)
      persuasive evidence of a sales arrangement exists; (b) price is fixed or
      determinable; (c) collectibility is reasonably assured; and (d) delivery has
      occurred or service has been rendered. Delivery generally occurs when the title
      and the risks and rewards of ownership have substantially transferred to the
      customer. Revenue from maintenance contracts or extended warranties is
      recognized on a straight-line basis over the life of the contract, unless
      another method is more representative of the costs incurred. The Company enters
      into agreements that contain multiple elements, such as equipment, installation
      and service revenue. For multiple-element arrangements, the Company recognizes
      revenue for delivered elements when the delivered item has stand-alone value
      to
      the customer, fair values of undelivered elements are known, customer acceptance
      has occurred, and there are only customary refund or return rights related
      to
      the delivered elements.





**Environmental
      Costs:** The
      Company is subject to laws and regulations relating to protecting the
      environment. Environmental expenditures relating to current operations are
      expensed or capitalized as appropriate. Expenditures relating to existing
      conditions caused by past operations, which do not contribute to current or
      future revenues, are expensed. Liabilities for remediation costs are recorded
      when they are probable and can be reasonably estimated, generally no later
      than
      the completion of feasibility studies or the Company's commitment to a plan
      of
      action. The assessment of this liability, which is calculated based on existing
      technology, does not reflect any offset for possible recoveries from insurance
      companies, and is not discounted.





**Asbestos
      Matters** :
      Certain
      wholly owned subsidiaries of the Company are named as defendants in
      asbestos-related lawsuits in state and federal courts. The Company records
      a
      liability for its actual and anticipated future claims as well as an asset
      for
      anticipated insurance settlements. Although the Company was neither a
      manufacturer nor producer of asbestos, some of its formerly manufactured
      components from third party suppliers utilized asbestos related components.
      As a
      result, amounts related to asbestos are recorded within Discontinued operations,
      net of tax. Refer to Note 20, Commitments and Contingencies, for further details
      of asbestos related matters.





**Research
      and Development Costs:** The
      Company conducts research and development activities for the purpose of
      developing and improving new products and services. These expenditures,
      including qualifying engineering costs, are expensed when incurred and included
      in Cost of goods sold. For the years ended December 31, 2007, 2006 and 2005,
      these expenditures amounted to $128.6 million, $126.7 million and $120.4
      million, respectively. The Company also incurs engineering costs that are not
      considered research and development expenditures.




74




**Software
      Costs:** The
      Company follows the guidance outlined in Statement of Position 98-1, “Accounting
      for the Costs of Computer Software Developed or Obtained for Internal Use” for
      all software developed or obtained for internal use, which requires companies
      to
      capitalize certain internal-use software costs once specific criteria are met
      and subsequently amortize these costs over the software’s useful life, which
      ranges from 2 to 7 years.





**Employee
      Benefit Plans** :
      The
      Company provides a range of benefits to eligible employees and retired
      employees, including pensions, postretirement and post-employment benefits.
      Determining the cost associated with such benefits is dependent on various
      actuarial assumptions, including discount rates, expected return on plan assets,
      compensation increases, employee mortality and turnover rates, and health-care
      cost trend rates. Actuaries perform the required calculations to determine
      expense in accordance with generally accepted accounting principles in the
      United States. Actual results may differ from the actuarial assumptions and
      are
      generally accumulated and amortized into earnings over future periods. Effective
      December 31, 2006, these amounts are generally recognized into Shareholders’
equity on an annual basis, due to the adoption of SFAS 158. The Company reviews
      its actuarial assumptions at each measurement date, which is November 30 for
      its
      plans, and makes modifications to the assumptions based on current rates and
      trends, if appropriate.





**Loss
      Contingencies:** Liabilities
      are recorded for various contingencies arising in the normal course of business,
      including litigation and administrative proceedings, environmental matters,
      product liability, product warranty, worker’s compensation and other claims. The
      Company has recorded reserves in the financial statements related to these
      matters, which are developed using input derived from actuarial estimates and
      historical and anticipated experience data depending on the nature of the
      reserve, and in certain instances with consultation of legal counsel, internal
      and external consultants and engineers. Subject to the uncertainties inherent
      in
      estimating future costs for these types of liabilities, the Company believes
      its
      estimated reserves are reasonable and does not believe the final determination
      of the liabilities with respect to these matters would have a material effect
      on
      the financial condition, results of operations, liquidity or cash flows of
      the
      Company for any year.





**Derivative
      Instruments:** The
      Company periodically enters into cash flow and other hedge transactions to
      specifically hedge exposure to various risks related to interest rates, currency
      rates and commodity pricing. The Company recognizes all derivatives on the
      consolidated balance sheet at their fair value as either assets or liabilities.
      For cash flow designated hedges, the effective portion of the changes in fair
      value of the derivative contract are recorded in Other comprehensive income,
      net
      of taxes, and are recognized in the income statement at the time earnings are
      affected by the hedged transaction. For other hedge transactions, the changes
      in
      the fair value of the derivative contract are recognized in the consolidated
      statement of income.





**Recently
      Adopted Accounting Pronouncements:** In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error
      Corrections” (SFAS 154) which replaces APB No. 20, “Accounting Changes,” and
      SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - An
      Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting
      for, and reporting of, accounting changes and error corrections. It establishes
      a retrospective application, or the latest practicable date, as the required
      method for reporting a change in accounting principle and the reporting of
      a
      correction of an error. SFAS 154 was effective for the Company on January 1,
      2006. The adoption of SFAS 154 did not have a material impact on its
      consolidated financial position and results of operations.




75




Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
      Payment,” (SFAS 123(R)) using the modified prospective method of adoption. SFAS
      123(R) requires companies to recognize compensation expense for an amount equal
      to the fair value of the share-based payment issued. Under the modified
      prospective method, financial statement amounts for prior periods have not
      been
      restated to reflect the fair value method of recognizing compensation cost
      relating to stock options.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106 and 132(R)” (SFAS 158). SFAS 158 requires an entity to recognize
      in its balance sheet the funded status of its defined benefit pension and
      postretirement plans. The standard also requires an entity to recognize changes
      in the funded status within Accumulated other comprehensive income, net of
      tax,
      to the extent such changes are not recognized in earnings as components of
      periodic net benefit cost. At December 31, 2006, the Company adopted the
      provisions of SFAS 158 for its postretirement and pension plans. The adoption
      of
      SFAS 158 resulted in a decrease of Total assets of $476.0 million and
      Shareholders’ equity of $472.8 million (net of tax of $268.2 million) and an
      increase of Total liabilities of $265.0 million.





In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects
      of the carryover or reversal of prior year misstatements should be considered
      in
      quantifying a current year misstatement. The SEC staff believes that registrants
      should quantify errors using both a balance sheet and an income statement
      approach and evaluate whether either approach results in quantifying a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. SAB 108 is effective for the Company for the fiscal
      year ended December 31, 2006. SAB 108 did not have a material impact on the
      Company’s financial statements.





Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (FIN
      48), which prescribes a recognition threshold and measurement process for
      recording in the financial statements uncertain tax positions taken or expected
      to be taken in a tax return. As a result of adopting FIN 48 as of January 1,
      2007, the Company recorded additional liabilities to its previously established
      reserves along with a corresponding decrease in Retained earnings of $145.6
      million.




**Recently
      Issued Accounting Pronouncements:** In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
      157). SFAS 157 establishes a framework for measuring fair value that is based
      on
      the assumptions market participants would use when pricing an asset or liability
      and establishes a fair value hierarchy that prioritizes the information to
      develop those assumptions. Additionally, the standard expands the disclosures
      about fair value measurements to include disclosing the fair value measurements
      of assets or liabilities within each level of the fair value hierarchy. SFAS
      157
      is effective for the Company starting on January 1, 2008. The Company is
      currently evaluating the impact of adopting SFAS 157 on its financial
      statements.




76




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits
      companies the option, at specified election dates, to measure financial assets
      and liabilities at their current fair value, with the corresponding changes
      in
      fair value from period to period recognized in the income statement.
      Additionally, SFAS 159 establishes presentation and disclosure requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar assets and liabilities. SFAS 159 is effective
      for the Company starting on January 1, 2008. The Company is currently evaluating
      the impact of adopting SFAS 159 on its financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
      Combinations,” (SFAS 141 (R)). This statement addresses financial accounting and
      reporting for business combinations and supersedes SFAS 141, “Business
      Combinations.” SFAS 141(R) retains the fundamental requirements set forth in
      SFAS 141 regarding the purchase method of accounting, but expands the guidance
      in order to properly recognize and measure, at fair value, the identifiable
      assets acquired, liabilities assumed and any noncontrolling interest in the
      acquired business. In addition, the statement introduces new accounting guidance
      on how to recognize and measure contingent consideration, contingencies,
      acquisition and restructuring costs. SFAS 141(R) is effective for acquisitions
      occurring after January 1, 2009.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of ARB No 51.” It clarifies
      that a noncontrolling interest in a subsidiary represents an ownership interest
      that should be reported as equity in the consolidated financial statements.
      In
      addition, the statement requires expanded income statement presentation and
      disclosures that clearly identify and distinguish between the interests of
      the
      Company and the interests of the non-controlling owners of the subsidiary.
      SFAS
      160 is effective for the Company starting on January 1, 2009. The Company is
      currently evaluating the impact of adopting SFAS 160 on its financial
      statements.





**NOTE
      3**  **–
      ANNOUNCED ACQUISITION OF TRANE INC.**


On
      December 17, 2007, the Company announced that it had executed a definitive
      agreement to acquire Trane Inc. (Trane), formerly American Standard Companies
      Inc., in a transaction currently valued at approximately $9.5 billion. Trane
      is
      a global leader in indoor climate control systems, services and solutions with
      2007 annual revenues of $7.45 billion. The transaction is expected to close
      in
      the second quarter of 2008 and is subject to approval by Trane shareholders,
      regulatory approvals and contractual closing conditions. There can be no
      assurances that the acquisition will be consummated.





In
      connection with the proposed Trane acquisition, each share of Trane’s common
      stock (which approximated 195 million at December 31, 2007) will be exchanged
      for a combination of (i) 0.23 of an Ingersoll Rand Class A common share and
      (ii)
      $36.50 in cash, without interest. The Company intends to use a combination
      of
      cash on hand and debt financing in order to pay for the cash portion of the
      consideration. The Company has secured commitments from JPMorgan Chase Bank,
      N.A., J.P. Morgan Securities Inc., Credit Suisse, Cayman Islands Branch, Credit
      Suisse Securities (USA) LLC, Goldman Sachs Bank USA and Goldman Sachs Credit
      Partners L.P. to provide up to $3.9 billion in financing through a 364-day
      senior unsecured bridge facility. If unused, the debt commitments will expire
      on
      September 30, 2008.




77




**NOTE
      4 – DIVESTITURES AND DISCONTINUED OPERATIONS**


The
      components of discontinued operations for the years ended December 31 are as
      follows:




*In
                millions*
            
            2007
            
            2006
            
            2005Revenues
            
            $
            2,957.8
            
            $
            3,375.7
            
            $
            3,283.2Pre-tax
                earnings (loss) from operations
            
            
            (82.5
            )
            
            376.6
            
            
            413.6Pre-tax
                gain on sale
            
            
            4,382.6
            
            
            1.1
            
            
            4.4Tax
                expense
            
            
            (1,066.5
            )
            
            (110.2
            )
            
            (95.6
            )Discontinued
                operations, net
            
            $
            3,233.6
            
            $
            267.5
            
            $
            322.4





Pre-tax
      loss from operations in 2007 includes a non-cash charge of $449.0 million
      related to the Company’s liability for all pending and estimated future asbestos
      claims through 2053 as discussed below in “Other Discontinued Operations”.





Discontinued
      operations by business for the years ended December 31 are as
      follows:




*In
                millions*
            
            2007
            
            2006
            
            2005Compact
                Equipment, net of tax
            
            $
            2,927.1
            
            $
            240.4
            
            $
            284.7Road
                Development, net of tax
            
            
            672.5
            
            
            62.9
            
            
            36.6Other
                discontinued operations, net of tax
            
            
            (366.0
            )
            
            (35.8
            )
            
            1.1Total
                discontinued operations, net of tax
            
            $
            3,233.6
            
            $
            267.5
            
            $
            322.4





*Compact
      Equipment Divestiture*


On
      July
      29, 2007, the Company agreed to sell its Bobcat, Utility Equipment and
      Attachments businesses (collectively, Compact Equipment) to Doosan Infracore
      for
      gross proceeds of approximately $4.9 billion, subject to post-closing purchase
      price adjustments. The sale was completed on November 30, 2007.





Compact
      Equipment manufactures and sells compact equipment, including skid-steer
      loaders, compact track loaders, mini-excavators and telescopic tool handlers;
      portable air compressors, generators and light towers; general-purpose light
      construction equipment; and attachments. The Company has accounted for Compact
      Equipment as discontinued operations and has classified the assets and
      liabilities as held for sale for all periods presented in accordance with
      Statement of Financial Accounting Standard No. 144, “Accounting for the
      Impairment or Disposal of Long-Lived Assets” (SFAS 144).





Net
      revenues and after-tax earnings of Compact Equipment for the years ended
      December 31 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Net
                revenues
            
            $
            2,705.9
            
            $
            2,648.4
            
            $
            2,610.1After-tax
                earnings from operations
            
            $
            275.1
            
            $
            240.4
            
            $
            284.7Gain
                on sale, net of tax of $939.0
            
            
            2,652.0
            
            
            -
            
            
            -Total
                discontinued operations, net of tax
            
            $
            2,927.1
            
            $
            240.4
            
            $
            284.7





*Road
      Development Divestiture*


On
      February 27, 2007, the Company agreed to sell its Road Development business
      unit
      to AB Volvo (publ) for cash proceeds of approximately $1.3 billion, subject
      to
      post-closing purchase price adjustments. The sale was completed on April 30,
      2007, in all countries except for India, which closed on May 4, 2007.




78




The
      Road
      Development business unit manufactures and sells asphalt paving equipment,
      compaction equipment, milling machines and construction-related material
      handling equipment. The Company has accounted for the Road Development business
      unit as discontinued operations and has classified the assets and liabilities
      sold to AB Volvo as held for sale for all periods presented in accordance with
      SFAS 144.





Net
      revenues and after-tax earnings of the Road Development business unit for the
      years ended December 31 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Net
                revenues
            
            $
            251.9
            
            $
            727.3
            
            $
            673.1After-tax
                earnings from operations
            
            $
            37.8
            
            $
            62.9
            
            $
            36.6Gain
                on sale, net of tax of $164.4
            
            
            634.7
            
            
            -
            
            
            -Total
                discontinued operations, net of tax
            
            $
            672.5
            
            $
            62.9
            
            $
            36.6





*Other
      Discontinued Operations*


The
      Company also has retained costs from previously sold businesses that mainly
      include costs related to postretirement benefits, product liability and legal
      costs (mostly asbestos-related). The components of other discontinued operations
      for the years ended December 31 were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Retained
                costs, net of tax
            
            $
            (340.9
            )
            $
            (36.5
            )
            $
            (34.1
            )Net
                gain (loss) on disposals, net of tax
            
            
            (25.1
            )
            
            0.7
            
            
            35.2Total
                discontinued operations, net of tax
            
            $
            (366.0
            )
            $
            (35.8
            )
            $
            1.1




During
      the fourth quarter of 2007, the Company recorded a non-cash charge of $449.0
      million ($277 million after tax) related to the Company’s liability for all
      pending and estimated future asbestos claims through 2053. Refer to Note 20,
      Commitments and Contingencies, for further details on asbestos-related
      matters.




