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, 2005**


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**
              *(State
                or other jurisdiction of*
              *incorporation
                or organization)*
            
            **75-2993910**
              *(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 whether the registrant is well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act. YES x NO
o




Indicate
      by check mark whether the registrant is not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act. YES o NO
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 x NO
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




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


Large
      accelerated filer x Accelerated
      filer o
      Non-accelerated filer o




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


YES o NO x





The
      aggregate market value of common stock held by nonaffiliates on June 30, 2005
      was ** approximately
      $12,031,865,017 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 24, 2006 was
      327,478,397.





**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 7, 2006 are incorporated by reference
      into Part III of this Form 10-K.








**PART
      I**


Item
      1.   **BUSINESS**





**Overview**


Ingersoll-Rand
      Company Limited, a Bermuda company ( we, our, IR-Limited
      or the Company), is a
      leading
      provider of climate control, industrial, compact vehicle, construction and
      security products. In
      each
      of these markets, we offer a
      diverse product portfolio that includes well-recognized industrial and
      commercial brands.





Through
      our business segments, we design, manufacture, sell and service:




·
            climate
                control technologies, including transport temperature control units
                andrefrigerated display merchandisers;


·
            compact
                vehicle technologies, including skid-steer loaders and golf
                vehicles;


·
            construction
                technologies, includingroad construction and repair equipment;


·
            industrial
                technologies, including compressed air systems and tools;
                and


·
            security
                technologies, including mechanical and electronic security
                products.





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.





IR-Limited
      is the successor to IR-New
      Jersey following a corporate reorganization (the reorganization) that became effective
      on December 31, 2001. We
      believe that the reorganization has enabled us to begin
      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.





To
      consummate the reorganization, IR Merger Corporation ,
      a New
      Jersey corporation ,
      merged
      into IR-New Jersey, with IR-New Jersey as the surviving company. Upon the
      merger, IR-New Jersey became a wholly owned, indirect subsidiary of IR-Limited ,
      and the
      outstanding shares of IR-New Jersey common stock were automatically cancelled
      in
      exchange for the issue of our
      Class
      A common shares. The number of Class B common shares issued had an aggregate
      value equal to the fair market value of the shares of the subsidiaries
      transferred (the transferred shares) and the amount of debt issued to us based
      on the market value of IR-New Jersey common stock at the effective time of
      the
      merger. Prior to the reorganization, neither IR-Limited nor IR-Merger
      Corporation had any significant
      assets or capitalization or engaged in any business or other activities other
      than in connection with formation and the merger and related reorganization
      transactions.  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.


2





**Business
      Segments**


*Climate
      Control Technologies*


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





*Compact
      Vehicle Technologies*


The
      segment is engaged in the design, manufacture, sale and service of skid-steer
      loaders, all-wheel steer loaders, compact truck loaders, compact excavators,
      attachments and golf and utility vehicles. Compact Vehicle Technologies includes
      the Bobcat and Club Car brands.





*Construction
      Technologies*


The
      segment is engaged in the design, manufacture, sale and service of road
      construction and repair equipment, portable power products, general-purpose
      construction equipment, attachments and portable light towers and compressors.
      Construction Technologies is comprised of the Utility Equipment and Road
      Development businesses.





*Industrial
      Technologies*


The
      segment 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 and energy
      generation systems. Industrial Technologies includes the Air Solutions and
      Productivity Solutions businesses.





*Security
      Technologies*


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





**Competitive
      Conditions**


The
      Company's 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. The Company believes that it is one of the leading
      manufacturers in the world of air compression systems, construction equipment,
      transport temperature control products, refrigerated display merchandisers,
      refrigeration systems and controls, air tools, golf cars and utility vehicles.
      In addition, the Company believes it is a leading supplier in U.S. markets
      for
      architectural hardware products, mechanical locks, and electronic and biometric
      access-control technologies.





**Distribution**


The
      Company's products are distributed by a number of methods, which the Company
      believes are appropriate to the type of product. Sales are made in the U.S.
      through branch sales offices and through distributors and dealers across the
      United States. Non-U.S. sales are made through numerous subsidiary sales and
      service companies with a supporting chain of distributors in over 100
      countries.


3


**Products**Principal
                  products of the Company include the following:Air
                  balancers
              
              HoistsAir
                  compressors & accessories
              
              Hydraulic
                  breakersAir
                  dryers
              
              Lubrication
                  equipmentAir
                  logic controls
              
              MicroturbinesAir
                  motors
              
              Material
                  handling equipmentAir
                  and electric tools
              
              Paving
                  equipmentAsphalt
                  compactors
              
              Piston
                  pumpsAsphalt
                  pavers
              
              Pneumatic
                  breakersAutomated
                  dispensing systems
              
              Pneumatic
                  cylindersAutomatic
                  doors
              
              Pneumatic
                  valvesBiometric
                  access control systems
              
              Portable
                  compressorsCompact
                  hydraulic excavators
              
              Portable
                  generatorsCompact
                  tractor-loader-backhoes
              
              Portable
                  light towersDiaphragm
                  pumps
              
              Portable
                  security productsDoor
                  closers and controls
              
              Refrigerated
                  display casesDoor
                  locks, latches and locksets
              
              Refrigeration
                  systemsDoors
                  and door frames (steel)
              
              Road-building
                  machineryElectrical
                  security products
              
              Rough-terrain
                  material handlersElectronic
                  access-control systems
              
              Skid-steer
                  loadersEngine-starting
                  systems
              
              Soil
                  compactorsExit
                  devices
              
              Spray-coating
                  systemsExtrusion
                  pump systems
              
              Telescopic
                  material handlersFastener-tightening
                  systems
              
              Transport
                  temperature control systemsFluid-handling
                  equipment
              
              Utility
                  vehiclesGolf
                  cars
              
              Winches


These
      products are sold primarily under the Company’s name and also under other names
      including ABG®, Blaw-Knox®, Bobcat®, Bricard®, CISA®, Club Car®, Hussmann®,
      Koxka®, LCN®, Montabert®, Schlage®, Thermo King®, and Von Duprin®.




Additional
      information on the Company's business and
      financial information about industry segments is presented in the consolidated
      financial statements.





4




**Working
      Capital**


The
      products manufactured by the Company must usually be readily available to meet
      rapid delivery requirements. Such working capital requirements are not, however,
      in the opinion of management, materially different from those experienced by
      the
      Company's major competitors.





**Customers**


No
      material part of the Company's 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 the Company's operations.




**Operations
      by Geographic Area**


More
      than
      40% of our 2005 net revenues were derived outside the United States. Sales
      outside of the United States are made 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 the Company's non-U.S. operations. Additional
      information concerning the Company’s operating segments is contained in Note 14,
      Business Segment Information, to the consolidated financial statements contained
      in this Annual Report on Form 10-K.





**Raw
      Materials**


The
      Company manufactures many of the components included in its products. The
      principal raw materials required for the manufacture of the Company's products
      are purchased from numerous suppliers, and although higher prices for some
      raw
      materials important to some of the Company’s businesses, particularly steel,
      have caused pricing pressures, the Company believes that available sources
      of
      supply will generally be sufficient for its needs for the foreseeable
      future.





**Backlog**


The
      Company’s approximate backlog of orders at December 31, 2005, believed by it to
      be firm, was $301.3 million for Climate Control Technologies, $178.6 million
      for
      Industrial Technologies, $162.6 million for Compact Vehicle Technologies, $129.7
      million for Construction Technologies, and $140.0 million for Security
      Technologies, compared with $359.3 million, $121.6 million, $245.4 million,
      $98.0 million and $100.0 million, respectively, at December 31, 2004. These
      backlog figures are based on orders received. While the major portion of the
      Company's 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. The Company estimates that over 90%
      of
      the backlog will be shipped during the next twelve months.