79


Assets
        and liabilities recorded as held for sale on the consolidated balance sheet
        at
        December 31 were as follows:


*In
                millions*
            
            2006**Assets**Current
                assets
            
            $
            1,064.3Property,
                plant and equipment, net
            
            
            408.1Goodwill
                and other intangible assets, net
            
            
            791.0Other
                assets and deferred income taxes
            
            
            242.7Assets
                held for sale
            
            $
            2,506.1**Liabilities**Current
                liabilities
            
            $
            676.1Noncurrent
                liabilities
            
            
            498.8Liabilities
                held for sale
            
            $
            1,174.9




**NOTE
      5 – RESTRUCTURING ACTIVITIES**


Restructuring
      charges recorded during the year ended December 31, 2007 were as
      follows:





ClimateControl
            
            Industrial
            
            Security*In
                millions*
            
            Technologies
            
            Technologies
            
            Technologies
            
            TotalCost
                of goods sold
            
            $
            22.3
            
            $
            0.6
            
            $
            1.9
            
            $
            24.8Selling
                and administrative
            
            
            0.1
            
            
            0.4
            
            
            3.4
            
            
            3.9Total
            
            $
            22.4
            
            $
            1.0
            
            $
            5.3
            
            $
            28.7





The
      changes in the restructuring reserve were as follows:





ClimateControl
            
            Industrial
            
            Security*In
                millions*
            
            Technologies
            
            Technologies
            
            Technologies
            
            TotalBalance
                at December 31, 2006
            
            $
            -
            
            $
            -
            
            $
            1.3
            
            $
            1.3Additions
            
            
            22.4
            
            
            1.0
            
            
            5.3
            
            
            28.7Cash
                and non-cash uses
            
            
            (3.0
            )
            
            (0.3
            )
            
            (2.7
            )
            
            (6.0
            )Currency
                translation
            
            
            1.4
            
            
            -
            
            
            0.1
            
            
            1.5Balance
                at December 31, 2007
            
            $
            20.8
            
            $
            0.7
            
            $
            4.0
            
            $
            25.5





During
      2007, the Company initiated restructuring actions relating to ongoing cost
      reduction efforts across each of its sectors. These actions include both
      workforce reductions as well as the consolidation of manufacturing
      facilities.





Actions
      taken in the Climate Control Technologies sector included a rationalization
      of
      manufacturing facilities in the U.S., Europe and Asia that resulted in the
      closure of a U.S. plant, 2 European plants and a Japanese plant. Security
      Technologies conducted a consolidation of administrative functions throughout
      the European sales area.





At
      December 31, 2007, the Company has $25.5 million accrued for the workforce
      reductions and consolidation of manufacturing facilities, of which a majority
      is
      expected to be paid in the first quarter of 2008, with the remainder paid
      throughout the rest of the year.




80




**NOTE
      6 – MARKETABLE SECURITIES**


At
      December 31, marketable securities were as follows:





2007
            
            2006*In
                millions*
            
            Amortized
              cost
                or
              cost
            
            Unrealizedlosses
            
            Fair
              value
            
            Amortized
              cost
                or
              cost
            
            Unrealized
              losses
            
            Fair
              valueShort-term
                marketable securities:Equity
                securities
            
            $
            0.1
            
            $
            -
            
            $
            0.1
            
            $
            0.7
            
            $
            -
            
            $
            0.7Total
            
            $
            0.1
            
            $
            -
            
            $
            0.1
            
            $
            0.7
            
            $
            -
            
            $
            0.7Long-term
                marketable securities:Equity
                securities
            
            $
            17.3
            
            $
            (4.9
            )
            $
            12.4
            
            $
            18.7
            
            $
            (4.4
            )
            $
            14.3Total
            
            $
            17.3
            
            $
            (4.9
            )
            $
            12.4
            
            $
            18.7
            
            $
            (4.4
            )
            $
            14.3





Long-term
      marketable securities are included within Other assets on the Consolidated
      Balance Sheet.





**NOTE
      7 – INVENTORIES**


At
      December 31, the major classes of inventory were as follows:





*In
                millions*
            
            2007
            
            2006Raw
                materials
            
            $
            323.2
            
            $
            353.8Work-in-process
            
            
            163.4
            
            
            186.3Finished
                goods
            
            
            424.9
            
            
            393.0911.5
            
            
            933.1LIFO
                reserve
            
            
            (84.3
            )
            
            (95.4
            )Total
            
            $
            827.2
            
            $
            837.7





**NOTE
      8 – PROPERTY, PLANT AND EQUIPMENT**


At
      December 31, the major classes of property, plant and equipment were as
      follows:




*In
                millions*
            
            2007
            
            2006Land
            
            $
            65.4
            
            $
            59.1Buildings
            
            
            485.7
            
            
            438.7Machinery
                and equipment
            
            
            1,056.6
            
            
            999.7Software
            
            
            174.5
            
            
            154.21,782.2
            
            
            1,651.7Accumulated
                depreciation
            
            
            (877.3
            )
            
            (783.5
            )Total
            
            $
            904.9
            
            $
            868.2





Depreciation
      expense for the years ended December 31, 2007, 2006 and 2005 was $112.3 million,
      $122.7 million and $125.7 million, which include amounts for software
      amortization of $17.5 million, $23.1 million and $27.8 million, respectively.




81




**NOTE
      9 – GOODWILL**


The
      changes in the carrying amount of goodwill are as follows:





ClimateControl
            
            Industrial
            
            Security*In
                millions*
            
            Technologies
            
            Technologies
            
            Technologies
            
            TotalBalance
                at December 31, 2005
            
            $
            2,514.2
            
            $
            321.5
            
            $
            875.6
            
            $
            3,711.3Acquisitions
                and adjustments*
            
            
            (22.2
            )
            
            14.3
            
            
            17.9
            
            
            10.0Currency
                translation
            
            
            53.1
            
            
            5.4
            
            
            57.4
            
            
            115.9Balance
                at December 31, 2006
            
            
            2,545.1
            
            
            341.2
            
            
            950.9
            
            
            3,837.2Acquisitions
                and adjustments*
            
            
            -
            
            
            22.0
            
            
            (6.1
            )
            
            15.9Currency
                translation
            
            
            68.7
            
            
            8.7
            
            
            62.8
            
            
            140.2Balance
                at December 31, 2007
            
            $
            2,613.8
            
            $
            371.9
            
            $
            1,007.6
            
            $
            3,993.3


*
      Includes current year adjustments related to final purchase price allocation
      adjustments.





**NOTE
      10 –INTANGIBLE ASSETS**


The
      following table sets forth the gross amount and accumulated amortization of
      the
      Company’s intangible assets at December 31:


2007
              
              2006Gross
              
              Accumulated
              
              Gross
              
              Accumulated*In
                  millions*
              
              amount
              
              amortization
              
              amount
              
              amortizationCustomer
                  relationships
              
              $
              502.4
              
              $
              87.4
              
              $
              489.6
              
              $
              71.8Trademarks
              
              
              114.5
              
              
              15.6
              
              
              102.6
              
              
              9.8Patents
              
              
              38.2
              
              
              21.2
              
              
              30.5
              
              
              18.2Other
              
              
              53.4
              
              
              29.0
              
              
              48.9
              
              
              23.7Total
                  amortizable intangible assets
              
              
              708.5
              
              
              153.2
              
              
              671.6
              
              
              123.5Indefinite-lived
                  intangible assets
              
              
              169.3
              
              
              -
              
              
              164.7
              
              
              -Total
              
              $
              877.8
              
              $
              153.2
              
              $
              836.3
              
              $
              123.5


Intangible
      asset amortization expense for 2007, 2006 and 2005 was $25.2 million, $24.8
      million and $29.6 million, respectively. Estimated amortization expense on
      existing intangible assets is approximately $30 million for each of the next
      five fiscal years.





**NOTE
      11 – DEBT AND CREDIT FACILITIES**


At
      December 31, short-term borrowings and current maturities of long-term debt
      consisted of the following:





*In
                millions*
            
            2007
            
            2006Current
                maturities of long-term debt
            
            $
            681.1
            
            $
            626.7Other
                short-term borrowings
            
            
            59.9
            
            
            452.7Total
            
            $
            741.0
            
            $
            1,079.4




The
      weighted-average interest rate for total short-term borrowings at December
      31,
      2007 and 2006 was 6.9% and 6.3%, respectively.




82




At
      December 31, 2007, the Company had no debt outstanding under its commercial
      paper program, compared to $378.0 million outstanding at December 31, 2006.
      Commercial paper is included in other short-term borrowings in the table
      above.




At
      December 31, long-term debt excluding current maturities consisted
      of:





*In
                millions*
            
            2007
            
            20066.75%
                Senior Notes Due 2008
            
            $
            -
            
            $
            124.94.75%
                Senior Notes Due 2015
            
            
            299.1
            
            
            299.09.00%
                Debentures Due 2021
            
            
            125.0
            
            
            125.07.20%
                Debentures Due 2007-2025
            
            
            127.5
            
            
            135.06.48%
                Debentures Due 2025
            
            
            149.7
            
            
            149.7Medium-term
                Notes Due 2023, at an average rate of 8.22%
            
            
            -
            
            
            50.3Other
                loans and notes, at end-of-year average interest rates of
                4.32%in
                2007 and 4.73% in 2006, maturing in various amounts to
                2016
            
            
            11.4
            
            
            21.3Total
            
            $
            712.7
            
            $
            905.2





The
      fair
      value of long-term debt, including current maturities of long-term debt, at
      December 31, 2007 and 2006, was $1,336.7 million and $1,524.7 million,
      respectively. The fair value of long-term debt was based upon quoted market
      values.





At
      December 31, 2007, long-term debt retirements are as follows:





Debt*In
                millions*
            
            retirements2008
            
            $
            681.12009
            
            
            9.42010
            
            
            8.92011
            
            
            8.92012
            
            
            9.2Thereafter
            
            
            676.3Total
            
            $
            1,393.8




Long-term
      debt retirements for 2008 include $547.9 million which only requires repayment
      at the option of the holder. If these options are not exercised, the final
      maturity dates of these instruments would range between 2027 and 2028.





The
      Company's public debt has no financial covenants and its $2.0 billion revolving
      credit lines have a debt-to-total capital covenant of 65%. As of December 31,
      2007, the Company’s debt-to-total capital ratio was significantly beneath this
      limit.





At
      December 31, 2007, the Company’s committed revolving credit facilities consisted
      of two five-year lines totaling $2.0 billion, of which $750 million expires
      in
      June 2009 and $1.25 billion expires in August 2010. These lines were unused
      and
      provide support for the Company’s commercial paper program and indirectly
      provide support for other financing instruments, such as letters of credit
      and
      comfort letters as required in the normal course of business. The Company
      compensates banks for unused lines with fees equal to a weighted average of
      .0775% per annum. Available non-U.S. lines of credit were $756.9 million, of
      which $620.5 million were unused at December 31, 2007. These lines provide
      support for bank guarantees, letters of credit and other working capital
      purposes.




83




**NOTE
      12 – FINANCIAL INSTRUMENTS**


In
      the
      normal course of business, the Company uses various financial instruments,
      including derivative instruments, to manage risks associated with interest
      rate,
      currency rate, commodity price and share-based compensation exposures.
      Derivative instruments are not used for trading or speculative purposes. On
      the
      date a derivative contract is entered into, the Company designates the
      derivative instrument as either a hedge of a forecasted transaction (a cash
      flow
      hedge) or a hedge of recognized asset or liability (a cash flow or undesignated
      hedge). The Company formally documents
      its hedge relationships, including identification of the derivative
      instruments and the hedged items, as well as its risk management objectives
      and
      strategies for undertaking the hedge transaction. This process includes linking
      derivative instruments that are designated as hedges to specific assets,
      liabilities or forecasted transactions.





The
      Company also assesses both at the inception and at least quarterly thereafter,
      whether the derivatives used in hedging transactions are highly effective in
      offsetting the changes in the cash flows of the hedged item. Any ineffective
      portion of a derivative instrument’s change in fair value is recorded directly
      in Other income, net, in the period of change. There were no material
      adjustments as a result of ineffectiveness to the results of operations for
      the
      years ended December 31, 2007, 2006 and 2005. If the hedging relationship ceases
      to be highly effective, or it becomes probable that a forecasted transaction
      is
      no longer expected to occur, the hedging relationship will be undesignated
      and
      any future gains and losses on the derivative instrument would be recorded
      in
      Other income, net.





The
      fair
      market value of derivative instruments are determined through market-based
      valuations and may not be representative of the actual gains or losses that
      will
      be recorded when these instruments mature due to future fluctuations in the
      markets in which they are traded.





*Currency
      and Commodity Hedging Instruments*


The
      estimated fair value of currency hedges outstanding at December 31, 2007 and
      2006, was a projected loss of $5.2 million and $3.5 million, respectively.
      The
      notional amounts of the currency hedges were $355.5 million and $514.0 million
      at December 31, 2007 and 2006, respectively. At December 31, 2007 and 2006,
      $2.4
      million and $1.1 million, net of tax, respectively, was included in Accumulated
      other comprehensive income (loss) related to the fair value of currency hedges.
      The amount expected to be reclassified to earnings over the next twelve months
      is $2.4 million. The actual amounts that will be reclassified to earnings may
      vary from this amount as a result of changes in market conditions. At December
      31, 2007, the maximum term of the Company’s currency hedges was 12
      months.





The
      estimated fair value of commodity hedges outstanding at December 31, 2007,
      was a
      projected loss of $2.4 million. The notional amount of the commodity hedges
      was
      $22.2 million at December 31, 2007. At December 31, 2007, $1.4 million, net
      of
      tax, was included in Accumulated other comprehensive income (loss) related
      to
      the fair value of commodity hedges. The amount expected to be reclassified
      to
      earnings over the next twelve months is $1.4 million. The actual amounts that
      will be reclassified to earnings may vary from this amount as a result of
      changes in market conditions. During 2006, the Company did not enter into any
      commodity hedges. However, it used fixed-priced supplier agreements, when
      available, to minimize the risk of fluctuating commodity prices.




84


*Other
      Hedging Instruments*


In
      August
      2006, the Company entered into two total return swaps (the Swaps) which were
      derivative instruments used to hedge the Company's exposure to changes in its
      share-based compensation expense. The aggregate notional amount of the Swaps
      was
      approximately $52.6 million. On June 11, 2007, the Company terminated a portion
      of the Swaps for net cash proceeds of $3.8 million. The Company settled the
      remaining portion of the Swaps on August 6, 2007, for net cash proceeds of
      $13.8
      million. For the year ended December 31, 2007 and 2006, the Company recorded
      a
      gain of $15.5 million and $2.1 million, respectively, associated with the Swaps.
      The gains and losses associated with the Swaps are recorded within Selling
      and
      administrative expenses.





In
      March
      2005, the Company entered into interest rate locks for the forecasted issuance
      of $300 million of Senior Notes due 2015. These interest rate locks met the
      criteria to be accounted for as cash flow hedges of a forecasted transaction.
      Consequently, the changes in fair value of the interest rate locks were deferred
      in Accumulated other comprehensive income (loss) and will be recognized into
      interest expense over the life of the debt. At December 31, 2007, $8.5 million
      of deferred losses was included in Accumulated other comprehensive income (loss)
      related to the interest rate locks, of which $1.0 million is expected to be
      reclassified to earnings over the next twelve months.





*Concentration
      of Credit Risk*


The
      counterparties to the Company's forward contracts consist of a number of highly
      rated major international financial institutions. The Company could be exposed
      to losses in the event of nonperformance by the counterparties. However, credit
      ratings and concentration of risk of these financial institutions are monitored
      on a continuous basis and present no significant credit risk to the Company.





*Fair
      Value of Financial Instruments*


The
      carrying value of cash and cash equivalents, accounts receivable, short-term
      borrowings and accounts payable are a reasonable estimate of their fair value
      due to the short-term nature of these instruments.





**NOTE
      13 – POSTRETIREMENT BENEFITS OTHER THAN PENSIONS**


The
      Company sponsors several postretirement plans that cover certain eligible
      employees. These plans provide for health-care benefits, and in some instances,
      life insurance benefits. Postretirement health plans generally are contributory
      and contributions are adjusted annually. Life insurance plans for retirees
      are
      primarily noncontributory. The Company funds the postretirement benefit costs
      principally on a pay-as-you-go basis.





In
      2006,
      the Company adopted SFAS 158, which required the Company to record the funded
      status of its postretirement plans on its balance sheet effective December
      31,
      2006. The adoption of SFAS 158 for the Company’s postretirement plans other than
      pensions resulted in an increase of total liabilities of $300.4 million and
      a
      decrease of shareholders’ equity of $135.7 million (net of tax of $164.7
      million). See Note 2, Summary of Significant Accounting Policies, for further
      details.





In
      connection with the sale of Compact Equipment and the Road Development business
      unit during 2007, the Company settled its obligation for postretirement benefits
      for all current and former employees related to these divestitures. In addition,
      the Company’s U.S. postretirement plan was remeasured as of the sale
      dates.