**Research
      and Development**


The
      Company maintains extensive research and development facilities for
      experimenting, testing and developing high quality products. The Company spent
      $162.4 million in 2005, $149.2 million in 2004 and $164.5 million in 2003 on
      research and development expenditures, including qualifying engineering costs.
      The Company also incurs engineering costs, which are not considered research
      and
      development expenditures.





**Patents
      and Licenses**


The
      Company owns numerous patents and patent applications and is licensed under
      others. While it considers that in the aggregate its patents and licenses are
      valuable, it does not believe that its business is materially dependent on
      its
      patents or licenses or any group of them. In the Company's opinion, engineering
      and production skills, and experience are more responsible for its market
      position than patents or licenses.





**Environmental
      and Asbestos 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 currently is engaged in site investigations and remedial activities
      to address environmental cleanup from past operations at current and former
      manufacturing facilities.





5








During
      2005, the Company spent $4.1 million on capital projects for pollution abatement
      and control, and an additional $13.0 million for environmental remediation
      expenditures at sites presently or formerly owned or leased by the Company.
      It
      should be noted that these amounts are difficult to estimate because
      environmental projects are generally a part of the overall improvement program
      at a particular plant. The Company believes that these expenditure 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.





The
      Company is 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 is 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 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.





Although
      uncertainties regarding environmental technology, U.S. federal and state laws
      and regulations and individual site information make estimating the liability
      difficult, management believes that the total liability for the cost of
      remediation and environmental lawsuits and claims will not have a material
      effect on the financial condition, results of operations, liquidity or cash
      flows of the Company for any year. It should be noted that when the Company
      estimates its liability for environmental matters, such estimates are based
      on
      current technologies, and the Company does not discount its liability or assume
      any insurance recoveries.





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 have been filed against IR-New Jersey and
      generally allege injury caused by exposure to asbestos contained in certain
      of
      IR-New Jersey’s products. 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 purchased from third-party
      suppliers.





All
      asbestos-related claims resolved to date have been dismissed or settled. For
      the
      year ended December 31, 2005, total costs for settlement and defense of asbestos
      claims after insurance recoveries and net of tax were approximately $16.8
      million, compared with $16.5 million for the year ended December 31, 2004.
      With
      the assistance of independent advisors, the Company performs a thorough
      analysis, updated periodically, of its actual and anticipated future asbestos
      liabilities projected seven years in the future. Based upon such analysis,
      the
      Company believes that its reserves and insurance are adequate to cover its
      asbestos liabilities, and that these asbestos liabilities are not likely to
      have
      a material adverse effect on its financial position, results of operations,
      liquidity or cash flows.





6











Legislation
      currently under consideration in Congress concerns pending and future
      asbestos-related personal injury claims. Whether and when such legislation
      will
      become law, and the final provisions of such legislation, are unknown.
      Consequently, the Company cannot predict with any reasonable degree of certainty
      what effect, if any, such legislation would have upon the Company’s financial
      position, results of operations or cash flows. See also the discussion under
      Note 8, Commitments and Contingencies, to the consolidated financial statements
      contained in this Annual Report on Form 10-K.





**Employees**


There
      are
      approximately 40,000 employees of the Company throughout the world, of whom
      approximately 19,000 work in the United States and 21,000 outside the United
      States. The Company believes relations with its employees are good.





**Available
      Information**


The
      Company files 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 405 Fifth Street, N.W.,
      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 the Company
      at http://www.sec.gov.





In
      addition, this Annual Report on Form 10-K, as well as the Company’s 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 the Company’s
      Internet website ( http://www.irco.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 the Company’s 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 the Company.





**Certifications**


*New
      York Stock Exchange Annual Chief Executive Officer
      Certification*


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








7





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, commodity price and interest rate 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
      40% of our net revenues were derived outside the U.S. in 2005, and we expect
      sales to non-U.S. customers to continue to represent a significant portion
      of
      our consolidated net sales. Therefore, in the case where we manufacture our
      products in the U.S. and the U.S. dollar strengthens in relation to the
      currencies of the countries where we sell those products, such as the euro
      and
      Asian currencies, our U.S. dollar reported revenue and income will decrease.
      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. Furthermore, the reporting currencyfor 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. Because we do not hedge against all of our currency exposure,
      our business will continue to be susceptible to currency
      fluctuations.




We
      are a
      large buyer of steel 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.







8




***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 U.S.
      generally accepted accounting principles, 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 requiring
      us 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;


·
            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 could increase our
      operating costs.***





We
      rely
      on suppliers to secure raw materials, particularly steel, 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.





***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;


·
            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.





9





***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 bolt-on
      acquisitions. Since 2000, we have completed more than 60 acquisitions adding
      approximately $3 billion of revenue, and we are continuing to actively pursue
      additional bolt-on 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;
                and


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




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:




·
            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.




***Our
      reputation and our ability to do business may be impaired by improper conduct
      by
      any of our employees or agents.***




We
      do
      business in many parts of the world that have experienced governmental
      corruption. Our corporate policy requires strict compliance with the U.S. Foreign Corrupt PracticesAct and
      with local laws prohibiting payments to government officials for the purpose
      of
      obtaining or keeping business or otherwise obtaining favorable treatment.
      Improper actions by our employees or agents could subject us to civil or
      criminal penalties, including substantial monetary fines, as well as
      disgorgement, and could damage our reputation and, therefore, our ability to
      do
      business.





10







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




The
      reorganization exposed us or 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. tax laws could increase our tax burden and affect our
      operating results, as well as subject our shareholders to additional taxes.***




While
      our
      U.S. operations are subject to U.S. tax, we believe that our non-U.S. operations
      are generally not subject to U.S. tax other than withholding taxes. The
      realization of this or any other tax benefit of the 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 or any
      other tax authority. We believe that o ur
      risks
      have been diminished by the enactment of the American Jobs Creation Act of
      2004.
      The American Jobs Creation Act includes a provision that denies tax benefits
      to
      companies that have reincorporated after March 4, 2003. We completed our
      reincorporation in Bermuda on December 31, 2001, and therefore our transaction
      is grandfathered by the American Jobs Creation Act. In
      addition, we believe that neither we nor IR-New Jersey will incur significant
      U.S. federal income or withholding taxes as a result of the transfer of the
      transferred shares. However, we cannot give any assurances that anticipated
      tax
      costs with respect to the transferred shares will ultimately  be
      borne
      out and that the Internal Revenue Service will not contest our determination
      in
      the course of its audit. The inability to realize any of these benefits could
      have a material impact on our operating results.




A
      non-U.S. corporation, such as the Company, will constitute a "controlled foreign
      corporation" or "CFC" for U.S. federal income tax purposes if certain ownership
      criteria are met. Although we believe that we and our non-U.S. subsidiaries
      currently are not CFCs, the U.S. Internal Revenue Service or a court may not
      concur with our conclusions. If the IRS or a court determined that we 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 on the last day of our 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 income" (and the subpart F income
      of any 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 are a CFC.




***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.







11




***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**





Manufacturing
      and assembly operations are conducted in 38 plants in the United States; 1
      plant
      in Canada; 32 plants in Europe; 16 plants in Asia; and 6 plants in Latin
      America. The Company also maintains various warehouses, offices and repair
      centers throughout the world.





Substantially
      all plant facilities are owned by the Company and the remainder are under
      long-term lease arrangements. The Company believes that its plants and equipment
      have been well maintained and are generally in good condition.





Facilities
      under long-term lease arrangements are included below and are not significant
      to
      each operating segment's total number of plants or square footage.