85




The
      following table details information regarding the Company’s postretirement plans
      at December 31:





*In
                millions*
            
            2007
            
            2006Change
                in benefit obligations:Benefit
                obligation at beginning of year
            
            $
            1,035.2
            
            $
            1,009.3Service
                cost
            
            
            11.8
            
            
            11.8Interest
                cost
            
            
            54.2
            
            
            55.0Plan
                participants' contributions
            
            
            13.4
            
            
            12.9Actuarial
                (gains) losses
            
            
            (1.7
            )
            
            43.4Benefits
                paid, net of Medicare Part D subsidy *
            
            
            (88.9
            )
            
            (97.0
            )Settlements/curtailments
            
            
            (375.8
            )
            
            -Other
            
            
            1.6
            
            
            (0.2
            )Benefit
                obligations at end of year
            
            $
            649.8
            
            $
            1,035.2*
                Amounts are net of Medicare Part D subsidy of $1.9 and $7.1 million
                in
                2007 and 2006, respectivelyFunded
                status:Plan
                assets less than benefit obligations
            
            $
            (649.8
            )
            $
            (1,035.2
            )Amounts
                included in the balance sheet:Accrued
                compensation and benefits
            
            $
            (51.1
            )
            $
            (60.1
            )Liabilities
                held for sale
            
            
            -
            
            
            (331.7
            )Postemployment
                and other benefit liabilities
            
            
            (598.7
            )
            
            (643.4
            )Total
            
            $
            (649.8
            )
            $
            (1,035.2
            )




The
      pretax amounts recognized in Accumulated other comprehensive income (loss)
      were
      as follows:





*In
                millions*
            
            Prior
              service
              gains
            
            Net
              actuarial
              losses
            
            TotalBalance
                at December 31, 2006
            
            $
            21.8
            
            $
            (322.2
            )
            $
            (300.4
            )Current
                year changes recorded to Accumulatedother
                comprehensive income (loss)
            
            
            -
            
            
            1.5
            
            
            1.5Amortization
                reclassified to earnings
            
            
            (3.8
            )
            
            15.9
            
            
            12.1Settlements/curtailments
                reclassified to earnings
            
            
            (3.5
            )
            
            113.4
            
            
            109.9Balance
                at December 31, 2007
            
            $
            14.5
            
            $
            (191.4
            )
            $
            (176.9
            )





86





The
      components of net periodic postretirement benefit (income) cost for the years
      ended December 31, were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Service
                cost
            
            $
            11.8
            
            $
            11.8
            
            $
            9.3Interest
                cost
            
            
            54.2
            
            
            55.0
            
            
            54.9Net
                amortization of prior service gains
            
            
            (3.8
            )
            
            (4.2
            )
            
            (4.2
            )Net
                amortization of net actuarial losses
            
            
            15.9
            
            
            16.6
            
            
            14.0Net
                periodic postretirement benefit cost
            
            
            78.1
            
            
            79.2
            
            
            74.0Net
                curtailment and settlement (gains) losses
            
            
            (265.9
            )
            
            -
            
            
            -Net
                periodic postretirement benefit (income) costafter
                net curtailment and settlement (gains) losses
            
            $
            (187.8
            )
            $
            79.2
            
            $
            74.0Amounts
                recorded in continuing operations
            
            $
            22.7
            
            $
            25.7
            
            $
            25.1Amounts
                recorded in discontinued operations
            
            
            (210.5
            )
            
            53.5
            
            
            48.9Total
            
            $
            (187.8
            )
            $
            79.2
            
            $
            74.0




The
      curtailment and settlement gains and losses in 2007 are associated with the
      divestiture of Compact Equipment and the Road Development business unit. Amounts
      expected to be recognized in net periodic postretirement benefits cost in 2008
      for prior service gains and plan net actuarial losses are $3.5 million and
      $14.9
      million, respectively.





Assumptions:
            
            2007
            
            2006
            
            2005Weighted-average
                discount rate assumption to determine:Benefit
                obligations at December 31
            
            
            6.00
            %
            
            5.50
            %
            
            5.50
            %Net
                periodic benefit costFor
                the period January 1 to April 30
            
            
            5.50
            %
            
            5.50
            %
            
            5.75
            %For
                the period May 1 to November 30
            
            
            5.75
            %
            
            5.50
            %
            
            5.75
            %For
                the period December 1 to December 31
            
            
            6.00
            %
            
            5.50
            %
            
            5.75
            %Assumed
                health-care cost trend rates at December 31:Current
                year medical inflation
            
            
            11.00
            %
            
            11.00
            %
            
            11.00
            %Ultimate
                inflation rate
            
            
            5.25
            %
            
            5.25
            %
            
            5.25
            %Year
                that the rate reaches the ultimate trend rate
            
            
            2014
            
            
            2013
            
            
            2012




A
      1%
      change in the medical trend rate assumed for postretirement benefits would
      have
      the following effects at December 31, 2007:





1%
            
            1%*In
                millions*
            
            Increase
            
            DecreaseEffect
                on total of service and interest cost components
            
            $
            1.7
            
            $
            1.5Effect
                on postretirement benefit obligation
            
            
            30.1
            
            
            26.2




87




Benefit
      payments for postretirement benefits, which are net of expected plan participant
      contributions and Medicare Part D subsidy, are expected to be paid as follows:





Benefit*In
                millions*
            
            payments2008
            
            $
            51.12009
            
            52.22010
            
            55.22011
            
            56.22012
            
            56.32013
                - 2017
            
            280.4




**NOTE
      14 – PENSION PLANS**


The
      Company has noncontributory pension plans covering substantially all U.S.
      employees. In addition, certain non-U.S. employees in other countries are
      covered by pension plans. The Company’s pension plans for U.S. non-collectively
      bargained employees provided benefits on a final average pay formula. The
      Company’s U.S. collectively bargained pension plans principally provide benefits
      based on a flat benefit formula. Non-U.S. plans provide benefits based on
      earnings and years of service. The Company maintains additional other
      supplemental benefit plans for officers and other key employees.





In
      2006,
      the Company adopted SFAS 158, which requires the Company to record the funded
      status of its pension plans on its balance sheet effective December 31, 2006.
      The adoption of SFAS 158 resulted in a decrease of total assets of $476.0
      million, total liabilities of $35.4 million and total shareholders’ equity of
      $337.1 million (net of tax of $103.5 million). See Note 2, Summary of
      Significant Accounting Policies, for further details.





In
      connection with the sale of Compact Equipment and the Road Development business
      unit during 2007, the Company settled its obligation for pension benefits for
      all current and former employees related to these divestitures. In addition,
      certain of the Company’s U.S. plans and the U.K. plan were remeasured as of the
      sale dates.




88




The
      following table details information regarding the Company’s pension plans at
      December 31:





*In
                millions*
            
            2007
            
            2006Change
                in benefit obligations:Benefit
                obligation at beginning of year
            
            $
            3,175.7
            
            $
            3,033.2Service
                cost
            
            
            52.0
            
            
            54.6Interest
                cost
            
            
            164.3
            
            
            161.3Employee
                contributions
            
            
            2.3
            
            
            2.8Acquisitions
            
            
            0.7
            
            
            -Amendments
            
            
            3.1
            
            
            19.8Expenses
                paid
            
            
            (4.2
            )
            
            (3.6
            )Actuarial
                (gains) losses
            
            
            (83.6
            )
            
            7.4Benefits
                paid
            
            
            (202.4
            )
            
            (205.8
            )Currency
                translation
            
            
            26.0
            
            
            101.1Curtailments
            
            
            (22.2
            )
            
            0.6Settlements
            
            
            (539.3
            )
            
            (8.2
            )Other
            
            
            -
            
            
            12.5Benefit
                obligation at end of year
            
            $
            2,572.4
            
            $
            3,175.7Change
                in plan assets:Fair
                value at beginning of year
            
            $
            2,957.3
            
            $
            2,727.0Actual
                return on assets
            
            
            211.1
            
            
            325.7Company
                contributions
            
            
            25.5
            
            
            31.6Employee
                contributions
            
            
            2.3
            
            
            2.8Expenses
                paid
            
            
            (4.2
            )
            
            (3.6
            )Benefits
                paid
            
            
            (202.4
            )
            
            (205.8
            )Currency
                translation
            
            
            17.6
            
            
            85.2Settlements
            
            
            (506.3
            )
            
            (8.0
            )Other
            
            
            -
            
            
            2.4Fair
                value of assets end of year
            
            $
            2,500.9
            
            $
            2,957.3Funded
                status:Plan
                assets less than the benefit obligations
            
            $
            (71.5
            )
            $
            (218.4
            )Amounts
                included in the balance sheet:Long-term
                prepaid expenses in other assets
            
            $
            166.9
            
            $
            95.8Assets
                held for sale
            
            
            -
            
            
            23.5Accrued
                compensation and benefits
            
            
            (24.5
            )
            
            (10.0
            )Liabilities
                held for sale
            
            
            -
            
            
            (67.7
            )Postemployment
                and other benefit liabilities
            
            
            (213.9
            )
            
            (260.0
            )Net
                amount recognized
            
            $
            (71.5
            )
            $
            (218.4
            )




89




The
      pretax amounts recognized in Accumulated other comprehensive income (loss)
      were
      as follows:





*In
                millions*
            
            Net
              transition
              obligation
            
            Prior
              service
              cost
            
            Net
              actuarial
              losses
            
            TotalBalance
                at December 31, 2006
            
            $
            (2.1
            )
            $
            (63.0
            )
            $
            (574.5
            )
            $
            (639.6
            )Current
                year changes recorded to Accumulatedother
                comprehensive income (loss)
            
            
            -
            
            
            (3.1
            )
            
            66.0
            
            
            62.9Amortization
                reclassified to earnings
            
            
            0.9
            
            
            9.2
            
            
            13.8
            
            
            23.9Settlements/curtailments
                reclassified to earnings
            
            
            0.2
            
            
            12.4
            
            
            106.1
            
            
            118.7Currency
                translation
            
            
            -
            
            
            -
            
            
            (4.1
            )
            
            (4.1
            )Balance
                at December 31, 2007
            
            $
            (1.0
            )
            $
            (44.5
            )
            $
            (392.7
            )
            $
            (438.2
            )





Weighted-average
                assumptions used:Benefit
                obligations at December 31,
            
            2007
            
            2006Discount
                rate:U.S.
                plans
            
            
            6.25
            %
            
            5.50
            %Non-U.S.
                plans
            
            
            6.00
            %
            
            5.00
            %Rate
                of compensation increase:U.S.
                plans
            
            
            4.00
            %
            
            4.00
            %Non-U.S.
                plans
            
            
            4.50
            %
            
            4.25
            %




The
      accumulated benefit obligation for all defined benefit pension plans was
      $2,439.9 million and $3,005.3 million at December 31, 2007 and 2006,
      respectively. The projected benefit obligation, accumulated benefit obligation,
      and fair value of plan assets for pension plans with accumulated benefit
      obligations more than plan assets were $955.9 million, $884.1 million and $716.0
      million, respectively, as of December 31, 2007, and $1,198.4 million, $1,101.5
      million and $861.9 million, respectively, as of December 31, 2006.





Pension
      benefit payments are expected to be paid as follows:





Benefit*In
                millions*
            
            payments2008
            
            $
            167.52009
            
            168.12010
            
            184.62011
            
            163.42012
            
            171.12013
                - 2017
            
            912.0




90




The
      components of the Company’s pension related costs for the years ended December
      31, include the following:





*In
                millions*
            
            2007
            
            2006
            
            2005Service
                cost
            
            $
            52.0
            
            $
            54.6
            
            $
            52.9Interest
                cost
            
            
            164.3
            
            
            161.3
            
            
            161.3Expected
                return on plan assets
            
            
            (228.7
            )
            
            (218.9
            )
            
            (213.9
            )Net
                amortization of:Prior
                service costs
            
            
            9.2
            
            
            9.4
            
            
            8.8Transition
                amount
            
            
            0.9
            
            
            0.9
            
            
            0.9Plan
                net actuarial losses
            
            
            13.8
            
            
            25.4
            
            
            22.4Net
                periodic pension benefit cost
            
            
            11.5
            
            
            32.7
            
            
            32.4Net
                curtailment and settlement (gains) losses
            
            
            63.5
            
            
            -
            
            
            4.0Net
                periodic pension benefit cost after netcurtailment
                and settlement (gains) losses
            
            $
            75.0
            
            $
            32.7
            
            $
            36.4Amounts
                recorded in continuing operations
            
            $
            20.6
            
            $
            38.3
            
            $
            45.8Amounts
                recorded in discontinued operations
            
            
            54.4
            
            
            (5.6
            )
            
            (9.4
            )Total
            
            $
            75.0
            
            $
            32.7
            
            $
            36.4




The
      curtailment and settlement gains and losses in 2007 are associated with the
      divestiture of Compact Equipment and the Road Development business unit. Pension
      expense for 2008 is projected to be approximately $23 million, utilizing the
      assumptions for calculating the pension benefit obligations at the end of 2007.
      The amounts expected to be recognized in net periodic pension cost during the
      year ended 2008 for the net transition obligation, prior service cost and plan
      net actuarial losses are $0.7 million, $8.4 million and $9.6 million,
      respectively.





Weighted-average
                assumptions used:Net
                periodic pension cost for the year ended December 31,
            
            2007
            
            2006
            
            2005Discount
                rate:U.S.
                plansFor
                the period January 1 to April 30
            
            
            5.50
            %
            
            5.50
            %
            
            5.75
            %For
                the period May 1 to November 30
            
            
            5.75
            %
            
            5.50
            %
            
            5.75
            %For
                the period December 1 to December 31
            
            
            6.25
            %
            
            5.50
            %
            
            5.75
            %Non-U.S.
                plansFor
                the period January 1 to April 30
            
            
            5.00
            %
            
            5.00
            %
            
            5.25
            %For
                the period May 1 to November 30
            
            
            5.50
            %
            
            5.00
            %
            
            5.25
            %For
                the period December 1 to December 31
            
            
            6.00
            %
            
            5.00
            %
            
            5.25
            %Rate
                of compensation increase:U.S.
                plans
            
            
            4.00
            %
            
            4.00
            %
            
            4.00
            %Non-U.S.
                plansFor
                the period January 1 to April 30
            
            
            4.25
            %
            
            4.00
            %
            
            4.00
            %For
                the period May 1 to November 30
            
            
            4.35
            %
            
            4.00
            %
            
            4.00
            %For
                the period December 1 to December 31
            
            
            4.50
            %
            
            4.00
            %
            
            4.00
            %Expected
                return on plan assets:U.S.
                plans
            
            
            8.50
            %
            
            8.50
            %
            
            8.75
            %Non-U.S.
                plans
            
            
            7.25
            %
            
            7.25
            %
            
            7.50
            %




91




The
      expected long-term rates of return are projected to be the rates of return
      to be
      earned over the period until the benefits are paid and are determined as of
      the
      measurement date. Accordingly, the long-term rates of return should reflect
      the
      rates of return on present investments, expected contributions to be received
      during the current year and on reinvestments over the period. The rates of
      return utilized reflect the expected rates of return during the periods for
      which the payment of benefits is deferred. The expected long-term rate of return
      on plan assets is based on what is achievable given the plan’s investment policy
      and the types of assets held. Historical asset return trends for the larger
      plans are reviewed over fifteen, ten and five-year periods. The actual rate
      of
      return for U.S. plan assets over the last fifteen-year period has exceeded
      the
      expected rate of return used. The Company reviews each plan and its historical
      returns and asset allocations to determine the appropriate expected long-term
      rate of return on plan assets to be used.





The
      Company’s pension plans weighted-average asset allocations at December 31, 2007
      and 2006, by asset category are as follows:





Asset
                category
            
            2007
            
            2006Equity
                securities
            
            
            54.0
            %
            
            62.0
            %Debt
                securities
            
            
            38.4
            %
            
            33.1
            %Real
                estate
            
            
            0.4
            %
            
            0.3
            %Other
                (including cash)
            
            
            7.2
            %
            
            4.6
            %Total
            
            
            100.0
            %
            
            100.0
            %




The
      Company’s investment objectives in managing its defined benefit plan assets are
      to ensure that present and future benefit obligations to all participants and
      beneficiaries are met as they become due; to provide a total return that, over
      the long term, minimizes the present value of required company contributions,
      at
      the appropriate levels of risk; and to meet any statutory requirements, laws
      and
      local regulatory agencies’ requirements. Key investment management decisions
      reviewed regularly are asset allocations, investment manager performance,
      investment advisors and trustees or custodians. An asset/liability modeling
      (ALM) study is used as the basis for global asset allocation decisions and
      updated approximately every five years or as required. As of December 31, 2007,
      the Company’s strategic global asset allocation for its pension plans was 55% in
      equity securities and 45% in debt securities and cash. The Company sets upper
      limits and lower limits of plus or minus 5%. The asset allocations are reviewed
      at least quarterly and any appropriate adjustments are made. Based on its most
      recent ALM study, the Company in 2007 has begun to adjust its strategic global
      asset allocation for its plans to be approximately 40% in equity securities
      and
      60% in debt securities, real estate and cash.