12





Climate
      Control Technologies’ manufacturing locations
      are as follows:


**Number
                  of Plants**
              
              **Approximate****Square
                  Footage**United
                  States
              
              
              10
              
              
              3,576,000Non
                  - U.S.
              
              
              15
              
              
              2,653,000**Total**
              
              
              25
              
              
              6,229,000


Compact
      Vehicle Technologies’ manufacturing facilities are as follows:


**Number
                  of Plants**
              
              **Approximate****Square
                  Footage**United
                  States
              
              
              6
              
              
              1,544,000Non
                  - U.S.
              
              
              2
              
              
              254,000**Total**
              
              
              8
              
              
              1,798,000


Construction
      Technologies’ manufacturing facilities are as follows:


**Number
                  of Plants**
              
              **Approximate****Square
                  Footage**United
                  States
              
              
              3
              
              
              689,000Non
                  - U.S.
              
              
              3
              
              
              530,000**Total**
              
              
              6
              
              
              1,219,000


Industrial
      Technologies’ manufacturing facilities are as follows:




**Number
                  ofPlants**
              
              **Approximate****Square
                  Footage**United
                  States
              
              
              9
              
              
              1,416,000Non
                  - U.S.
              
              
              13
              
              
              1,013,000**Total**
              
              
              22
              
              
              2,429,000




Security
      Technologies’ **** manufacturing
      facilities are as follows:




**Number
                  of Plants**
              
              **Approximate****Square
                  Footage**United
                  States
              
              
              10
              
              
              1,700,000Non
                  - U.S.
              
              
              22
              
              
              2,531,000**Total**
              
              
              32
              
              
              4,231,000





13





Item
      3.   **LEGAL
      PROCEEDINGS**





In
      the
      normal course of business, the Company is 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 the opinion of the Company, pending
      legal matters are not expected to have a material adverse effect on the results
      of operations, financial condition, liquidity or cash flows.





As
      previously reported, on November 10, 2004, the 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 Program, provided the SEC with
      information responsive to the Order and provided additional information
      requested by the SEC. The Company will continue to cooperate fully with the
      SEC
      in this matter.





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 8, Commitments and Contingencies, to the consolidated
      financial statements contained in this Annual Report on Form 10-K.





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, 2005.





14





**Executive
                  Officers of the Registrant**The
                  following information is included in accordance with the provision
                  of Part
                  III, Item 10.**Date
                  of Service as**
              **Principal
                  Occupation and****Name
                  and Age**
              **an
                  Executive Officer**
              **Other
                  Information for Past Five Years**Herbert
                  L. Henkel (57)
              4/5/1999
              Chairman
                  of Board and Chief Executive Officer, Presidentand
                  DirectorTimothy
                  R. McLevish (50)
              5/1/2002
              Senior
                  Vice President and Chief Financial Officer (since June2002);
                  (Mead Corporation, Vice President, Chief FinancialOfficer
                  1999-2002)James
                  R. Bolch (48)
              10/16/2005
              Senior
                  Vice President and President, Industrial TechnologiesSector
                  (since October 2005); (Schindler Elevator Corporation,Executive
                  Vice President, Service Business 2004-2005; UnitedTechnologies
                  Corporation UTC Power, Vice PresidentOperations
                  2001-2003)Michael
                  W. Lamach (42)
              2/16/2004
              Senior
                  Vice President and President, Security Technologies(since
                  February 2004); (Johnson Controls, Inc., Group VicePresident
                  and Managing Director Europe/Asia 2003-2004; GroupVice
                  President and General Manager, Asia 2002-2003; GroupVice
                  President and General Manager, Customer Business Units1999-2002)Patricia
                  Nachtigal (59)
              11/2/1988
              Director
                  (since January 1, 2002); Senior Vice President andGeneral
                  CounselRichard
                  F. Pedtke (57)
              5/1/2005
              Senior
                  Vice President and President, Compact VehicleTechnologies
                  (since May 2005); (President, ESA, ClimateControl,
                  2003-2005; President, Thermo King International,2000-2003)Steven
                  R. Shawley (53)
              8/1/2005
              Senior
                  Vice President and President, Climate ControlTechnologies
                  (since August 2005); (President Climate ControlAmericas,
                  2003-2005; President, Thermo King North America,2002-2003;
                  Vice President and Controller, 1998-2002)Christopher
                  P. Vasiloff (54)
              11/1/2001
              Senior
                  Vice President and President, Construction Technologies(since
                  November 2001); (President, Portable Power,Infrastructure
                  Sector, 2000-2001)Richard
                  W. Randall (55)
              10/1/2002
              Vice
                  President and Controller (since October 2002);(President,
                  Engineered Solutions, Industrial SolutionsSector,
                  April 2002-September 2002; Vice President, Financeand
                  Sector Controller, Industrial Solutions Sector
                  2001-2002;Vice
                  President and Controller, Bearings and Components,Industrial
                  Productivity Sector, 1999-2001)Michael
                  J. Ryan (57)
              5/1/2005
              Vice
                  President, Operations (since May 2005); (President,Compact
                  Equipment, Infrastructure Sector, 2003-2005; UnitedSupply
                  Automotive, Vice President, 2002-2003; IntermetCorporation,
                  Vice President, Operations, 2000-2002)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.





15








**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 the Company's common shares and related
      shareholder matters are as follows:





Quarterly
      share prices and dividends for the Class A common shares are shown in the
      following tabulation. The common shares are listed on the New York Stock
      Exchange.




Common
                    shares2005
                
                High
                
                Low
                
                DividendFirst
                    quarter
                
                
                $43.66
                
                
                $36.53
                
                
                $0.125Second
                    quarter
                
                
                41.18
                
                
                35.40
                
                
                0.125Third
                    quarter
                
                
                41.50
                
                
                35.96
                
                
                0.160Fourth
                    quarter
                
                
                41.23
                
                
                36.35
                
                
                0.160
  2004First
                  quarter
              
              
              $36.33
              
              
              $31.27
              
              
              $0.095Second
                  quarter
              
              
              36.78
              
              
              29.52
              
              
              0.095Third
                  quarter
              
              
              34.95
              
              
              31.03
              
              
              0.125Fourth
                  quarter
              
              
              41.45
              
              
              32.37
              
              
              0.125


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.





The
      approximate number of record holders of Class A common shares as of February
      24,
      2006 was 8,151.





Information
      regarding equity compensation plans required to be disclosed pursuant to this
      Item is included elsewhere in this Annual Report on Form 10-K.





Shares
      owned by subsidiaries of IR-Limited are treated as treasury shares and are
      recorded at cost. On August 3, 2005, the Board of Directors of the Company
      expanded the Company’s existing share repurchase program to allow the repurchase
      of up to a total of $2 billion worth of Class A common shares. The plan was
      established on August 4, 2004 and initially authorized the Company to repurchase
      up to 20 million Class A common shares. During 2005, the Company repurchased
      19.4 million Class A common shares at a cost of $763.6 million. Total purchases
      under the program as of December 31, 2005, have been 23.4 million Class A common
      shares at a cost of $903.7 million.