The
      Company made contributions to its pension plans of $25.5 million in 2007, $31.6
      million in 2006, and $119.4 million in 2005. The Company currently projects
      that
      it will be required to contribute approximately $30 million to its plans
      worldwide in 2008. The Company’s policy allows it to fund an amount, which could
      be in excess of the pension cost expensed, subject to the limitations imposed
      by
      current tax regulations. The Company anticipates funding the plans in 2008
      in
      accordance with contributions required by funding regulations or the laws of
      each jurisdiction.





Most
      of
      the Company’s U.S. employees are covered by savings and other defined
      contribution plans. Employer contributions are determined based on criteria
      specific to the individual plans and amounted to approximately $47.8 million,
      $48.6 million and $46.8 million in 2007, 2006 and 2005, respectively. The
      Company's contributions relating to non-U.S. defined contribution plans and
      other non-U.S. benefit plans were $11.4 million, $8.8 million and $8.1 million
      in 2007, 2006 and 2005, respectively.




92




**NOTE
      15 – SHAREHOLDERS’ EQUITY**


*Common
      Stock*


During
      2007, the Company repurchased 39.7 million Class A common shares at a cost
      of
      $1,999.9 million under the $4 billion share repurchase program originally
      authorized by the Board of Directors in December 2006 and expanded in May 2007.
      During 2006, the Company repurchased 27.7 million Class A common shares at
      a
      cost of $1,096.3 million, which completed the Company’s share repurchases under
      the $2 billion program that was authorized by the Board of Directors in August
      2004 and expanded in August 2005.





On
      August
      3, 2005, the Company’s Board of Directors declared a two-for-one stock split,
      effected in the form of a stock distribution on September 1, 2005. The Company
      retained the current par value of $1.00 per share for all common shares. All
      references in the financial statements and notes to the number of shares
      outstanding, per share amounts, and stock option data of the Company’s common
      shares were restated in 2005 to reflect the effect of the stock split.
      Shareholders’ equity reflects the stock split by reclassifying from “retained
      earnings” to “Class A common shares” an amount equal to the par value of the
      additional shares arising from the split as of the distribution
      date.





Effective
      December 31, 2001, IR-Limited became the successor to IR-New Jersey, following
      the reorganization. The reorganization was accomplished through a merger of
      a
      newly formed merger subsidiary into IR-New Jersey. Upon consummation of the
      merger, the shares of IR-New Jersey common stock automatically became IR-Limited
      Class A common shares. As part of the reorganization, IR-New Jersey and certain
      of its subsidiaries, immediately prior to the merger, transferred shares of
      certain IR-New Jersey subsidiaries and issued certain debt in exchange for
      which
      IR-Limited issued 270,500,006 Class B common shares. The Class B common shares
      are non-voting and pay comparable dividends to the Class A common shares. The
      authorized share capital of IR-Limited is $1,175,010,000, consisting of (1)
      1,175,000,000 common shares, par value $1.00 per share, which common shares
      consist of (a) 600,000,000 Class A common shares and (b) 575,000,000 Class
      B
      common shares, and (2) 10,000,000 preference shares, par value $0.001 per share.
      Class A common shares (and associated preference share purchase rights) were
      issued to holders of IR-New Jersey common stock in the merger. No preference
      shares were outstanding at December 31, 2007 or 2006. As the Class B common
      shares are owned by a consolidated subsidiary, the cost basis of the shares
      are
      eliminated in consolidation.





The
      Company has adopted a shareholder rights plan to protect shareholders from
      attempts to acquire control of the Company at an inadequate price. The plan
      will
      expire on December 22, 2008, unless redeemed or exchanged earlier by the
      Company, as provided in the rights plan. Under the rights plan, one preference
      share purchase right was distributed for each Class A common share. As a result
      of the two-for-one stock split in September 2005, the rights were adjusted
      so
      that each issued share of Class A common share now has associated with it
      one-half of a right. The rights only become exercisable, and will trade
      separately from the Class A common shares, 10 days after the first public
      announcement that any person or group has acquired at least 15% of the Company’s
      outstanding Class A common shares or on the 10 th day
      following the commencement or the announcement of an intention to commence
      a
      tender offer, which would result in that person or group acquiring a beneficial
      ownership of at least 15% of the outstanding Class A common shares. Each right
      entitles a holder to purchase one-thousandth of a share of Series A preferred
      stock at an exercise price of $200.




93




If
      any
      person or group acquires 15% or more of the Company’s Class A common shares, the
      rights not held by the 15% shareholder would become exercisable to purchase
      the
      Company’s Class A common shares at a 50% discount. The plan provides that, at
      any time after a person or group becomes an acquiring person and prior to the
      acquisition by that person or group of 50% or more of the outstanding Class
      A
      common shares, the Board may exchange the rights (other than the rights held
      by
      the acquiring person, which will have become void), at an exchange ratio of
      one
      Class A common share per two rights. The Company may elect to redeem the rights
      at $0.01 per right.





*Accumulated
      Other Comprehensive Income (Loss)*


The
      components of Accumulated other comprehensive income (loss) are as
      follows:





*In
                millions*
            
            2007
            
            2006Currency
                translation
            
            $
            675.8
            
            $
            263.9Fair
                value of derivatives qualifyingas
                cash flow hedges, net of tax
            
            
            (12.3
            )
            
            (10.5
            )Unrealized
                gain (loss) on marketable securities,net
                of tax
            
            
            (3.7
            )
            
            (3.3
            )Pension
                and postretirement obligation adjustments, net of tax
            
            
            (413.3
            )
            
            (608.2
            )Accumulated
                other comprehensive income (loss)
            
            $
            246.5
            
            $
            (358.1
            )





**NOTE
      16 – SHARE-BASED COMPENSATION**


Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
      Payment,” (SFAS 123(R)) using the modified prospective method of adoption. SFAS
      123(R) requires companies to recognize compensation expense for an amount equal
      to the fair value of the share-based award issued. Under the modified
      prospective method, financial statement amounts for prior periods have not
      been
      restated to reflect the fair value method of recognizing compensation cost
      relating to stock options.





Prior
      to
      the adoption, the Company had accounted for stock option plans under the
      recognition and measurement principles of Accounting Principles Board No. 25
      “Accounting for Stock Issued to Employees” (APB 25). Compensation expense was
      not recognized for employee stock options because they were granted with strike
      prices that were equal to the fair market value of the Company’s stock on the
      date of the grant. Compensation expense was recorded for other share-based
      payments including stock appreciation rights (SARs), performance shares,
      deferred compensation and management incentive units awards.





On
      June
      6, 2007, the shareholders of the Company approved the Incentive Stock Plan
      of
      2007, which authorizes the Company to issue stock options and other share-based
      incentives. The total number of shares authorized by the shareholders is 14.0
      million, of which 13.8 million remains available for future incentive awards.
      The plan replaces the Incentive Stock Plan of 1998 which terminated in May
      2007.




94


*Stock
        Options*
 The
        average fair value of the stock options granted for the year ended December
        31,
        2007 and 2006 was estimated to be $11.06 per share and $10.42 per share,
        respectively, using the Black-Scholes option-pricing model. The following
        assumptions were used:


2007
            
            2006Dividend
                yield
            
            
            1.75
            %
            
            1.49
            %Volatility
            
            
            26.10
            %
            
            27.70
            %Risk-free
                rate of return
            
            
            4.71
            %
            
            4.47
            %Expected
                life
            
            
            4.70
                years
            
            
            4.42
                years




The
      fair
      value of each of the Company’s stock option awards is expensed on a
      straight-line basis over the required service period, which is generally the
      three-year vesting period of the options. However, for options granted to
      retirement eligible employees, the Company recognizes expense for the fair
      value
      of the options at the grant date. Expected volatility is based on the historical
      volatility from traded options on the Company’s stock. The risk-free rate of
      return is based on the yield curve of a zero-coupon U.S. Treasury bond on the
      date the award is granted with a maturity equal to the expected term of the
      award. Historical data is used to estimate forfeitures within the Company’s
      valuation model. The Company’s expected life of the stock option awards is
      derived from historical experience and represents the period of time that awards
      are expected to be outstanding.





Changes
      in options outstanding under the plans for the years 2005, 2006 and 2007 are
      as
      follows:





Shares
            
            Weighted-
            
            Aggregate
            
            Weighted-subject
            
            average
            
            intrinsic
            
            averageto
                option
            
            exercise
                price
            
            value (millions)
            
            remaining
                lifeDecember
                31, 2004
            
            
            18,853,474
            
            $
            25.19Granted
            
            
            6,091,600
            
            
            38.70Exercised
            
            
            (3,921,949
            )
            
            23.10Cancelled
            
            
            (1,140,649
            )
            
            33.77December
                31, 2005
            
            
            19,882,476
            
            
            29.26Granted
            
            
            3,305,190
            
            
            39.33Exercised
            
            
            (3,707,839
            )
            
            25.77Cancelled
            
            
            (314,885
            )
            
            38.82December
                31, 2006
            
            
            19,164,942
            
            
            31.54Granted
            
            
            3,528,225
            
            
            43.77Exercised
            
            
            (5,386,093
            )
            
            29.70Cancelled
            
            
            (882,183
            )
            
            41.16Outstanding
                December 31, 2007
            
            
            16,424,891
            
            $
            34.25
            
            $
            202.2
            
            
            5.9Exercisable
                December 31, 2007
            
            
            11,874,003
            
            $
            31.16
            
            $
            181.8
            
            
            4.9




95




The
      following table summarizes information concerning currently outstanding and
      exercisable options:


Options
                    outstanding
                
                Options
                    exercisableNumber
                
                Weighted-
                
                Weighted-
                
                Number
                
                Weighted-
                
                Weighted-outstanding
                    at
                
                average
                
                average
                
                exercisable
                    at
                
                average
                
                averageRange
                    of
                
                December
                    31,
                
                remaining
                
                exercise
                
                December
                    31,
                
                remaining
                
                exerciseexercise
                    price
                
                2007
                
                life
                
                price
                
                2007
                
                life
                
                price$
                    15.00
                -
                $
                    20.00
                
                
                1,369,234
                
                4.6
                
                $
                19.52
                
                1,369,234
                
                4.6
                
                $
                19.5220.01
                -
                25.00
                
                
                1,761,071
                
                3.2
                
                21.24
                
                1,761,071
                
                3.2
                
                21.2425.01
                -
                30.00
                
                
                1,234,616
                
                1.6
                
                26.07
                
                1,234,616
                
                1.6
                
                26.0730.01
                -
                35.00
                
                
                2,802,177
                
                5.3
                
                32.30
                
                2,802,177
                
                5.3
                
                32.3035.01
                -
                40.00
                
                
                6,221,198
                
                6.6
                
                38.99
                
                4,619,495
                
                6.3
                
                38.8440.01
                -
                45.00
                
                
                2,809,095
                
                8.7
                
                43.19
                
                87,410
                
                2.8
                
                43.1345.01
                -
                50.00
                
                
                4,500
                
                9.6
                
                49.90
                
                -
                
                -
                
                -50.01
                -
                55.00
                
                
                107,000
                
                9.6
                
                51.04
                
                -
                
                -
                
                -55.01
                -
                60.00
                
                
                116,000
                
                9.8
                
                55.22
                
                -
                
                -
                
                -$
                    16.83
                -
                $
                    43.16
                
                
                16,424,891
                
                5.9
                
                $
                34.25
                
                11,874,003
                
                4.9
                
                $
                31.16




At
      December 31, 2007, there was $23.4 million of total unrecognized compensation
      cost from stock option arrangements granted under the plan, which is related
      to
      unvested shares of non-retirement eligible employees. This compensation will
      be
      recognized over the required service period, which is generally the three-year
      vesting period. The aggregate intrinsic value of options exercised during the
      year ended December 31, 2007 and 2006 was $103.4 million and $63.3 million,
      respectively.





On
      December 7, 2005, the Compensation Committee of the Company’s board of directors
      approved the acceleration of the vesting of all outstanding and unvested stock
      options under the Company’s stock plan for active employees, effective December
      31, 2005. As a result of the acceleration, 9.7 million stock options became
      exercisable, with exercise prices ranging from $19.53 to $39.85, and a
      weighted-average exercise price of $34.95. In addition to the acceleration
      of
      the vesting date, the terms and conditions of the stock option agreements
      governing the stock options were changed to prohibit transfers of any shares
      acquired through the exercise of these accelerated options until the earlier
      of
      (i) the original vesting date of the option or (ii) termination of employment,
      retirement, death or disability. The charge associated with the acceleration
      of
      vesting was approximately $1 million, which was recorded in the fourth quarter
      of 2005 and represents the intrinsic value for the estimated number of stock
      options that would have been forfeited had the acceleration not occurred. Stock
      options issued after January 1, 2006, generally vest ratably over a three-year
      period from their date of grant and expire at the end of ten years.




96


*SARs*
 SARs
        generally vest ratably over a three-year period from the date of grant and
        expire at the end of ten years. Effective August 2, 2006, all exercised SARs
        are
        settled with the Company’s Class A common shares. Previously, exercised SARs
        were paid in cash. The following table summarizes the information for currently
        outstanding SARs:


Shares
            
            Weighted-
            
            Aggregate
            
            Weighted-subject
            
            average
            
            intrinsic
            
            averageto
                exercise
            
            exercise
                price
            
            value (millions)
            
            remaining
                lifeDecember
                31, 2004
            
            
            1,609,798
            
            $
            25.12Granted
            
            
            617,700
            
            
            38.69Exercised
            
            
            (345,556
            )
            
            23.15Cancelled
            
            
            (112,808
            )
            
            29.95December
                31, 2005
            
            
            1,769,134
            
            
            30.05Granted
            
            
            395,020
            
            
            39.12Exercised
            
            
            (327,717
            )
            
            24.49Cancelled
            
            
            (142,683
            )
            
            32.18December
                31, 2006
            
            
            1,693,754
            
            
            33.11Granted
            
            
            -
            
            
            -Exercised
            
            
            (476,400
            )
            
            30.31Cancelled
            
            
            (47,377
            )
            
            34.72Outstanding
                December 31, 2007
            
            
            1,169,977
            
            $
            33.99
            
            $
            14.6
            
            
            5.8Exercisable
                December 31, 2007
            
            
            814,707
            
            $
            31.76
            
            $
            12.0
            
            
            5.2


Note:
      The
      Company did not grant SARS during 2007 and does not anticipate further granting
      in the future.





*Performance
      Shares*


The
      Company has a Performance Share Program (PSP) for key employees. The
      program provides annual awards for the achievement of pre-established long-term
      strategic initiatives and annual financial performance of the Company. The
      annual target award level is expressed as a number of the Company’s Class A
      common shares. For performance year 2006 the award was paid in cash.





On
      April
      17, 2007, and effective for the performance year 2007, the Compensation
      Committee of the Company’s board of directors approved a revision to the PSP
      program such that all
      PSP
      awards will be paid in Class A common shares rather than in cash. In addition,
      all shares will vest one year after the date of grant except for
      retirement-eligible employees which vest immediately. As a result of these
      changes, a larger portion of the Company’s executive compensation program will
      be directly linked to the performance of the Company’s Class A common shares,
      thus further aligning the interests of executives with those of the Company’s
      shareholders.





*Deferred
      Compensation*


The
      Company allows key employees and non-employee directors to defer a portion
      of
      their eligible compensation into a number of investment choices, including
      Class
      A common share equivalents. Effective
      August 2, 2006, the Company eliminated the provision in the deferred
      compensation plans making plan participants eligible to receive a 20%
      supplemental amount on deferrals in the Company's Class A common share
      equivalents. In addition, the Company vested the previously awarded, but
      unvested, portions of the 20% supplemental amount awarded under the deferred
      compensation plans .





Effective
      August 1, 2007, the deferred compensation plans were amended to provide that
      any
      amounts invested in the Class A common share equivalents will be settled in
      Class A common shares at the time of distribution. Previously, these amounts
      were settled in cash.




97


*Other
      Plans*


The
      Company maintains a shareholder-approved Management Incentive Unit Award Plan.
      Under the plan, participating key employees were awarded incentive units. When
      dividends are paid on Class A common shares, phantom dividends are awarded
      to
      unit holders, one-half of which is paid in cash, the remaining half of which
      is
      credited to the participants’ account in the form of Class A common share
      equivalents. The value of the actual incentive units is never paid to
      participants, and only the fair value of accumulated common share equivalents
      is
      paid in cash upon the participants’ retirement. The number of common share
      equivalents credited to participants’ accounts at December 31, 2007 is 203,620.