16





Total
      share repurchases for the three months ended December 31, 2005 are as
      follows:





Period
              
              Total
                        numberof
                        sharespurchased(000's)
              
              Average
                    pricepaidper share
              
              Total
                                  numberof sharespurchasedas part ofthe
                                  program(000's)
              
              Approximate
                            dollar value of shares still available to be purchased
                            under the program
                            ($000's)10/01/2005
                  - 10/31/2005
              
              
              3,155
              
              
              $36.96
              
              
              3,155
              
              
              $1,119,47311/01/2005
                  - 11/30/2005
              
              
              364
              
              
              38.01
              
              
              364
              
              
              1,105,63512/01/2005
                  - 12/31/2005
              
              
              233
              
              
              39.78
              
              
              233
              
              
              1,096,374Total
              
              
              3,752
              
              
              
              
              
              3,752




Item
      6.   **SELECTED
      FINANCIAL DATA**





In
      millions, except per share amounts:




At
                  and for the years ended December 31,
              
              2005
              
              2004
              
              2003
              
              2002
              
              2001Net
                  sales
              
              
              $10,546.9
              
              
              $9,393.6
              
              
              $8,249.3
              
              
              $7,583.0
              
              
              $7,388.7Earnings
                  from continuing operations
              
              
              1,053.1
              
              
              829.8
              
              
              532.8
              
              
              322.4
              
              
              149.9Total
                  assets
              
              
              11,756.4
              
              
              11,414.6
              
              
              10,664.9
              
              
              10,809.6
              
              
              11,133.8Long-term
                  debt
              
              
              1,184.3
              
              
              1,267.6
              
              
              1,518.4
              
              
              2,091.4
              
              
              2,900.4Shareholders'
                  equity
              
              
              5,762.0
              
              
              5,733.8
              
              
              4,493.3
              
              
              3,478.2
              
              
              3,916.6Basic
                  earnings per common share: *Continuing
                  operations
              
              
              $3.12
              
              
              $2.40
              
              
              $1.56
              
              
              $0.96
              
              
              $0.46Discontinued
                  operations
              
              
              -
              
              
              1.12
              
              
              0.32
              
              
              0.41
              
              
              0.29Diluted
                  earnings per common share: *Continuing
                  operations
              
              
              $3.09
              
              
              $2.36
              
              
              $1.55
              
              
              $0.95
              
              
              $0.45Discontinued
                  operations
              
              
              -
              
              
              1.11
              
              
              0.32
              
              
              0.41
              
              
              0.29Dividends
                  per common share*
              
              
              $0.57
              
              
              $0.44
              
              
              $0.36
              
              
              $0.34
              
              
              $0.34*These
                  amounts have been restated to reflect a two-for-one stock
                  split.





17





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 (we, our or the Company) is a leading innovation and solutions
      provider with strong brands and leading positions within its markets. Our
      business segments consist of Climate Control Technologies, Compact Vehicle
      Technologies, Construction 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
      Bobcat®, 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 low-risk, high-return bolt-on
                acquisitions;





·
            Operational
                Excellence, by fostering a 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 have transformed our product portfolio by divesting cyclical,
      low-growth, and asset-intensive businesses over the last few years. We continue
      to focus on increasing our recurring revenue stream, which includes revenues
      from parts, service, used equipment, rentals and attachments. We also intend
      to
      continuously improve the efficiencies, capabilities, and products and services
      of our high-potential businesses. We expect to use our strong operating cash
      flow for bolt-on acquisitions, stock buybacks, capital expenditures and dividend
      enhancements.





At
      December 31, 2005, 2004 and 2003, employment was approximately 40,000, 36,200
      and 36,500, respectively. The increase during 2005 was primarily due to the
      acquisitions made by Security Technologies throughout the year.





18





***Trends
      and Economic Conditions***


We
      are a
      global corporation with worldwide operations. More than 40% of our 2005 net
      revenues were derived outside the United States. 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.
      The
      Company monitors key competitors and customers to gauge relative performance
      and
      the outlook for the future. In addition, our order rates are highly 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.





Despite
      the diversity of our businesses, most of our major end markets continued to
      improve as the year 2005 came to an end. For full-year 2005, all business
      segments experienced growth in revenues compared with 2004, including more
      than
      10% growth in the Compact Vehicle Technologies, Construction Technologies,
      Industrial Technologies and Security Technologies segments. Improved markets,
      new product introductions, product mix and pricing improvements drove this
      revenue growth. This strong revenue growth was further enhanced with bolt-on
      acquisitions. The Company has been able to increase prices and add surcharges
      to
      help offset the impact of cost inflation.





In
      2006,
      we expect to build on the momentum of 2005 to continue generating greater market
      share gains and operating performance improvements across our businesses. The
      Company sees continued strength in most of its worldwide markets as indicated
      by
      the increase in our backlog during the year. We also expect to see continued
      high material and energy costs, which we plan to offset by increased
      productivity and pricing actions. Additionally, the Company once again expects
      to produce substantial operating cash flow in 2006.





***Significant
      Events in 2005***


In
      January, the Company 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
      April, the Company acquired the remaining 20% interest in Shanghai
      Ingersoll-Rand Compressor Company Limited (SIRC), a joint venture established
      in
      1987, for approximately $26 million. SIRC manufactures a wide range of air
      compressors and components for the Company and provides a network of
      company-owned distribution centers located in most major cities in China to
      sell, install and service the Company’s products. In May, the Company acquired
      Security One Systems, a security systems integrator located in Florida, for
      approximately $31 million. Security One provides security design solutions
      including access control, closed circuit TV, video surveillance and alarm
      monitoring. In August, the Company 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. The Company
      has
      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. The Company also made several other bolt-on acquisitions during
      the year.





19








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 to shareholders on September 1,
      2005. The Board also declared a 28% increase in the quarterly dividend of the
      Company’s Class A common shares to 16 cents per share and expanded the Company’s
      share repurchase program, which was established in August 2004, to $2 billion.
      During 2005, the Company repurchased 19.4 million Class A common shares at
      a
      cost of $763.6 million.





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





The
      Company made discretionary cash contributions of $86.4 million to its pension
      plans during the year ended December 31, 2005, as well as $33.0 million in
      required employer contributions.





**Results
      of Operations**


*Dollar
                  amounts in millions, except per share data*
              
              2005
              
              2004
              
              2003Net
                  revenues
              
              
              $10,546.9
              
              
              $9,393.6
              
              
              $8,249.3Cost
                  of goods sold
              
              
              7,744.1
              
              
              6,854.0
              
              
              6,109.0Selling
                  and administrative expenses
              
              
              1,441.0
              
              
              1,419.3
              
              
              1,355.9Restructuring
                  reversal
              
              
              -
              
              
              -
              
              
              (3.2
              )Operating
                  income
              
              
              1,361.8
              
              
              1,120.3
              
              
              787.6Interest
                  expense
              
              
              (144.3
              )
              
              (153.1
              )
              
              (175.5
              )Other
                  income, net
              
              
              53.0
              
              
              17.0
              
              
              10.9Minority
                  interests
              
              
              (12.7
              )
              
              (16.0
              )
              
              (14.9
              )Earnings
                  before income taxes
              
              
              1,257.8
              
              
              968.2
              
              
              608.1Provision
                  for income taxes
              
              
              204.7
              
              
              138.4
              
              
              75.3Earnings
                  from continuing operations
              
              
              1,053.1
              
              
              829.8
              
              
              532.8Discontinued
                  operations, net of tax
              
              
              1.1
              
              
              388.9
              
              
              111.7Net
                  earnings
              
              
              $1,054.2
              
              
              $1,218.7
              
              
              $644.5Diluted
                  earnings per common share:Earnings
                  from continuing operations
              
              
              $3.09
              
              
              $2.36
              
              
              $1.55Discontinued
                  operations, net of tax
              
              
              -
              
              
              1.11
              
              
              0.32Net
                  earnings
              
              
              $3.09
              
              
              $3.47
              
              
              $1.87




***Revenues***


2005
      vs. 2004 :
      Net
      revenues increased by 12.3% in 2005, or $1,153.3 million, compared with 2004,
      which primarily resulted from improved end markets, new product introductions
      and product mix (7%), acquisitions (4%) mainly in our Security Technologies
      and
      Climate Control Technologies segments, as well as improved pricing in all
      segments. Increased sales volumes were most prevalent in our Compact Vehicle
      Technologies, Construction Technologies and Industrial Technologies segments.