The
      Company has issued stock grants as an incentive plan for certain key employees,
      with varying vesting periods. At December 31, 2007, there were 275,914 stock
      grants outstanding, all of which were vested. Effective August 2, 2006, all
      stock grants are settled with the Company’s Class A common shares rather than
      cash.





*Compensation
      Expense*


Share-based
      compensation expense is included in Selling and administrative expenses. The
      following table summarizes the expenses recognized:





*In
                millions*
            
            2007
            
            2006
            
            2005Stock
                options
            
            $
            21.4
            
            $
            13.6
            
            $
            1.0SARs
            
            
            1.0
            
            
            4.6
            
            
            2.0Performance
                shares
            
            
            11.3
            
            
            10.4
            
            
            5.8Deferred
                compensation
            
            
            1.8
            
            
            (0.6
            )
            
            (1.0
            )Other
            
            
            -
            
            
            -
            
            
            0.1Pre-tax
                expense
            
            
            35.5
            
            
            28.0
            
            
            7.9Tax
                benefit
            
            
            13.6
            
            
            10.7
            
            
            3.0After
                tax expense
            
            $
            21.9
            
            $
            17.3
            
            $
            4.9Amounts
                recorded in continuing operations
            
            $
            21.9
            
            $
            17.3
            
            $
            4.9Amounts
                recorded in discontinued operations
            
            
            3.9
            
            
            2.8
            
            
            0.9Total
            
            $
            25.8
            
            $
            20.1
            
            $
            5.8




Compensation
      expense was recognized during the year ended December 31, 2006, for all
      share-based option awards granted since January 1, 2006, based on the grant
      date
      fair value in accordance with the provisions of SFAS 123(R). The Company
      recorded additional stock-option expense of $13.6 million in 2006 associated
      with the adoption of SFAS 123(R).







98


The
        following table illustrates the effect on net earnings and earnings per share
        had the Company applied the fair value recognition provisions of SFAS 123,
        “Accounting for Stock-Based Compensation,” for the year ended December 31,
        2005:


*In
                millions, except per share amounts*
            
            2005Net
                earnings, as reported
            
            $
            1,054.2Add:
                Stock-based employee compensation expenseincluded
                in reported net income, net of tax
            
            
            5.8Deduct:
                Total stock-based employee compensationexpense
                determined under fair value basedmethod
                for all awards, net of tax
            
            
            79.7Pro
                forma net earnings
            
            $
            980.3Basic
                earnings per share:As
                reported
            
            $
            3.12Pro
                forma
            
            
            2.90Diluted
                earnings per share:As
                reported
            
            $
            3.09Pro
                forma
            
            
            2.87




The
      average fair value of stock options granted during the year ended December
      31,
      2005 was $12.67 using the Black-Scholes option-pricing model, with the following
      assumptions at the grant date:





2005Dividend
                yield
            
            
            1.30%Volatility
            
            
            35.57%Risk-free
                rate of return
            
            
            3.60%Expected
                life
            
            
            5
                years





**NOTE
      17 – OTHER INCOME, NET**


At
      December 31, the components of Other income, net were as follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Interest
                income
            
            $
            36.2
            
            $
            15.9
            
            $
            29.1Exchange
                gain (loss)
            
            
            (2.8
            )
            
            (21.3
            )
            
            6.8Minority
                interests
            
            
            (14.3
            )
            
            (14.9
            )
            
            (12.7
            )Earnings
                from equity investments
            
            
            1.0
            
            
            (0.1
            )
            
            4.1Other
            
            
            (4.2
            )
            
            13.1
            
            
            22.8Other
                income, net
            
            $
            15.9
            
            $
            (7.3
            )
            $
            50.1




99




**NOTE
      18 – INCOME TAXES**


Earnings
      before income taxes for the years ended December 31 were taxed within the
      following jurisdictions:





*In
                millions*
            
            2007
            
            2006
            
            2005United
                States
            
            $
            (140.4
            )
            $
            35.2
            
            $
            9.2Non-U.S.
            
            
            1,077.9
            
            
            822.4
            
            
            783.6Total
            
            $
            937.5
            
            $
            857.6
            
            $
            792.8





Provision
      for income taxes by jurisdiction for the years ended December 31 was as
      follows:





*In
                millions*
            
            2007
            
            2006
            
            2005United
                States
            
            $
            52.8
            
            $
            (32.7
            )
            $
            (41.0
            )Non-U.S.
            
            
            151.6
            
            
            125.3
            
            
            102.0Total
            
            $
            204.4
            
            $
            92.6
            
            $
            61.0




The
      components of Provision for income taxes for the years ended December 31 were
      as
      follows:





*In
                millions*
            
            2007
            
            2006
            
            2005Current
                tax expense
            
            $
            57.8
            
            $
            64.8
            
            $
            34.8Deferred
                tax expense
            
            
            146.6
            
            
            27.8
            
            
            26.2Total
                provision for income taxes
            
            $
            204.4
            
            $
            92.6
            
            $
            61.0




The
      Provision for income taxes differs from the amount of income taxes determined
      by
      applying the applicable U.S. statutory income tax rate to pretax income, as
      a
      result of the following differences:





Percent
                of pretax income2007
            
            2006
            
            2005Statutory
                U.S. rate
            
            
            35.0
                %
            
            
            35.0%
            
            
            35.0%Increase
                (decrease) in rates resulting from:Non-U.S.
                operations
            
            
            (21.0)
            
            
            (28.2)
            
            
            (26.4)Manufacturing
                exemption / ETI / FSC
            
            
            (0.9)
            
            
            (0.5)
            
            
            (0.7)State
                and local income taxes, net of U.S. tax
            
            
            (0.1)
            
            
            (0.5)
            
            
            (0.2)Puerto
                Rico - Sec 936 Credit
            
            
            -
            
            
            -
            
            
            (1.4)Tax
                reserves (including uncertain tax position reserves)*
            
            
            8.0
            
            
            4.8
            
            
            2.2Other
                adjustments
            
            
            0.8
            
            
            0.2
            
            
            (0.8)Effective
                tax rate
            
            
            21.8%
            
            
            10.8%
            
            
            7.7%


*
                Includes interest and penalties on reserves of 4.2%, 3.1% and 3.1%
                for
                2007, 2006 and 2005, respectively




Tax
      incentives, in the form of tax holidays, have been granted in certain
      jurisdictions to encourage industrial development. The expiration of these
      tax
      holidays varies by country. The most significant tax holidays relate to the
      Company’s locations in China, which have generally received a 2-year full
      holiday followed by a 3-year 50% exemption, and the Company’s qualifying
      locations in Ireland, which were granted a 10% tax rate through 2010. The
      benefit for all tax holidays for the year ended December 31, 2007 and 2006
      was
      $4.9 million and $5.1 million, respectively.




100




At
      December 31, a summary of the deferred tax accounts were as
      follows:





*In
                millions*
            
            2007
            
            2006Deferred
                tax assets:Inventory
                and accounts receivable
            
            $
            24.0
            
            $
            23.2Depreciation
                and amortization
            
            
            11.4
            
            
            50.2Postemployment
                and other benefit liabilities
            
            
            468.5
            
            
            486.2Other
                reserves and accruals
            
            
            334.9
            
            
            325.2Net
                operating losses and credit carryforwards
            
            
            445.7
            
            
            615.3Other
            
            
            46.6
            
            
            26.8Gross
                deferred tax assets
            
            
            1,331.1
            
            
            1,526.9Less:
                deferred tax valuation allowances
            
            
            (207.4
            )
            
            (184.2
            )Deferred
                tax assets net of valuation allowances
            
            
            1,123.7
            
            
            1,342.7Deferred
                tax liabilities:Inventory
                and accounts receivable
            
            $
            (11.6
            )
            $
            (18.8
            )Depreciation
                and amortization
            
            
            (511.4
            )
            
            (444.6
            )Postemployment
                and other benefit liabilities
            
            
            (39.0
            )
            
            (41.3
            )Other
                reserves and accruals
            
            
            (11.7
            )
            
            (28.4
            )Other
            
            
            (8.3
            )
            
            (39.8
            )Gross
                deferred tax assets
            
            
            (582.0
            )
            
            (572.9
            )Net
                deferred tax assets
            
            $
            541.7
            
            $
            769.8




The
      increase in the valuation allowance of $23.2 million was recorded for U.S.
      federal tax credit carryforwards, U.S. state net operating loss carryforwards,
      non-U.S net operating loss and credit carryforwards and other non-US deferred
      tax assets. Approximately $8.8 million of the valuation allowance for deferred
      tax assets at December 31, 2007, was acquired in business combination
      transactions and any tax benefit, when realized, will reduce goodwill rather
      than the income tax provision.





At
      December 31, 2007, no deferred taxes have been provided for any portion of
      the
      $7.9 billion of undistributed earnings of the Company’s subsidiaries, since
      these earnings have been, and under current plans will continue to be,
      permanently reinvested in these subsidiaries, and it is not practicable to
      estimate the amount of additional taxes which may be payable upon distribution.





At
      December 31, 2007, the Company had the following operating loss and tax credit
      carryforwards available to offset taxable income in future years:





Expiration*In
                millions*
            
            Amount
            
            PeriodU.S.
                Federal net operating loss carryforwards
            
            $
            608.4
            
            
            2022-2027U.S.
                Federal credit carryforwards
            
            
            130.5
            
            
            2012-2027U.S.
                State net operating loss carryforwards
            
            
            1,879.0
            
            
            2008-2027Non-U.S.
                net operating loss carryforwards
            
            
            731.9
            
            
            2008-UnlimitedNon-U.S.
                credit carryforwards
            
            
            13.4
            
            
            Unlimited




101







The
      U.S.
      state net operating loss carryforwards were incurred in various jurisdictions.
      The non-U.S. net operating loss carryforwards were incurred in various
      jurisdictions, predominately in Brazil, Germany, Switzerland and the United
      Kingdom.





Effective
      January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement 109” (FIN 48),
      which prescribes a recognition threshold and measurement process for recording
      in the financial statements uncertain tax positions taken or expected to be
      taken in a tax return. Additionally, FIN 48 provides guidance on the
      recognition, classification, accounting in interim periods and disclosure
      requirements for uncertain tax positions. As a result of adopting FIN 48, the
      company recorded additional liabilities to its previously established reserves,
      and a corresponding decrease in retained earnings of $145.6
      million.





The
      Company has total unrecognized tax benefits of $379.8 million and $457.0 million
      as of December 31, 2007, and January 1, 2007, respectively. The amount of
      unrecognized tax benefits that, if recognized, would affect the effective tax
      rate are $287.4 million as of December 31, 2007. A reconciliation of the
      beginning and ending amount of unrecognized tax benefits is as
      follows:




*In
                millions*
            
            2007Balance
                at January 1, 2007
            
            $
            457.0Additions
                based on tax positions related to the current year
            
            
            22.5Additions
                based on tax positions related to prior years
            
            
            75.5Reductions
                based on tax positions related to prior years
            
            
            (33.6
            )Reductions
                related to settlements with tax authorities
            
            
            (141.0
            )Reductions
                related to lapses of statute of limitations
            
            
            (0.6
            )Balance
                at December 31, 2007
            
            $
            379.8





The
      Company records interest and penalties associated with the uncertain tax
      positions within its Provision for income taxes. The Company had reserves
      associated with interest and penalties, net of tax, of $93.1 million and $88.0
      million at December 31, 2007, and January 1, 2007, respectively. For the year
      ended December 31, 2007, the Company recognized $40.8 million and $11.0 million,
      respectively, in interest and penalties net of tax related to these uncertain
      tax positions.





It
      is
      reasonably possible that the total amount of unrecognized tax benefits could
      change within 12 months as a result of settlements of ongoing tax examinations
      resulting in a decrease of approximately $26.4 million in the unrecognized
      tax
      benefits.





The
      provision for income taxes involves a significant amount of management judgment
      regarding interpretation of relevant facts and laws in the jurisdictions in
      which the Company operates. Future changes in applicable laws, projected levels
      of taxable income and tax planning could change the effective tax rate and
      tax
      balances recorded by the Company. In addition, U.S. and non-U.S. tax authorities
      periodically review income tax returns filed by the Company and can raise issues
      regarding its filing positions, timing and amount of income or deductions,
      and
      the allocation of income among the jurisdictions in which the Company operates.
      A significant period of time may elapse between the filing of an income tax
      return and the ultimate resolution of an issue raised by a revenue authority
      with respect to that return. In the normal course of business the Company is
      subject to examination by taxing authorities throughout the world, including
      such major jurisdictions as Germany, Italy, the Netherlands, Switzerland and
      the
      United States. In general, the examination of the Company’s material tax returns
      is completed for the years prior to 2000, with certain matters being resolved
      through appeals and litigation.




102




The
      Internal Revenue Service (IRS) has completed the examination of the Company’s
      federal income tax returns through the 2000 tax year and has issued a notice
      proposing adjustments. The principle proposed adjustment relates to the
      disallowance of certain capital losses. The Company disputes the IRS position
      and protests have been filed with the IRS Appeals Division. In order to reduce
      the potential interest expense associated with this matter, the Company made
      a
      payment of $217 million in the third quarter of 2007, which reduced the
      Company’s total liability for uncertain tax positions by $141 million. The
      issues raised by the IRS associated with this payment are not related to the
      Company's reorganization in Bermuda, or the Company's intercompany debt
      structure.





On
      July
      20, 2007, the Company and its consolidated subsidiaries received a notice from
      the IRS containing proposed adjustments to the Company’s tax filings in
      connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
      the validity of the Company’s reincorporation in Bermuda. The most significant
      adjustments proposed by the IRS involve treating the entire intercompany debt
      incurred in connection with the Company’s reincorporation in Bermuda as equity.
      As a result of this recharacterization, the IRS has disallowed the deduction
      of
      interest paid on the debt and imposed dividend withholding taxes on the payments
      denominated as interest. These adjustments proposed by the IRS, if upheld in
      their entirety, would result in additional taxes with respect to 2002 of
      approximately $190 million plus interest, and would require the Company to
      record additional charges associated with this matter. At this time, the IRS
      has
      not yet begun their examination of the Company’s tax filings for years
      subsequent to 2002. However, if these adjustments or a portion of these
      adjustments proposed by the IRS are ultimately sustained, it is likely to also
      affect subsequent tax years.





The
      Company strongly disagrees with the view of the IRS and filed a protest with
      the
      IRS in the third quarter of 2007. Going forward, the Company intends to
      vigorously contest these proposed adjustments. The Company, in consultation
      with
      its outside advisors, carefully considered many factors in determining the
      terms
      of the intercompany debt, including the obligor’s ability to service the debt
      and the availability of equivalent financing from unrelated parties, two factors
      prominently cited by the IRS in denying debt treatment. The Company believes
      that its characterization of that obligation as debt for tax purposes was
      supported by the relevant facts and legal authorities at the time of its
      creation. The subsequent financial results of the relevant companies, including
      the actual cash flow generated by operations and the production of significant
      additional cash flow from dispositions, have confirmed the ability to service
      this debt. Although the outcome of this matter cannot be predicted with
      certainty, based upon an analysis of the strength of its position, the Company
      believes that it is adequately reserved for this matter. As the Company moves
      forward to resolve this matter with the IRS, it is reasonably possible that
      the
      reserves established may be adjusted within the next 12 months. However, the
      Company does not expect that the ultimate resolution will have a material
      adverse impact on its future results of operations or financial
      position.





The
      Company believes that it has adequately provided for any reasonably foreseeable
      resolution of any tax disputes, but will adjust its reserves if events so
      dictate in accordance with FIN 48. To the extent that the ultimate results
      differ from the original or adjusted estimates of the Company, the effect will
      be recorded in the provision for income taxes.





**NOTE
      19 – EARNINGS PER SHARE (EPS)**


Basic
      EPS
      is calculated by dividing net earnings (income available to common shareholders)
      by the weighted-average number of Class A common shares outstanding for the
      applicable period. Diluted EPS is calculated after adjusting the denominator
      of
      the basic EPS calculation for the effect of all potentially dilutive common
      shares, which in the Company’s case, includes shares issuable under share-based
      compensation plans. The following table summarizes the weighted-average number
      of Class A common shares outstanding for basic and diluted earnings per share
      calculations:


103





*In
                millions*
            
            2007
            
            2006
            
            2005Weighted-average
                number of basic shares
            
            
            290.7
            
            
            319.9
            
            
            337.6Shares
                issuable under incentive stock plans
            
            
            4.6
            
            
            3.2
            
            
            3.7Weighted-average
                number of diluted shares
            
            
            295.3
            
            
            323.1
            
            
            341.3Anti-dilutive
                shares
            
            
            0.2
            
            
            3.2
            
            
            0.1




**NOTE
      20 – COMMITMENTS AND CONTINGENCIES**


The
      Company is involved in various litigations, claims and administrative
      proceedings, including environmental and product liability matters. Amounts
      recorded for identified contingent liabilities are estimates, which are reviewed
      periodically and adjusted to reflect additional information when it becomes
      available. Subject to the uncertainties inherent in estimating future costs
      for
      contingent liabilities, management believes that the liability which may result
      from these legal matters would not have a material adverse effect on the
      financial condition, results of operations, liquidity or cash flows of the
      Company.