20





2004
      vs. 2003 :
      Net
      revenues increased by 13.9% in 2004, or $1,144.3 million, compared with 2003,
      which primarily resulted from improved end markets, new product introductions
      and product mix (9%), the favorable effects of currency translation (3%) and
      improved pricing in all segments (2%). Volume increases were most significant
      in
      the Bobcat, Club Car and Road Development business lines. The worldwide truck
      and trailer market for Climate Control Technologies also continued to improve.
      The Industrial Technologies and Security Technologies segments also had higher
      sales volumes.





***Cost
      of Goods Sold***


2005
      vs. 2004 :
      Cost of
      goods sold in 2005 was 73.4% of sales, compared with 73.0% in 2004. Cost
      benefits from higher volumes and productivity improvements were offset by higher
      material costs.





2004
      vs. 2003 :
      Cost of
      goods sold in 2004 was 73.0% of sales, compared with 74.1% in 2003.
      Contributions from higher volumes and increased productivity accounted for
      the
      majority of the improvement. These positive effects were partially offset by
      higher material and component parts costs.





***Selling
      and Administrative Expenses***


2005
      vs. 2004 :
      Selling
      and administrative expenses were 13.7% of sales in 2005, compared with 15.1%
      for
      2004. The decrease in the ratio is mainly due to higher revenues in 2005. Total
      selling and administrative expenses were favorably impacted by lower stock-based
      liability costs ($44 million), as well as the favorable settlement of certain
      product-related litigation, an adjustment to the allowance for doubtful accounts
      estimate and lower employee benefit costs. Acquisitions increased the 2005
      selling and administrative expenses ($64 million). Expenses for 2004 included
      higher product and litigation expenses, offset by a gain on sale of corporate
      real estate.





2004
      vs. 2003 :
      Selling
      and administrative expenses were 15.1% of sales in 2004, compared with 16.4%
      for
      2003. The decrease in the ratio is mainly due to higher revenues in 2004, a
      reduction in expenses due to a gain on sale of corporate real estate ($13
      million) and increased productivity. These positive effects were partially
      offset by the cost of operational improvement investments and increased
      litigation expenses.





***Operating
      Income***


2005
      vs. 2004 :
      Operating income increased by $241.5 million in 2005, compared with 2004, while
      operating income margins increased from 11.9% to 12.9%. The increase in
      operating income was mainly attributable to increased revenues and improved
      cost
      ratios for cost of goods sold and selling and administrative expenses as
      previously discussed. Productivity improvements also favorably impacted
      operating income for 2005.





2004
      vs. 2003 :
      Operating income increased by $332.7 million in 2004, compared with 2003, while
      operating income margins increased from 9.5% to 11.9%. The increase in operating
      income was mainly attributable to increased revenues and improved cost ratios
      for cost of goods sold and selling and administrative expenses, as previously
      discussed. The effect of currency also had a favorable impact on operating
      income.





21








***Interest
      Expense***


2005
      vs. 2004 :
      Interest expense decreased by $8.8 million in 2005, compared with 2004. The
      benefits of lower average interest rates were partially offset by higher
      year-over-year average debt levels resulting from the issuance of $300 million
      of debt in the second quarter of 2005.





2004
      vs. 2003 :
      Interest expense decreased by $22.4 million in 2004, compared with 2003, due
      to
      lower year-over-year debt levels resulting from the net repayment of debt of
      $469.4 million and from lower interest rates.





***Other
      Income, Net***


2005
      vs. 2004 : **** In
      2005,
      other income, net, increased by $36.0 million, compared with 2004, mainly due
      to
      increased interest income ($17.3 million), increased income from currency
      exchange gains ($11.7 million) and an accrual adjustment for a business
      previously divested ($10.4 million). These increases were partially offset
      by
      lower earnings from equity investments ($4.5 million).





2004
      vs. 2003 : **** In
      2004,
      other income, net, increased by $6.1 million, compared with 2003. The change
      is
      primarily attributable to increased interest income ($9.8 million) due to the
      increase in cash from the sale of Dresser-Rand and increased income from
      partially owned affiliates ($8.1 million). These increases were partially offset
      by higher currency exchange losses in 2004 ($3.2 million) and 2003 dividend
      income and gain on sale from common stock received in the divestiture of the
      Engineered Solutions business ($10.0 million).





***Minority
      Interests***


2005
      vs. 2004 :
      Minority interests decreased by $3.3 million in 2005, compared with 2004. This
      decrease resulted from the buyout of the minority interests of several
      consolidated subsidiaries, partially offset by new minority interests of
      majority-owned consolidated subsidiaries purchased in 2005.




2004
      vs. 2003 :
      Minority interests increased by $1.1 million in 2004, compared with 2003 due
      to
      higher earnings from majority-owned consolidated subsidiaries.





***Provision
      for Income Taxes***


The
      effective tax rate for 2005 was 16.3%, compared with 14.3% for 2004 and 12.4%
      for 2003. The increase in the tax provision and effective rate over the last
      two
      years relates to an increase in earnings, especially in higher tax rate
      jurisdictions.





***Discontinued
      Operations***


Discontinued
      operations for the year ended December 31, 2005, amounted to income of $1.1
      million, net of tax benefits of $48.2 million. This total includes net after
      tax
      gains of $35.2 million, mainly due to Ingersoll-Dresser Pump Company (IDP)
      ($12.0 million), Dresser-Rand ($10.3 million) and Waterjet ($12.2 million),
      primarily from the resolution of tax matters regarding these divestitures.
      The
      after-tax loss from on-going discontinued operations amounted to $34.1 million.
      These costs are mainly due to Engineered Solutions ($7.7 million), IDP ($18.3
      million) and Dresser-Rand ($6.3 million), and include product liability costs
      primarily related to asbestos liability claims, environmental costs and employee
      benefit costs.





22





Discontinued
      operations for the year ended December 31, 2004, amounted to income of $388.9
      million, net of tax provisions of $343.5 million. This total includes net after
      tax gains of $334.9 million, primarily comprised of gains from the sales of
      Dresser-Rand ($282.5 million) and Drilling Solutions ($38.6 million). After-tax
      income from discontinued operations amounted to $54.0 million. This income
      mainly includes profit from Dresser-Rand ($45.0 million) and Engineered
      Solutions ($20.9 million), which includes an antidumping subsidy net of tax
      of
      $29.5 million. This income is partially offset by retained costs related to
      IDP
      ($14.9 million), which mostly include product liability costs primarily related
      to asbestos liability claims and employee benefit costs.





Discontinued
      operations for the year ended December 31, 2003, amounted to income of $111.7
      million, net of tax provisions of $58.6 million. This total includes net after
      tax gains of $68.8 million, comprised of gains from the sales of Engineered
      Solutions ($58.2 million) and Waterjet ($18.2 million), offset by a loss from
      the sale of Laidlaw ($7.6 million). After-tax income from discontinued
      operations amounted to $42.9 million. This income principally includes profit
      from Dresser-Rand ($41.1 million) and Drilling Solutions ($19.6 million),
      partially offset by retained costs related to IDP ($19.8 million), which include
      product liability costs primarily related to asbestos liability claims and
      employee benefit costs.





**Review
      of Business Segments**


During
      the first quarter of 2005, the Company realigned its internal organization
      and
      operating segments to reflect its market focus and to promote greater
      transparency of results. The former Infrastructure segment was disaggregated
      into two segments - the Compact Vehicle Technologies segment and the
      Construction Technologies segment. The prior year segment results have been
      restated to conform to this change.