*Environmental
      Matters*


The
      Company continues to be dedicated to an environmental program to reduce the
      utilization and generation of hazardous materials during the manufacturing
      process and to remediate identified environmental concerns. As to the latter,
      the Company is currently engaged in site investigations and remediation
      activities to address environmental cleanup from past operations at current
      and
      former manufacturing facilities.





The
      Company is sometimes a party to environmental lawsuits and claims and has
      received notices of potential violations of environmental laws and regulations
      from the Environmental Protection Agency and similar state authorities. It
      has
      also been identified as a potentially responsible party (PRP) for cleanup costs
      associated with off-site waste disposal at federal Superfund and state
      remediation sites. For all such sites, there are other PRPs and, in most
      instances, the Company’s involvement is minimal.





In
      estimating its liability, the Company has assumed it will not bear the entire
      cost of remediation of any site to the exclusion of other PRPs who may be
      jointly and severally liable. The ability of other PRPs to participate has
      been
      taken into account, based generally on the parties’ financial condition and
      probable contributions on a per site basis. Additional lawsuits and claims
      involving environmental matters are likely to arise from time to time in the
      future.





During
      2007, the Company spent $5.6 million on capital projects for pollution abatement
      and control, and an additional $11.1 million for environmental remediation
      expenditures at sites presently or formerly owned or leased by us. As of
      December 31, 2007, the Company has recorded reserves for environmental matters
      of $101.8 million. The Company believes that these expenditures and accrual
      levels will continue and may increase over time. Given the evolving nature
      of
      environmental laws, regulations and technology, the ultimate cost of future
      compliance is uncertain.


104


*Asbestos
      Matters*


Certain
      wholly owned subsidiaries of the Company are named as defendants in
      asbestos-related lawsuits in state and federal courts. In virtually all of
      the
      suits, a large number of other companies have also been named as defendants.
      The
      vast majority of those claims has been filed against IR-New Jersey and generally
      allege injury caused by exposure to asbestos contained in certain of IR-New
      Jersey’s products, primarily pumps and compressors. Although IR-New Jersey was
      neither a producer nor a manufacturer of asbestos, some of its formerly
      manufactured products utilized asbestos-containing components, such as gaskets
      and packings purchased from third-party suppliers.




Prior
      to
      the fourth quarter of 2007, the Company recorded a liability (which it
      periodically updated) for its actual and anticipated future asbestos settlement
      costs projected seven years into the future. The Company did not record a
      liability for future asbestos settlement costs beyond the seven-year period
      covered by its reserve because such costs previously were not reasonably
      estimable for the reasons detailed below.




In
      the
      fourth quarter of 2007, the Company again reviewed its history and experience
      with asbestos-related litigation and determined that it had now become possible
      to make a reasonable estimate of its total liability for pending and unasserted
      potential future asbestos-related claims. This determination was based upon
      the
      Company’s analysis of developments in asbestos litigation, including the
      substantial and continuing decline in the filing of non-malignancy claims
      against the Company, the establishment in many jurisdictions of inactive or
      deferral dockets for such claims, the decreased value of non-malignancy
      claims because of changes in the legal and judicial treatment of such claims,
      increasing focus of the asbestos litigation upon malignancy claims, primarily
      those involving mesothelioma, a cancer with a known historical and predictable
      future annual incidence rate, and the Company’s substantial accumulated
      experience with respect to the resolution of malignancy claims, particularly
      mesothelioma claims, filed against it.





Accordingly,
      in the fourth quarter of 2007, the Company retained Dr. Thomas Vasquez of
      Analysis, Research & Planning Corporation (collectively, “ARPC”) to assist
      it in calculating an estimate of the Company’s total liability for pending and
      unasserted future asbestos-related claims. ARPC is a respected expert in
      performing complex calculations such as this. ARPC has been involved in many
      asbestos-related valuations of current and future liabilities, and its valuation
      methodologies have been accepted by numerous courts.




The
      methodology used by ARPC to project the Company’s total liability for pending
      and unasserted potential future asbestos-related claims relied upon and included
      the following factors, among others:





·
            ARPC’s
                interpretation of a widely accepted forecast of the population likely
                to
                have been occupationally exposed to
                asbestos;





·
            epidemiological
                studies estimating the number of people likely to develop asbestos-related
                diseases such as mesothelioma and lung
                cancer;





·
            the
                Company’s historical experience with the filing of non-malignancy claims
                against it and the historical ratio between the numbers of non-malignancy
                and lung cancer claims filed against the
                Company;





·
            ARPC’s
                analysis of the number of people likely to file an asbestos-related
                personal injury claim against the Company based on such epidemiological
                and historical data and the Company’s most recent three-year claims
                history;





·
            an
                analysis of the Company’s pending cases, by type of disease
                claimed;


105





·
            an
                analysis of the Company’s most recent three-year history to determine the
                average settlement and resolution value of claims, by type of disease
                claimed;





·
            an
                adjustment for inflation in the future average settlement value of
                claims,
                at a 2.5% annual inflation rate, adjusted downward to 1.5% to take
                account
                of the declining value of claims resulting from the aging of the
                claimant
                population;





·
            an
                analysis of the period over which the Company has and is likely to
                resolve
                asbestos-related claims against it in the
                future.





Based
      on
      these factors, ARPC calculated a total estimated liability of $755 million
      for the Company to resolve all pending and unasserted potential future claims
      through 2053, which is ARPC’s reasonable best estimate of the time it will take
      to resolve asbestos-related claims. This amount is on a pre-tax basis, not
      discounted for the time-value of money, and excludes the Company’s defense fees
      (which will continue to be expensed by the Company as they are incurred). After
      considering ARPC’s analysis and the factors listed above, in the fourth quarter
      of 2007, the Company increased its recorded liability for asbestos claims by
      $538 million, from $217 million to $755 million.





In
      addition, during the fourth quarter of 2007, the Company recorded an
      $89 million increase in its assets for probable asbestos-related insurance
      recoveries to $250 million. This represents amounts due to the Company for
      previously paid and settled claims and the probable reimbursements relating
      to
      its estimated liability for pending and future claims. In calculating this
      amount, the Company used the estimated asbestos liability for pending and
      projected future claims calculated by ARPC. It also considered the amount of
      insurance available, gaps in coverage, allocation methodologies, solvency
      ratings and creditworthiness of the insurers, the amounts already recovered
      from
      and the potential for settlements with insurers, and the terms of existing
      settlement agreements with insurers.




During
      the fourth quarter of 2007, the Company recorded a non-cash charge to earnings
      of discontinued operations of $449 million ($277 million after tax),
      which is the difference between the amount by which the Company increased its
      total estimated liability for pending and projected future asbestos-related
      claims and the amount that the Company expects to recover from insurers with
      respect to that increased liability.




The
      amounts recorded by the Company for asbestos-related liabilities and
      insurance-related assets are based on currently available information. The
      Company’s actual liabilities or insurance recoveries could be significantly
      higher or lower than those recorded if assumptions used in the Company’s or
      ARPC’s calculations vary significantly from actual results. Key variables in
      these assumptions are identified above and include the number and type of new
      claims to be filed each year, the average cost of resolution of each such new
      claim, the resolution of coverage issues with insurance carriers, and the
      solvency risk with respect to the Company’s insurance carriers. Furthermore,
      predictions with respect to these variables are subject to greater uncertainty
      as the projection period lengthens. Other factors that may affect the Company’s
      liability include uncertainties surrounding the litigation process from
      jurisdiction to jurisdiction and from case to case, reforms that may be made
      by
      state and federal courts, and the passage of state or federal tort reform
      legislation.




The
      aggregate amount of the stated limits in insurance policies available to the
      Company for asbestos-related claims, acquired over many years and from many
      different carriers, is substantial. However, limitations in that coverage,
      primarily due to the considerations described above, are expected to result
      in
      the projected total liability to claimants substantially exceeding the probable
      insurance recovery.


106





From
      receipt of its first asbestos claims more than 25 years ago to December 31,
      2007, the Company has resolved (by settlement or by dismissal) approximately
      208,000 claims. The total amount of all settlements paid by the Company
      (excluding insurance recoveries) and by its insurance carriers is approximately
      $308 million, for an average payment per resolved claim of $1,480. The
      average payment per claim resolved during the year ended December 31, 2007
      was
      $7,491. This amount reflects the Company’s emphasis on resolution of higher
      value malignancy claims, particularly mesothelioma claims, rather than lower
      value non-malignancy claims, which are more heavily represented in the Company’s
      historical settlements. The table below provides additional information
      regarding asbestos-related claims filed against the Company:




2002
            
            2003
            
            2004
            
            2005
            
            2006
            
            2007Open
                claims - January 1
            
            
            77,675
            
            
            96,294
            
            
            104,513
            
            
            105,811
            
            
            102,968
            
            
            101,709New
                claims filed
            
            
            37,172
            
            
            30,843
            
            
            13,541
            
            
            11,132
            
            
            6,457
            
            
            5,398Claims
                settled
            
            
            (16,443
            )
            
            (21,096
            )
            
            (11,503
            )
            
            (12,505
            )
            
            (6,558
            )
            
            (5,005
            )Claims
                dismissed
            
            
            (2,110
            )
            
            (1,528
            )
            
            (740
            )
            
            (1,470
            )
            
            (1,158
            )
            
            (1,479
            )Open
                claims - December 31
            
            
            96,294
            
            
            104,513
            
            
            105,811
            
            
            102,968
            
            
            101,709
            
            
            100,623





Over
      90
      percent of the open claims against the Company are non-malignancy claims, many
      of which have been placed on inactive or deferral dockets and the vast majority
      of which have little or no settlement value against the Company, particularly
      in
      light of recent changes in the legal and judicial treatment of such claims.




Malignancy
      claims accounted for: approximately 73 percent of the Company’s total
      asbestos-related settlement payments during the three-year period ended December
      31, 2004; approximately 87 percent during the three-year period ended December
      31, 2007; and approximately 93 percent in 2007. Non-malignancy claims accounted
      for: approximately 27 percent of the Company’s total asbestos-related settlement
      payments during the three-year period ended December 31, 2004;
      approximately 13 percent during the three-year period ended December 31,
      2007; and approximately seven percent in 2007.




For
      the
      twelve-month period ended December 31, 2007, total costs for the settlement
      and defense of asbestos claims after insurance recoveries and net of tax were
      approximately $37 million.





*Other
      Matters*


As
      previously reported, on November 10, 2004, the Securities and Exchange
      Commission (SEC) issued an Order directing that a number of public companies,
      including the Company, provide information relating to their participation
      in
      transactions under the United Nations’ Oil for Food Program. Upon receipt of the
      Order, the Company undertook a thorough review of its participation in the
      Oil
      for Food Program, provided the SEC with information responsive to the Order
      and
      provided additional information requested by the SEC. During a March 27, 2007
      meeting with the SEC, at which a representative of the Department of Justice
      (DOJ) was also present, the Company began discussions concerning the resolution
      of this matter with both the SEC and DOJ. On October 31, 2007, the Company
      announced it had reached settlements with the SEC and DOJ relating to this
      matter. Under the terms of the settlements, the Company paid a total of $6.7
      million in penalties, interest and disgorgement of profits. The Company
      consented to the entry of a civil injunction in the SEC action and entered
      into
      a three-year deferred prosecution agreement with the DOJ. Under both
      settlements, the Company has implemented, and will continue to implement
      improvements to its compliance program that are consistent with its longstanding
      policy against improper payments. In the settlement documents, the Government
      noted that the Company thoroughly cooperated with the investigation, that the
      Company had conducted its own complete investigation of the conduct at issue,
      promptly and thoroughly reported its findings to them, and took prompt remedial
      measures. In a related matter, on July 10, 2007, representatives of the Italian
      Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
      Italiana S.p.A pertaining to certain Oil for Food transactions undertaken by
      that subsidiary of the Company. Such transactions have previously been reported
      to the SEC and DOJ, and the Company will continue to cooperate fully with the
      Italian authorities in this matter.


107





The
      Company sells product on a continuous basis under various arrangements through
      institutions that provide leasing and product financing alternatives to retail
      and wholesale customers. Under these arrangements, the Company is contingently
      liable for loan guarantees and residual values of equipment of $5.0 million,
      including consideration of ultimate net loss provisions. The risk of loss to
      the
      Company is minimal and, historically, only immaterial losses have been incurred
      relating to these arrangements since the fair value of the underlying equipment
      that serves as collateral is generally in excess of the contingent liability.
      Management believes these guarantees will not adversely affect the condensed
      consolidated financial statements.





The
      Company is contingently liable for customs duties in certain non-U.S. countries
      which totaled $11.9 million as of December 31, 2007. These amounts are not
      accrued as the Company intends on exporting the product to another country
      for
      final sale.





The
      Company also has other contingent liabilities for $10.5 million. These
      liabilities primarily result from performance bonds, guarantees and stand-by
      letters of credit associated with the prior sale of products from divested
      businesses.





The
      following represents the changes in the Company’s product warranty liability for
      2007 and 2006:




*In
                millions*
            
            2007
            
            2006Balance
                at beginning of year
            
            $
            137.1
            
            $
            135.2Reductions
                for payments
            
            
            (68.5
            )
            
            (61.7
            )Accruals
                for warranties issued during the current period
            
            
            80.1
            
            
            66.1Changes
                for accruals related to preexisting warranties
            
            
            (7.8
            )
            
            (6.9
            )Acquisitions
            
            
            -
            
            
            0.4Translation
            
            
            6.0
            
            
            4.0Balance
                at end of the year
            
            $
            146.9
            
            $
            137.1





Certain
      office and warehouse facilities, transportation vehicles and data processing
      equipment are leased. Total rental expense was $72.2 million in 2007, $68.2
      million in 2006 and $57.8 million in 2005. Minimum lease payments required
      under
      non-cancelable operating leases with terms in excess of one year for the next
      five years and thereafter, are as follows: $54.2 million in 2008, $46.2 million
      in 2009, $34.8 million in 2010, $24.3 million in 2011, $19.5 million in 2012
      and
      $24.8 million thereafter.


108


**NOTE
      21 – BUSINESS SEGMENT INFORMATION**


The
      accounting policies of the operating segments are the same as those described
      in
      the summary of significant accounting policies except that the operating
      segments’ results are prepared on a management basis that is consistent with the
      manner in which the Company disaggregates financial information for internal
      review and decision making. The Company largely evaluates performance based
      on
      operating income and operating margins. Intercompany sales between segments
      are
      considered immaterial.





The
      Company has divested various businesses over the past few years as it moves
      to
      being a leading global diversified industrial enterprise. During 2007, the
      Company sold its Bobcat, Utility Equipment and Attachments business units as
      well as its Road Development business unit. Segment information for all years
      has been revised to exclude the results of these divestitures.





Each
      reportable segment is based primarily on the types of products it generates.
      The
      operating segments have been aggregated based on the aggregation criteria and
      quantitative thresholds as required by SFAS No. 131, “Disclosures About Segments
      of an Enterprise and Related Information.” A description of the Company’s
      reportable segments is as follows:





Climate
      Control Technologies provides solutions for customers to transport, preserve,
      store and display temperature-sensitive products by engaging in the design,
      manufacture, sale and service of transport temperature control units,
      refrigerated display merchandisers, beverage coolers, auxiliary power units
      and
      walk-in storage coolers and freezers. This segment includes the Thermo King,
      Hussmann and Koxka brands.





Industrial
      Technologies is focused on providing solutions to enhance customers’ industrial
      and energy efficiency, mainly by engaging in the design, manufacture, sale
      and
      service of compressed air systems, tools, fluid and material handling, golf
      and
      utility vehicles and energy generation systems. The segment includes the
      Ingersoll Rand and Club Car brands.





Security
      Technologies is engaged in the design, manufacture, sale and service of
      mechanical and electronic security products, biometric access control systems
      and security and scheduling software. This segment includes the Schlage, LCN,
      Von Duprin and CISA brands.





109




A
      summary
      of operations by reportable segments for the years ended December 31, were
      as
      follows:




*Dollar
                amounts in millions*
            
            2007
            
            2006
            
            2005**Climate
                Control Technologies**Revenues
            
            $
            3,372.4
            
            $
            3,171.0
            
            $
            2,853.6Operating
                income
            
            
            382.6
            
            
            356.0
            
            
            315.1Operating
                income as a percentage of revenues
            
            
            11.3
            %
            
            11.2
            %
            
            11.0
            %Depreciation
                and amortization
            
            
            48.9
            
            
            52.1
            
            
            53.7Capital
                expenditures
            
            
            38.9
            
            
            25.6
            
            
            10.4**Industrial
                Technologies**Revenues
            
            
            2,877.1
            
            
            2,577.7
            
            
            2,310.4Operating
                income
            
            
            392.0
            
            
            351.8
            
            
            301.6Operating
                income as a percentage of revenues
            
            
            13.6
            %
            
            13.6
            %
            
            13.1
            %Depreciation
                and amortization
            
            
            36.2
            
            
            32.4
            
            
            26.8Capital
                expenditures
            
            
            41.2
            
            
            55.6
            
            
            35.1**Security
                Technologies**Revenues
            
            
            2,513.6
            
            
            2,285.0
            
            
            2,099.7Operating
                income
            
            
            433.5
            
            
            400.2
            
            
            380.7Operating
                income as a percentage of revenues
            
            
            17.2
            %
            
            17.5
            %
            
            18.1
            %Depreciation
                and amortization
            
            
            46.6
            
            
            42.6
            
            
            44.6Capital
                expenditures
            
            
            34.4
            
            
            43.6
            
            
            22.8Total
                revenues
            
            $
            8,763.1
            
            $
            8,033.7
            
            $
            7,263.7Operating
                income from reportable segments
            
            
            1,208.1
            
            
            1,108.0
            
            
            997.4Unallocated
                corporate expense
            
            
            (150.3
            )
            
            (109.5
            )
            
            (109.6
            )Total
                operating income
            
            $
            1,057.8
            
            $
            998.5
            
            $
            887.8Total
                operating income as a percentage of revenues
            
            
            12.1
            %
            
            12.4
            %
            
            12.2
            %Depreciation
                and amortization from reportable segments
            
            
            131.7
            
            
            127.1
            
            
            125.1Unallocated
                depreciation and amortization
            
            
            7.1
            
            
            21.7
            
            
            31.6Total
                depreciation and amortization
            
            $
            138.8
            
            $
            148.8
            
            $
            156.7Capital
                expenditures from reportable segments
            
            
            114.5
            
            
            124.8
            
            
            68.3Corporate
                capital expenditures
            
            
            5.2
            
            
            20.0
            
            
            17.8Total
                capital expenditures
            
            $
            119.7
            
            $
            144.8
            
            $
            86.1





110




Revenues
      by destination and long-lived assets by geographic area for the years ended
      December 31 were as follows:




*In
                millions*
            
            2007
            
            2006
            
            2005**Revenues**United
                States
            
            $
            4,756.0
            
            $
            4,570.9
            
            $
            4,221.5Non-U.S.
            
            
            4,007.1
            
            
            3,462.8
            
            
            3,042.2Total
            
            $
            8,763.1
            
            $
            8,033.7
            
            $
            7,263.7




*In
                millions*
            
            
            2007
            
            
            2006**Long-lived
                assets**United
                States
            
            $
            820.5
            
            $
            841.3Non-U.S.
            
            
            639.6
            
            
            574.9Total
            
            $
            1,460.1
            
            $
            1,416.2





**NOTE
      22 – IR-NEW JERSEY**


As
      part
      of the reorganization, IR-Limited guaranteed all of the issued public debt
      securities of IR-New Jersey. The subsidiary issuer, IR-New Jersey, is 100%
      owned
      by the parent, IR-Limited, the guarantees are full and unconditional, and no
      other subsidiary of the Company guarantees the securities. The following
      condensed consolidated financial information for IR-Limited, IR-New Jersey,
      and
      all their other subsidiaries is included so that separate financial statements
      of IR-New Jersey are not required to be filed with the U.S. Securities and
      Exchange Commission.





As
      part
      of the reorganization of December 31, 2001, IR-Limited issued Class B common
      shares to IR-New Jersey in exchange for a $3.6 billion note and shares of
      certain IR-New Jersey subsidiaries. The note, which is due in 2011, has a fixed
      rate of interest of 11% per annum payable semi-annually and imposes certain
      restrictive covenants upon IR-New Jersey. At December 31, 2007, $2.1 billion
      of
      the original $3.6 billion note remains outstanding.  The Class B common
      shares are non-voting and pay dividends comparable to the Class A common shares.
      In 2002, IR-Limited contributed the note to a wholly owned subsidiary, which
      subsequently transferred portions of the note to several other subsidiaries,
      all
      of which are included in the “Other Subsidiaries” below. Accordingly, the
      subsidiaries of IR-Limited remain creditors of IR-New Jersey.





IR-New
      Jersey has unconditionally guaranteed payment of the principal, premium, if
      any,
      and interest on the Company’s 4.75% Senior Notes due in 2015 in the aggregate
      principal amount of $300 million. The guarantee is unsecured and provided on
      an
      unsubordinated basis. The guarantee ranks equally in right of payment with
      all
      of the existing and future unsecured and unsubordinated debt of IR-New
      Jersey.





The
      condensed consolidating financial statements present IR-Limited and IR-New
      Jersey investments in their subsidiaries using the equity method of accounting.
      Intercompany investments in the non-voting Class B common shares are accounted
      for on the cost method and are reduced by intercompany dividends. In accordance
      with generally accepted accounting principles, the amounts related to the
      issuance of the Class B shares have been presented as contra accounts in
      Shareholders’ Equity since the Class B issuance on December 31, 2001. The notes
      payable continue to be reflected as a liability on the balance sheet of IR-New
      Jersey and are enforceable in accordance with their terms.




111




**Condensed
                Consolidating Income Statement**For
                the year ended December 31, 2007IR
            
            IR
            
            Other
            
            Consolidating
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New Jersey
            
            Subsidiaries
            
            Adjustments
            
            ConsolidatedNet
                revenues
            
            $
            -
            
            $
            932.2
            
            $
            7,830.9
            
            $
            -
            
            $
            8,763.1Cost
                of goods sold
            
            
            -
            
            
            644.1
            
            
            5,627.9
            
            
            -
            
            
            6,272.0Selling
                and administrative expenses
            
            
            32.7
            
            
            304.6
            
            
            1,096.0
            
            
            -
            
            
            1,433.3Operating
                (loss) income
            
            
            (32.7
            )
            
            (16.5
            )
            
            1,107.0
            
            
            -
            
            
            1,057.8Equity
                earnings in affiliates (net of tax)
            
            
            4,101.0
            
            
            197.6
            
            
            2,563.1
            
            
            (6,861.7
            )
            
            -Interest
                expense
            
            
            (39.8
            )
            
            (69.9
            )
            
            (26.5
            )
            
            -
            
            
            (136.2
            )Intercompany
                interest and fees
            
            
            (53.8
            )
            
            (684.0
            )
            
            737.8
            
            
            -
            
            
            -Other
                income, net
            
            
            (8.0
            )
            
            71.4
            
            
            (47.5
            )
            
            -
            
            
            15.9Earnings
                (loss) before income taxes
            
            
            3,966.7
            
            
            (501.4
            )
            
            4,333.9
            
            
            (6,861.7
            )
            
            937.5(Benefit)
                provision for income taxes
            
            
            -
            
            
            (167.8
            )
            
            372.2
            
            
            -
            
            
            204.4Earnings
                (loss) from continuing operations
            
            
            3,966.7
            
            
            (333.6
            )
            
            3,961.7
            
            
            (6,861.7
            )
            
            733.1Discontinued
                operations, net of tax
            
            
            -
            
            
            2,896.7
            
            
            336.9
            
            
            -
            
            
            3,233.6Net
                earnings (loss)
            
            $
            3,966.7
            
            $
            2,563.1
            
            $
            4,298.6
            
            $
            (6,861.7
            )
            $
            3,966.7**Condensed
                Consolidating Income Statement**For
                the year ended December 31, 2006IR
            
            
            IR
            
            
            Other
            
            
            Consolidating
            
            
            IR
                Limited*In
                millions*
            
            
            Limited
            
            
            New Jersey
            
            
            Subsidiaries
            
            
            Adjustments
            
            
            ConsolidatedNet
                revenues
            
            $
            -
            
            $
            928.2
            
            $
            7,105.5
            
            $
            -
            
            $
            8,033.7Cost
                of goods sold
            
            
            -
            
            
            663.8
            
            
            5,104.6
            
            
            -
            
            
            5,768.4Selling
                and administrative expenses
            
            
            16.3
            
            
            253.2
            
            
            997.3
            
            
            -
            
            
            1,266.8Operating
                (loss) income
            
            
            (16.3
            )
            
            11.2
            
            
            1,003.6
            
            
            -
            
            
            998.5Equity
                earnings in affiliates (net of tax)
            
            
            1,116.6
            
            
            607.4
            
            
            159.3
            
            
            (1,883.3
            )
            
            -Interest
                expense
            
            
            (30.3
            )
            
            (77.6
            )
            
            (25.7
            )
            
            -
            
            
            (133.6
            )Intercompany
                interest and fees
            
            
            (32.9
            )
            
            (645.0
            )
            
            677.9
            
            
            -
            
            
            -Other
                income, net
            
            
            (4.6
            )
            
            64.9
            
            
            (67.6
            )
            
            -
            
            
            (7.3
            )Earnings
                (loss) before income taxes
            
            
            1,032.5
            
            
            (39.1
            )
            
            1,747.5
            
            
            (1,883.3
            )
            
            857.6(Benefit)
                provision for income taxes
            
            
            -
            
            
            (192.1
            )
            
            284.7
            
            
            -
            
            
            92.6Earnings
                (loss) from continuing operations
            
            
            1,032.5
            
            
            153.0
            
            
            1,462.8
            
            
            (1,883.3
            )
            
            765.0Discontinued
                operations, net of tax
            
            
            -
            
            
            6.3
            
            
            261.2
            
            
            -
            
            
            267.5Net
                earnings (loss)
            
            $
            1,032.5
            
            $
            159.3
            
            $
            1,724.0
            
            $
            (1,883.3
            )
            $
            1,032.5





112




**Condensed
                Consolidating Income Statement**For
                the year ended December 31, 2005IR
            
            IR
            
            Other
            
            Consolidating
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            Adjustments
            
            ConsolidatedNet
                revenues
            
            $
            -
            
            $
            1,008.1
            
            $
            6,255.6
            
            $
            -
            
            $
            7,263.7Cost
                of goods sold
            
            
            -
            
            
            754.8
            
            
            4,448.4
            
            
            -
            
            
            5,203.2Selling
                and administrative expenses
            
            
            1.2
            
            
            264.2
            
            
            907.3
            
            
            -
            
            
            1,172.7Operating
                (loss) income
            
            
            (1.2
            )
            
            (10.9
            )
            
            899.9
            
            
            -
            
            
            887.8Equity
                earnings in affiliates (net of tax)
            
            
            1,104.8
            
            
            487.1
            
            
            268.9
            
            
            (1,860.8
            )
            
            -Interest
                expense
            
            
            (9.1
            )
            
            (106.3
            )
            
            (29.7
            )
            
            -
            
            
            (145.1
            )Intercompany
                interest and fees
            
            
            (38.4
            )
            
            (425.8
            )
            
            464.2
            
            
            -
            
            
            -Other
                income, net
            
            
            (1.9
            )
            
            108.8
            
            
            (56.8
            )
            
            -
            
            
            50.1Earnings
                (loss) before income taxes
            
            
            1,054.2
            
            
            52.9
            
            
            1,546.5
            
            
            (1,860.8
            )
            
            792.8(Benefit)
                provision for income taxes
            
            
            -
            
            
            (185.4
            )
            
            246.4
            
            
            -
            
            
            61.0Earnings
                (loss) from continuing operations
            
            
            1,054.2
            
            
            238.3
            
            
            1,300.1
            
            
            (1,860.8
            )
            
            731.8Discontinued
                operations, net of tax
            
            
            -
            
            
            30.6
            
            
            291.8
            
            
            -
            
            
            322.4Net
                earnings (loss)
            
            $
            1,054.2
            
            $
            268.9
            
            $
            1,591.9
            
            $
            (1,860.8
            )
            $
            1,054.2




113




**Condensed
                Consolidating Balance Sheet**December
                31, 2007IR
            
            IR
            
            Other
            
            Consolidating
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            Adjustments
            
            ConsolidatedCurrent
                assets:Cash
                and cash equivalents
            
            $
            0.6
            
            $
            545.5
            
            $
            4,189.2
            
            $
            -
            
            $
            4,735.3Marketable
                securities
            
            
            -
            
            
            -
            
            
            0.1
            
            
            -
            
            
            0.1Accounts
                and notes receivable, net
            
            
            0.4
            
            
            266.4
            
            
            1,393.9
            
            
            -
            
            
            1,660.7Inventories,
                net
            
            
            -
            
            
            78.7
            
            
            748.5
            
            
            -
            
            
            827.2Prepaid
                expenses and deferred income taxes
            
            
            -
            
            
            137.2
            
            
            340.2
            
            
            -
            
            
            477.4Assets
                held for sale
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Accounts
                and notes receivable affiliates
            
            
            13.5
            
            
            7,630.2
            
            
            25,528.6
            
            
            (33,172.3
            )
            
            -Total
                current assets
            
            
            14.5
            
            
            8,658.0
            
            
            32,200.5
            
            
            (33,172.3
            )
            
            7,700.7Investment
                in affiliates
            
            
            10,033.7
            
            
            9,221.1
            
            
            40,217.2
            
            
            (59,472.0
            )
            
            -Property,
                plant and equipment, net
            
            
            -
            
            
            152.9
            
            
            752.0
            
            
            -
            
            
            904.9Intangible
                assets, net
            
            
            -
            
            
            79.9
            
            
            4,638.0
            
            
            -
            
            
            4,717.9Other
                assets
            
            
            1.5
            
            
            704.6
            
            
            346.6
            
            
            -
            
            
            1,052.7Total
                assets
            
            $
            10,049.7
            
            $
            18,816.5
            
            $
            78,154.3
            
            $
            (92,644.3
            )
            $
            14,376.2Current
                liabilities:Accounts
                payable and accruals
            
            $
            6.9
            
            $
            529.7
            
            $
            1,958.1
            
            $
            -
            
            $
            2,494.7Loans
                payable and current maturitiesof
                long-term debt
            
            
            -
            
            
            555.4
            
            
            185.6
            
            
            -
            
            
            741.0Liabilities
                held for sale
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Accounts
                and note payable affiliates
            
            
            89.1
            
            
            7,010.2
            
            
            26,073.0
            
            
            (33,172.3
            )
            
            -Total
                current liabilities
            
            
            96.0
            
            
            8,095.3
            
            
            28,216.7
            
            
            (33,172.3
            )
            
            3,235.7Long-term
                debt
            
            
            299.1
            
            
            403.2
            
            
            10.4
            
            
            -
            
            
            712.7Note
                payable affiliate
            
            
            1,550.0
            
            
            2,097.4
            
            
            -
            
            
            (3,647.4
            )
            
            -Other
                noncurrent liabilities
            
            
            196.7
            
            
            1,917.0
            
            
            406.2
            
            
            -
            
            
            2,519.9Total
                liabilities
            
            
            2,141.8
            
            
            12,512.9
            
            
            28,633.3
            
            
            (36,819.7
            )
            
            6,468.3Shareholders'
                equity:Class
                A common shares
            
            
            370.0
            
            
            -
            
            
            (97.4
            )
            
            -
            
            
            272.6Class
                B common shares
            
            
            270.6
            
            
            -
            
            
            -
            
            
            (270.6
            )
            
            -Common
                shares
            
            
            -
            
            
            -
            
            
            2,362.8
            
            
            (2,362.8
            )
            
            -Other
                shareholders' equity
            
            
            11,046.3
            
            
            7,039.7
            
            
            50,533.8
            
            
            (61,231.0
            )
            
            7,388.8Accumulated
                other comprehensive income (loss)
            
            
            568.5
            
            
            (320.9
            )
            
            503.5
            
            
            (504.6
            )
            
            246.512,255.4
            
            
            6,718.8
            
            
            53,302.7
            
            
            (64,369.0
            )
            
            7,907.9Less:
                Contra account
            
            
            (4,347.5
            )
            
            (415.2
            )
            
            (3,781.7
            )
            
            8,544.4
            
            
            -Total
                shareholders' equity
            
            
            7,907.9
            
            
            6,303.6
            
            
            49,521.0
            
            
            (55,824.6
            )
            