***Climate
      Control Technologies***


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


*Dollar
                  amounts in millions*
              
              
              2005
              
              
              %
                  change
              
              
              2004
              
              
              %
                  change
              
              
              2003Net
                  revenues
              
              $2,853.6
              
              
              2.1
              %
              $2,793.7
              
              
              5.5
              %
              $2,648.9Operating
                  income
              
              
              315.1
              
              
              1.9
              %
              
              309.1
              
              
              41.1
              %
              
              219.1Operating
                  margin
              
              
              11.0
              %
              
              
              
              
              11.1
              %
              
              
              
              
              8.3
              %




2005
      vs.
      2004: Net revenues increased by 2.1% in 2005, or $59.9 million, compared with
      2004, which primarily resulted from acquisitions (2%) and improved product
      pricing (2%), partially offset by lower volumes and product mix (2%). Operating
      margins were relatively flat, while operating income increased slightly due
      to
      improved product pricing ($42 million) and increased productivity ($15 million),
      offset by higher material costs ($51 million) and product mix .





Net
      revenue increases by Climate Control Americas (4%) and Climate Control Asia
      Pacific (11%), offset a decline in Climate Control Europe (3%). Net revenues
      and
      operating income benefited from strong worldwide market conditions for the
      truck
& trailer, aftermarket and container business lines. The retail business
      declined in the Americas and Europe, but strengthened in Asia Pacific.







23





2004
      vs.
      2003: Net revenues increased by 5.5% in 2004, or $144.8 million, compared with
      2003, which primarily resulted from the favorable effects of currency (3%)
      and
      improved pricing (2%), as well as higher volumes and product mix. Operating
      income and margins for the year ended 2004 increased significantly, mainly
      due
      to improved pricing ($49 million) and higher volumes and product mix ($31
      million). Increased
      productivity from cost saving programs, such as low-cost country manufacturing
      ($22 million), improved labor and overhead efficiencies ($18 million) and
      improved operating efficiencies in service and aftermarket businesses ($13
      million), more than offset higher material costs ($29 million).





***Compact
      Vehicle Technologies***


The
      Compact Vehicle Technologies segment is engaged in the design, manufacture,
      sale
      and service of skid-steer loaders, all-wheel steer loaders, compact truck
      loaders, compact excavators, attachments and golf and utility vehicles. The
      segment includes the Bobcat and Club Car brands.




*Dollar
                  amounts in millions*
              
              
              2005
              
              
              %
                  change
              
              
              2004
              
              
              %
                  change
              
              
              2003Net
                  revenues
              
              $2,681.1
              
              
              18.5
              %
              $2,261.7
              
              
              23.8
              %
              $1,827.6Operating
                  income
              
              
              415.2
              
              
              25.1
              %
              
              332.0
              
              
              35.9
              %
              
              244.3Operating
                  margin
              
              
              15.5
              %
              
              
              
              
              14.7
              %
              
              
              
              
              13.4
              %




2005
      vs. 2004 :
      Net
      revenues increased by 18.5% in 2005, or $419.4 million, compared with 2004,
      mainly due to higher volumes and product mix (17%) and improved pricing (2%).
      Operating income and margins for the year ended 2005 increased significantly.
      Higher volumes and product mix ($106 million) and improved pricing ($51 million)
      increased operating income in 2005. Operating income and margins were negatively
      impacted by higher material costs ($53 million), investments in productivity
      improvements ($8 million) and currency translation ($9 million).




Bobcat’s
      sales volumes and pricing improvements were driven by improved markets, new
      products and attachments introduced during the year and an increase in
      aftermarket parts sales. Club Car’s business also had improvements in volume and
      pricing, with growth in golf and utility vehicles due to increased market share
      and new product launches.





2004
      vs. 2003 :  Net
      revenues increased by 23.8% in 2004, or $434.1 million, compared with 2003,
      mainly due to higher volumes and product mix (18%), improved pricing (4%) and
      the effect of favorable currency exchange (2%). Operating income and margins
      for
      the year ended 2004 increased significantly, mainly due to higher volumes and
      product mix ($91 million) and improved pricing ($68 million). Operating income
      and margins were negatively impacted by higher material costs ($53 million)
      and
      component parts costs.





***Construction
      Technologies***


Construction
      Technologies is engaged in the design, manufacture, sale and service of road
      construction and repair equipment, portable power products, general-purpose
      construction equipment, attachments and portable light towers and compressors.
      The segment is comprised of the Utility Equipment and Road Development
      businesses.


*Dollar
                  amounts in millions*
              
              
              2005
              
              
              %
                  change
              
              
              2004
              
              
              %
                  change
              
              
              2003Net
                  revenues
              
              $1,168.6
              
              
              16.0
              %
              $1,007.1
              
              
              25.2
              %
              $804.2Operating
                  income
              
              
              103.8
              
              
              -1.3
              %
              
              105.2
              
              
              116.5
              %
              
              48.6Operating
                  margin
              
              
              8.9
              %
              
              
              
              
              10.4
              %
              
              
              
              
              6.0
              %




24





2005
      vs. 2004 :  Net
      revenues increased by 16.0% in 2005, or $161.5 million, compared with 2004,
      mainly due to higher volumes and product mix (12%) and improved product pricing
      (3%). Operating income was relatively flat, while operating margins declined
      in
      2005. Operating income improvements came from higher volumes and product mix
      ($20 million) and improved pricing ($34 million). Higher material costs ($42
      million), investments in productivity programs and new product development
      ($7
      million) and manufacturing inefficiencies, offset the improvements and reduced
      operating income and margins for the segment.




Net
      revenues for all businesses in the segment had significant growth in 2005,
      despite a decline in the Road Development business experienced at the end of
      the
      year due to the curtailment of construction investment by the Chinese
      government. The product line also experienced operating margin pressure from
      high material costs and manufacturing inefficiencies throughout the year.
      Utility Equipment continued to show significant growth as it launched new
      products, expanded distribution and was in position to assist during the
      hurricane season.





2004
      vs. 2003 :  Net
      revenues increased by 25.2% in 2004, or $202.9 million, compared with 2003,
      mainly due to higher volumes and product mix (19%) and the effects of favorable
      currency exchange (4%), as well as improved product pricing. Operating income
      and margins also significantly improved, mainly due to higher volumes and
      product mix ($43 million), improved pricing ($9 million) and productivity ($15
      million). Higher material costs ($14 million) reduced operating income and
      margins for 2004.





***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 and energy
      generation systems. The segment includes the Air Solutions and Productivity
      Solutions businesses.




*Dollar
                  amounts in millions*
              
              2005
              
              %
                  change
              
              2004
              
              %
                  change
              
              2003Net
                  revenues
              
              
              $1,743.9
              
              
              12.3
              %
              
              $1,552.8
              
              
              13.9
              %
              
              $1,363.6Operating
                  income
              
              
              224.9
              
              
              24.6
              %
              
              180.5
              
              
              73.4
              %
              
              104.1Operating
                  margin
              
              
              12.9
              %
              
              
              
              
              11.6
              %
              
              
              
              
              7.6
              %


2005
      vs.
      2004: Net revenues increased by 12.3% in 2005, or $191.1 million, compared
      with
      2004, mainly due to higher volumes and product mix (10%) and impacted product
      pricing (2%). Operating income and margins for 2005 increased significantly
      due
      to higher volumes and product mix ($37 million), improved product pricing ($29
      million) and productivity improvements ($12 million). Investments in
      productivity ($11 million) and higher material costs ($5 million) partially
      offset some of the operating income gains.





25





Net
      revenues and operating income increased substantially for all businesses in
      the
      segment, mainly due to new product launches and increased recurring revenues.
      Net revenue increases by Air Solutions (14%) and Productivity Solutions (9%)
      were also generated by geographic expansion, contributing to higher net revenues
      in all regions.