            7,907.9Total
                liabilities and equity
            
            $
            10,049.7
            
            $
            18,816.5
            
            $
            78,154.3
            
            $
            (92,644.3
            )
            $
            14,376.2




114




**Condensed
                Consolidating Balance Sheet**December
                31, 2006IR
            
            IR
            
            Other
            
            Consolidating
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            Adjustments
            
            ConsolidatedCurrent
                assets:Cash
                and cash equivalents
            
            $
            1.7
            
            $
            81.6
            
            $
            272.5
            
            $
            -
            
            $
            355.8Marketable
                securities
            
            
            -
            
            
            -
            
            
            0.7
            
            
            -
            
            
            0.7Accounts
                and notes receivable, net
            
            
            0.3
            
            
            177.6
            
            
            1,303.8
            
            
            -
            
            
            1,481.7Inventories,
                net
            
            
            -
            
            
            92.6
            
            
            745.1
            
            
            -
            
            
            837.7Prepaid
                expenses and deferred income taxes
            
            
            0.4
            
            
            374.8
            
            
            (19.4
            )
            
            -
            
            
            355.8Assets
                held for sale
            
            
            -
            
            
            500.1
            
            
            2,006.0
            
            
            -
            
            
            2,506.1Accounts
                and notes receivable affiliates
            
            
            921.4
            
            
            2,662.1
            
            
            26,537.6
            
            
            (30,121.1
            )
            
            -Total
                current assets
            
            
            923.8
            
            
            3,888.8
            
            
            30,846.3
            
            
            (30,121.1
            )
            
            5,537.8Investment
                in affiliates
            
            
            7,130.9
            
            
            11,565.2
            
            
            31,009.6
            
            
            (49,705.7
            )
            
            -Property,
                plant and equipment, net
            
            
            -
            
            
            170.0
            
            
            698.2
            
            
            -
            
            
            868.2Intangible
                assets, net
            
            
            -
            
            
            78.4
            
            
            4,471.6
            
            
            -
            
            
            4,550.0Other
                assets
            
            
            1.7
            
            
            1,129.8
            
            
            58.4
            
            
            -
            
            
            1,189.9Total
                assets
            
            $
            8,056.4
            
            $
            16,832.2
            
            $
            67,084.1
            
            $
            (79,826.8
            )
            $
            12,145.9Current
                liabilities:Accounts
                payable and accruals
            
            $
            6.3
            
            $
            361.3
            
            $
            1,490.5
            
            $
            -
            
            $
            1,858.1Loans
                payable and current maturitiesof
                long-term debt
            
            
            378.0
            
            
            596.8
            
            
            104.6
            
            
            -
            
            
            1,079.4Liabilities
                held for sale
            
            
            -
            
            
            536.4
            
            
            638.5
            
            
            -
            
            
            1,174.9Accounts
                and note payable affiliates
            
            
            779.0
            
            
            7,035.7
            
            
            22,306.4
            
            
            (30,121.1
            )
            
            -Total
                current liabilities
            
            
            1,163.3
            
            
            8,530.2
            
            
            24,540.0
            
            
            (30,121.1
            )
            
            4,112.4Long-term
                debt
            
            
            299.0
            
            
            411.3
            
            
            194.9
            
            
            -
            
            
            905.2Note
                payable affiliate
            
            
            950.0
            
            
            2,697.4
            
            
            -
            
            
            (3,647.4
            )
            
            -Other
                noncurrent liabilities
            
            
            239.3
            
            
            1,437.5
            
            
            46.7
            
            
            -
            
            
            1,723.5Total
                liabilities
            
            
            2,651.6
            
            
            13,076.4
            
            
            24,781.6
            
            
            (33,768.5
            )
            
            6,741.1Shareholders'
                equity:Class
                A common shares
            
            
            364.5
            
            
            -
            
            
            (57.7
            )
            
            -
            
            
            306.8Class
                B common shares
            
            
            270.6
            
            
            -
            
            
            -
            
            
            (270.6
            )
            
            -Common
                shares
            
            
            -
            
            
            -
            
            
            2,362.8
            
            
            (2,362.8
            )
            
            -Other
                shareholders' equity
            
            
            9,403.3
            
            
            4,815.3
            
            
            43,957.1
            
            
            (52,719.6
            )
            
            5,456.1Accumulated
                other comprehensive income (loss)
            
            
            (36.4
            )
            
            (627.9
            )
            
            205.7
            
            
            100.5
            
            
            (358.1
            )10,002.0
            
            
            4,187.4
            
            
            46,467.9
            
            
            (55,252.5
            )
            
            5,404.8Less:
                Contra account
            
            
            (4,597.2
            )
            
            (431.6
            )
            
            (4,165.4
            )
            
            9,194.2
            
            
            -Total
                shareholders' equity
            
            
            5,404.8
            
            
            3,755.8
            
            
            42,302.5
            
            
            (46,058.3
            )
            
            5,404.8Total
                liabilities and equity
            
            $
            8,056.4
            
            $
            16,832.2
            
            $
            67,084.1
            
            $
            (79,826.8
            )
            $
            12,145.9




115




**Condensed
                Consolidating Statement of Cash Flows**For
                the year ended December 31, 2007IR
            
            IR
            
            Other
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            ConsolidatedNet
                cash (used in) provided by continuing operating activities
            
            $
            (100.0
            )
            $
            (458.1
            )
            $
            1,388.0
            
            $
            829.9Net
                cash (used in) provided by discontinued operating
                activities
            
            
            -
            
            
            (37.0
            )
            
            103.2
            
            
            66.2Cash
                flows from investing activities:Capital
                expenditures
            
            
            -
            
            
            (25.0
            )
            
            (94.7
            )
            
            (119.7
            )Proceeds
                from sale of property, plant and equipment
            
            
            -
            
            
            4.6
            
            
            9.6
            
            
            14.2Acquisitions,
                net of cash
            
            
            -
            
            
            (0.6
            )
            
            (25.1
            )
            
            (25.7
            )Proceeds
                from business dispositions
            
            
            -
            
            
            3,076.7
            
            
            3,077.6
            
            
            6,154.3Proceedes
                from the sale of marketable securities
            
            
            -
            
            
            -
            
            
            0.7
            
            
            0.7Cash
                provided by equity companies, net
            
            
            -
            
            
            (0.3
            )
            
            28.9
            
            
            28.6Net
                cash (used in) provided by continuing investing activities
            
            
            -
            
            
            3,055.4
            
            
            2,997.0
            
            
            6,052.4Net
                cash (used in) provided by discontinued investing
                activities
            
            
            -
            
            
            (4.7
            )
            
            (53.0
            )
            
            (57.7
            )Cash
                flows from financing activities:Net
                change in debt
            
            
            (378.0
            )
            
            (49.4
            )
            
            (122.3
            )
            
            (549.7
            )Net
                inter-company (payments) proceeds
            
            
            776.2
            
            
            (2,087.8
            )
            
            1,311.6
            
            
            -Proceeds
                from the exercise of stock options
            
            
            160.2
            
            
            -
            
            
            -
            
            
            160.2Excess
                tax benefit from stock-based compensation
            
            
            -
            
            
            29.1
            
            
            7.0
            
            
            36.1Dividends
                (paid) received
            
            
            (459.5
            )
            
            16.4
            
            
            233.3
            
            
            (209.8
            )Repurchase
                of common shares by subsidiary
            
            
            -
            
            
            -
            
            
            (1,999.9
            )
            
            (1,999.9
            )Net
                cash (used in) provided by continuing financing activities
            
            
            98.9
            
            
            (2,091.7
            )
            
            (570.3
            )
            
            (2,563.1
            )Net
                cash (used in) provided by discontinued financing
                activities
            
            
            -
            
            
            -
            
            
            -
            
            
            -Effect
                of exchange rate changes on cash andcash
                equivalents
            
            
            -
            
            
            -
            
            
            51.8
            
            
            51.8Net
                (decrease) increase in cash and cash equivalents
            
            
            (1.1
            )
            
            463.9
            
            
            3,916.7
            
            
            4,379.5Cash
                and cash equivalents - beginning of period
            
            
            1.7
            
            
            81.6
            
            
            272.5
            
            
            355.8Cash
                and cash equivalents - end of period
            
            $
            0.6
            
            $
            545.5
            
            $
            4,189.2
            
            $
            4,735.3




116





**Condensed
                Consolidating Statement of Cash Flows**For
                the year ended December 31, 2006IR
            
            IR
            
            Other
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            ConsolidatedNet
                cash (used in) provided by continuing operating activities
            
            $
            (67.4
            )
            $
            (83.1
            )
            $
            963.6
            
            $
            813.1Net
                cash (used in) provided by discontinued operating
                activities
            
            
            -
            
            
            173.4
            
            
            (31.7
            )
            
            141.7Cash
                flows from investing activities:Capital
                expenditures
            
            
            -
            
            
            (44.0
            )
            
            (100.8
            )
            
            (144.8
            )Proceeds
                from sale of property, plant and equipment
            
            
            -
            
            
            0.9
            
            
            8.7
            
            
            9.6Acquisitions,
                net of cash
            
            
            -
            
            
            (11.8
            )
            
            (37.9
            )
            
            (49.7
            )Proceeds
                from business dispositions
            
            
            -
            
            
            -
            
            
            -
            
            
            -Proceedes
                from the sale of marketable securities
            
            
            -
            
            
            -
            
            
            155.8
            
            
            155.8Cash
                provided by equity companies, net
            
            
            -
            
            
            -
            
            
            0.4
            
            
            0.4Net
                cash (used in) provided by continuing investing activities
            
            
            -
            
            
            (54.9
            )
            
            26.2
            
            
            (28.7
            )Net
                cash (used in) provided by discontinued investing
                activities
            
            
            -
            
            
            (8.7
            )
            
            (123.8
            )
            
            (132.5
            )Cash
                flows from financing activities:Net
                change in debt
            
            
            379.1
            
            
            (499.7
            )
            
            (19.9
            )
            
            (140.5
            )Net
                inter-company (payments) proceeds
            
            
            (7.3
            )
            
            323.0
            
            
            (315.7
            )
            
            -Proceeds
                from the exercise of stock options
            
            
            95.7
            
            
            -
            
            
            -
            
            
            95.7Excess
                tax benefit from stock-based compensation
            
            
            -
            
            
            8.9
            
            
            6.6
            
            
            15.5Dividends
                (paid) received
            
            
            (423.9
            )
            
            15.6
            
            
            190.7
            
            
            (217.6
            )Repurchase
                of common shares by subsidiary
            
            
            -
            
            
            -
            
            
            (1,096.3
            )
            
            (1,096.3
            )Net
                cash (used in) provided by continuing financing activities
            
            
            43.6
            
            
            (152.2
            )
            
            (1,234.6
            )
            
            (1,343.2
            )Net
                cash (used in) provided by discontinued financing
                activities
            
            
            -
            
            
            -
            
            
            -
            
            
            -Effect
                of exchange rate changes on cash andcash
                equivalents
            
            
            -
            
            
            -
            
            
            29.4
            
            
            29.4Net
                (decrease) increase in cash and cash equivalents
            
            
            (23.8
            )
            
            (125.5
            )
            
            (370.9
            )
            
            (520.2
            )Cash
                and cash equivalents - beginning of period
            
            
            25.5
            
            
            207.1
            
            
            643.4
            
            
            876.0Cash
                and cash equivalents - end of period
            
            $
            1.7
            
            $
            81.6
            
            $
            272.5
            
            $
            355.8




117




**Condensed
                Consolidating Statement of Cash Flows**For
                the year ended December 31, 2005IR
            
            IR
            
            Other
            
            IR
                Limited*In
                millions*
            
            Limited
            
            New
                Jersey
            
            Subsidiaries
            
            ConsolidatedNet
                cash (used in) provided by continuing operating activities
            
            $
            (32.0
            )
            $
            (381.3
            )
            $
            854.2
            
            $
            440.9Net
                cash (used in) provided by discontinued operating
                activities
            
            
            -
            
            
            (111.0
            )
            
            510.8
            
            
            399.8Cash
                flows from investing activities:Capital
                expenditures
            
            
            -
            
            
            (38.0
            )
            
            (48.1
            )
            
            (86.1
            )Proceeds
                from sale of property, plant and equipment
            
            
            -
            
            
            2.1
            
            
            14.2
            
            
            16.3Acquisitions,
                net of cash
            
            
            -
            
            
            -
            
            
            (484.7
            )
            
            (484.7
            )Proceeds
                from business dispositions
            
            
            -
            
            
            3.7
            
            
            7.7
            
            
            11.4Purchase
                of marketable securities
            
            
            -
            
            
            -
            
            
            (152.6
            )
            
            (152.6
            )Cash
                provided by equity companies, net
            
            
            -
            
            
            -
            
            
            7.1
            
            
            7.1Net
                cash (used in) provided by continuing investing activities
            
            
            -
            
            
            (32.2
            )
            
            (656.4
            )
            
            (688.6
            )Net
                cash (used in) provided by discontinued investing
                activities
            
            
            -
            
            
            (11.3
            )
            
            (71.8
            )
            
            (83.1
            )Cash
                flows from financing activities:Net
                change in debt
            
            
            297.4
            
            
            (87.3
            )
            
            (147.4
            )
            
            62.7Net
                inter-company (payments) proceeds
            
            
            (134.8
            )
            
            (25.2
            )
            
            160.0
            
            
            -Proceeds
                from the exercise of stock options
            
            
            90.9
            
            
            -
            
            
            -
            
            
            90.9Dividends
                (paid) received
            
            
            (359.2
            )
            
            13.2
            
            
            153.9
            
            
            (192.1
            )Repurchase
                of common shares by subsidiary
            
            
            -
            
            
            -
            
            
            (763.6
            )
            
            (763.6
            )Redemption
                of preferred stock of subsidiary
            
            
            (73.6
            )
            
            -
            
            
            -
            
            
            (73.6
            )Net
                cash (used in) provided by continuing financing activities
            
            
            (179.3
            )
            
            (99.3
            )
            
            (597.1
            )
            
            (875.7
            )Net
                cash (used in) provided by discontinued financing
                activities
            
            
            -
            
            
            -
            
            
            -
            
            
            -Effect
                of exchange rate changes on cash andcash
                equivalents
            
            
            -
            
            
            -
            
            
            (14.2
            )
            
            (14.2
            )Net
                increase in cash and cash equivalents
            
            
            (211.3
            )
            
            (635.1
            )
            
            25.5
            
            
            (820.9
            )Cash
                and cash equivalents - beginning of period
            
            
            236.8
            
            
            842.2
            
            
            617.9
            
            
            1,696.9Cash
                and cash equivalents - end of period
            
            $
            25.5
            
            $
            207.1
            
            $
            643.4
            
            $
            876.0




118


**SCHEDULE
        II**
 
 **INGERSOLL-RAND
        COMPANY LIMITED**
 **VALUATION
        AND QUALIFYING ACCOUNTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005**
 (Amounts
        in millions)


**Allowances
                for Doubtful Accounts:****Balance
                December 31, 2004**
            
            $
            45.0Net
                reductions in costs and expenses
            
            
            (6.6
            )Deductions
                *
            
            
            (13.6
            )Business
                acquisitions and divestitures, net
            
            
            4.6Currency
                translation
            
            
            (1.1
            )**Balance
                December 31, 2005**
            
            
            28.3Net
                reductions in costs and expenses
            
            
            (11.4
            )Deductions
                *
            
            
            (11.4
            )Business
                acquisitions and divestitures, net
            
            
            1.4Currency
                translation
            
            
            1.4**Balance
                December 31, 2006**
            
            
            8.3Additions
                charged to costs and expenses
            
            
            9.8Deductions
                *
            
            
            (7.2
            )Business
                acquisitions and divestitures, net
            
            
            0.4Currency
                translation
            
            
            0.9**Balance
                December 31, 2007**
            
            $
            12.2




(*)
                "Deductions" include accounts and advances written off, less
                recoveries.




119


**SCHEDULE
        II**
 
 **INGERSOLL-RAND
        COMPANY LIMITED**
 **VALUATION
        AND QUALIFYING ACCOUNTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005**
 (Amounts
        in millions)




**Reserve
                for LIFO:****Balance
                December 31, 2004**
            
            $
            77.2Additions
            
            
            2.6Reductions
            
            
            (1.9
            )**Balance
                December 31, 2005**
            
            
            77.9Additions
            
            
            19.7Reductions
            
            
            (2.2
            )**Balance
                December 31, 2006**
            
            
            95.4Additions
            
            
            -Reductions
            
            
            (11.1
            )**Balance
                December 31, 2007**
            
            $
            84.3




120