2004
      vs.
      2003: Net revenues increased by 13.9% in 2004, or $189.2 million, compared
      with
      2003, mainly due to higher volumes, new product introductions and product mix
      (10%) and the effects of currency translation (2%), as well as improved pricing.
      Operating income and margins for 2004 increased significantly. Higher volumes
      and product mix ($46 million), improved pricing ($13 million) and productivity
      ($15 million) increased operating income. The effect of currency also had a
      favorable effect on operating profit.





***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. The segment includes the Schlage, LCN
      and
      Von Duprin brands.


*Dollar
                  amounts in millions*
              
              2005
              
              %
                  change
              
              2004
              
              %
                  change
              
              2003Net
                  revenues
              
              
              $2,099.7
              
              
              18.1
              %
              
              $1,778.3
              
              
              10.8
              %
              
              $1,605.0Operating
                  income
              
              
              380.7
              
              
              24.9
              %
              
              304.8
              
              
              -3.7
              %
              
              316.6Operating
                  margin
              
              
              18.1
              %
              
              
              
              
              17.1
              %
              
              
              
              
              19.7
              %


2005
      vs. 2004 :
      Net
      revenues increased by 18.1% in 2005, or $321.4 million, compared with 2004,
      mainly due to acquisitions during the year (16%) and improved product pricing
      (3%), partially offset by divestitures. Operating income and margins also
      improved during 2005. Improved pricing ($54 million), productivity improvements
      ($29 million) and acquisitions ($23 million) all had favorable impacts on
      operating income. Operating income was negatively impacted by higher material
      costs ($29 million), unfavorable product mix and volumes ($19 million) and
      productivity investment costs ($18 million). The 2004 operating income was
      also
      negatively impacted by one-time costs ($28 million) related to a product
      warranty issue, a plant closing and the discontinuance of a plumbing fixture
      product line, and legal expenses.





Net
      revenues in the segment benefited from strong growth in the electronic controls
      and integrated solutions businesses in 2005. Increases in North American
      revenues (6%) were the result of strong construction markets, especially
      commercial, and recurring revenues. International revenues were helped by the
      2005 acquisitions, which increased the breadth of products and customer base
      in
      Europe and Asia Pacific.




2004
      vs. 2003 :
      Net
      revenues increased by 10.8% in 2004, or $173.3 million, compared with 2003,
      mainly due to higher volumes and product mix (8%) and improved pricing (2%),
      as
      well as the effects of currency translation. Operating income and margins
      declined during 2004. Operating income was negatively impacted by productivity
      investment costs ($25 million) and one-time costs ($28 million) related to
      a
      product warranty issue, a plant closing and the discontinuance of a plumbing
      fixture product line and legal expenses. These increased costs were partially
      offset by increases in operating income from improved pricing ($33 million),
      and
      higher volumes and product mix ($14 million).





26





**Employee
      Benefit Plans**


***Pensions***


Net
      pension cost for 2005 totaled $32.4 million. In addition, the Company incurred
      $4.0 million in settlement losses as a result of lump-sum distributions under
      the supplemental benefit plans for officers and key employees. Net pension
      cost
      for the pension plans for 2005 was based on the weighted-average assumptions
      used at the end of 2004 to calculate the pension benefit obligation. Pension
      expense for 2006 is projected to be approximately $37.1 million, utilizing
      the
      assumptions for calculating the pension benefit obligations at the end of
      2005 .





Net
      pension cost for 2004 totaled $26.5 million. The sale of Dresser-Rand and
      Drilling Solutions caused net pension curtailment and settlement losses of
      $41.1
      million. Net pension cost for the pension plans for 2004 was based on the
      weighted-average assumptions used at the end of 2003 to calculate the pension
      benefit obligation.





Net
      pension cost for 2003 totaled $83.0 million. The sale of Engineered Solutions
      caused net pension curtailment and settlement gains of $10.1 million. In the
      first quarter of 2003, the Company remeasured its major U.S. pension plan due
      to
      the sale of Engineered Solutions. Prior to remeasurement, the assumptions used
      to calculate pension benefits were as follows: 6.75% discount rate, 4.00% rate
      of compensation increase and an 8.75% expected return on plan assets. Upon
      remeasurement, the discount rate was decreased to 6.50% to reflect the change
      in
      market conditions. The net periodic pension cost for non-U.S. plans for 2003
      was
      based on the weighted-average assumptions disclosed at December 31, 2002.





The
      Company’s pension plans for U.S. non-collectively bargained employees provide
      benefits on a final average pay formula. The Company’s collectively bargained
      pension plans principally provide benefits based on a flat benefit formula.
      Non-U.S. plans usually provide benefits based on earnings and years of service
      formula. Additional supplemental benefit plans are maintained by the Company
      for
      officers and other key employees. Pension benefit payments, which reflect future
      service, as appropriate, are expected to be paid as follows: $180.9 million
      in
      2006, $184.5 million in 2007, $184.8 million in 2008, $195.7 million in 2009,
      $219.5 million in 2010 and $1,049.9 million for the years 2011 to
      2015.





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. 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. The Company’s current strategic
      global asset allocation for its pension plans is 60% in equity securities and
      40% 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
      appropriate adjustments are made.





The
      Company made required and discretionary contributions of $33.0 million and
      $86.4
      million, respectively, to its pension plans in 2005. The Company currently
      projects that it will be required to contribute approximately $25 million to
      its
      plans worldwide in 2006. 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
      2006 in accordance with contributions required by funding regulations or the
      laws of each jurisdiction.





27








***Postretirement
      Benefits Other Than Pensions***


Net
      periodic postretirement benefit cost other than pension cost totaled $74.0
      million and $76.9 million for 2005 and 2004, respectively. The assumptions
      used
      for 2005 and 2004 expense include a discount rate of 5.75% and 6.00%,
      respectively, and a health care cost trend rate of 11.00%, gradually reducing
      to
      5.25% in 2012 and 2011, respectively. In December 2003, the Medicare
      Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was
      enacted. The Act introduced a government-provided subsidy based on the
      percentage of a beneficiary’s annual prescription drug benefits, within defined
      limits, and the opportunity for a retiree to obtain prescription drug benefits
      under Medicare. The Company adopted FASB Staff Position 106-2 as of April 1,
      2004. The Company and its actuarial advisors determined that some benefits
      provided by the plan were at least actuarially equivalent to Medicare Part
      D.
      The Company remeasured the accumulated postretirement benefit obligation effects
      of the Act as of April 1, 2004. The effect of the federal subsidy to which
      the
      Company is entitled has been accounted for as an actuarial gain of $86.3
      million, which is amortized and reduces current and future benefit costs. The
      subsidy had the effect of reducing postretirement benefit expense for 2005
      by
      $18.5 million and for 2004 by $9.2 million. The components of the reduction
      in
      expense were a decrease in the amortization of the actuarial loss of $9.7
      million and $5.0 million, a reduction in service cost of $0.5 million and $0.3
      million and a reduction in the interest cost on the benefit obligation of $8.3
      million and $3.9 million for 2005 and 2004, respectively. The
      assumptions used to remeasure the plan as of April 1, 2004, remained the same
      as
      the prior measurement date due to the existence of similar economic conditions.





Net
      periodic postretirement benefit cost other than pension cost for 2003 totaled
      $77.1 million. A curtailment gain of $6.9 million relating to the sale of
      Engineered Solutions was recorded in 2003. In February 2003, the Company
      remeasured its postretirement plan due to the sale of Engineered Solutions.
      Prior to remeasurement, the discount rate used to calculate postretirement
      benefits was 6.75%. Upon remeasurement, the discount rate was decreased to
      6.50%
      to reflect the change in market conditions. No change was made to the health
      care cost trend rate upon remeasurement. The weighted-average assumptions used
      to calculate the postretirement benefit obligation at the end of 2003 were
      a
      discount rate of 6.00% and increases in per capita cost of covered health care
      benefits of 11.00%, gradually reducing to 5.25% in 2010.





Postretirement
      benefit cost for 2006 is projected to be approximately $79.4 million, utilizing
      the assumptions used to calculate the postretirement benefit obligations at
      year
      end. The assumptions expected to be used in the 2006 net periodic postretirement
      benefit cost are the same as were used at the end of 2005 to calculate the
      postretirement benefit obligation.





As
      of
      January 1, 2003, postretirement health care benefits are no longer available
      for
      new non-bargaining employees. These benefits were also curtailed for existing
      non-bargaining employees not meeting minimum eligibility requirements. Hourly
      bargaining employees are eligible if they attain normal retirement age with
      the
      required years of service. When eligible employees retire from the Company
      between ages 55 and 65, they receive, at a cost to the retiree, certain health
      care benefits. After attaining age 65, an eligible retiree’s health care benefit
      coverage becomes coordinated with Medicare. Postretirement health care benefits
      for eligible non-bargaining employees and retirees have their benefits
      subsidized to a flat dollar cap with cost escalation equally shared between
      the
      Company and the retiree. When the cap is reached, the retiree becomes
      responsible for all additional cost escalation. The Company funds postretirement
      benefit costs principally on a pay-as-you-go basis. Benefit payments for
      postretirement benefits, which reflect future service and are net of expected
      Medicare Part D subsidy, as appropriate, are expected to be paid as follows:
      $71.1 million in 2006, $73.1 million in 2007, $75.1 million in 2008, $76.2
      million in 2009, $77.2 million in 2010 and $372.7 million for the years 2011
      to
      2015.





28








**Liquidity
      and Capital Resources**


The
      following table contains several key measures to gauge the Company’s financial
      condition and liquidity:




*Dollar
                  amounts in millions*
              
              2005
              
              2004
              
              2003Operating
                  cash flow from continuing operations
              
              
              $843.2
              
              
              $753.2
              
              
              $138.4Working
                  capital
              
              
              1,048.5
              
              
              1,732.8
              
              
              878.0Current
                  ratio
              
              
              1.3
              
              
              1.6
              
              
              1.3Debt-to-total
                  capital ratio
              
              
              26.7
              %
              
              24.3
              %
              
              33.4
              %Average
                  working capital to net revenues
              
              
              10.6
              %
              
              13.1
              %
              
              10.7
              %Average
                  days outstanding in receivables
              
              
              56.5
              
              
              55.6
              
              
              57.0Inventory
                  turnover
              
              
              5.9
              
              
              5.8
              
              
              6.6





***Overview
      of Cash Flows and Liquidity***


As
      of
      December 31, 2005, the Company held approximately $880.6 million of cash and
      cash equivalents, as well as $156.5 million of short-term marketable securities.
      The Company’s primary source for liquidity is operating cash flow from
      continuing operations, which increased by $90.0 million in 2005, compared with
      2004. This change was mainly due to higher earnings from continuing operations
      of $1,053.1 million, compared with $829.8 million in 2004, and an increase
      in
      deferred income taxes, partially offset by decreases in other current and
      noncurrent liabilities.





Net
      cash
      used in investing activities from continuing operations in 2005 was $741.7
      million, compared with net cash provided by investing activities of $1,329.2
      million in 2004. The decrease reflects the cash used for the acquisitions of
      CISA S.p.A. and Taiwan Fu Hsing Industrial Company Ltd. in 2005 and the
      significant decrease in proceeds received for business divestitures, compared
      with 2004.





Net
      cash
      used in financing activities from continuing operations in 2005 was $875.7
      million, compared with $807.2 million in 2004. The increase reflects the 2005
      repurchase of approximately 19.4 million Class A common shares for $763.6
      million, partially offset by the higher debt repayments in 2004 and the issuance
      of $300 million of debt during 2005. 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.





The
      Company has revised its 2004 and 2003 consolidated statements of cash flows
      to
      separately disclose the operating, investing and financing portions of the
      cash
      flows attributable to its discontinued operations. The Company had previously
      reported these amounts on a combined basis.





The
      Company’s working capital decreased $684.3 million from December 31, 2004 to
      December 31, 2005. The change was primarily due to a lower cash balance at
      December 31, 2005, resulting from acquisitions, share repurchases, dividend
      payments and pension contributions. An increase in current maturities of
      long-term debt also reduced working capital. This decrease was partially offset
      by an increase in marketable securities, accounts receivable from increased
      sales and a planned increase in inventory due to expected sales volumes and
      continued material availability concerns.




***Capitalization***


In
      addition to operating cash flow, the Company has the ability to supplement
      its
      liquidity with commercial paper. The Company’s ability to borrow at a
      cost-effective rate under the commercial paper program is contingent upon
      maintaining an investment-grade credit rating. As of December 31, 2005, the
      Company’s credit ratings were as follows:


Short-term
              
              Long-termMoody's
              
              P-2
              
              A3Standard
                  and Poor's
              
              A-2
              
              A-Fitch
              
              F2
              
              A-


*The
        security 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.*


29




The
      Company’s debt-to-total capital ratio at December 31, 2005 was 26.7% compared to
      24.3% at December 31, 2004. This increase was mainly due to the second quarter
      issuance of $300 million aggregate principle amount of its 4.75% Senior Notes
      due in 2015.





The
      Company has additional short-term borrowing alternatives, should the need arise.
      At December 31, 2005, the Company had $2.0 billion of committed revolving credit
      lines that consisted of two five-year lines, of which $750 million expires
      in
      June 2009 and $1.25 billion expires in August 2010, both of which were unused.
      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%, which
      is
      calculated excluding non-cash items. As of December 31, 2005, the Company’s
      debt-to-total capital ratio was significantly beneath this limit. Additionally,
      $667.8 million of non-U.S. credit lines were available for bank guarantees,
      letters of credit and other working capital purposes, of which $510.9 million
      were unused at December 31, 2005. The Company did not have any commercial paper
      outstanding at December 31, 2005 or 2004.





In
      2006,
      the Company has required debt retirements of $507.5 million, which excludes
      $349.1 million in bonds that may require repayment at the option of the holders.
      The Company does not expect the bond holders to exercise these options. The
      Company’s cash generation, large unused capacity under its committed borrowing
      facilities and the ability to refinance debt over longer maturities provide
      it
      sufficient capacity to cover all cash requirements for capital expenditures,
      dividends, share repurchases, debt repayments, and operating lease and purchase
      obligations in 2006. Additionally, these capacities provide support for
      commercial paper and other financial instruments, such as letters of credit.





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 to shareholders on September 1,
      2005. All references to the number of shares outstanding, per share amounts,
      and
      stock option data of the Company’s common shares have been restated to reflect
      the effect of the stock split for all periods presented. 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 on August
      3,
      2005, an increase of the quarterly dividend on the Company’s Class A common
      shares from 12.5 cents to 16 cents per share and expanded to $2 billion the
      Company’s share repurchase program, initially established in August 2004. During
      2005, the Company repurchased 19.4 million Class A common shares at a cost
      of
      $763.6 million. Total repurchases under the program as of December 31, 2005,
      have been 23.4 million Class A common shares at a cost of $903.7 million.





In
      2005,
      currency translation adjustments decreased shareholders' equity by $267.7
      million. This was due to the strengthening of the U.S. dollar against other
      currencies in countries where the Company has significant operations. In 2004,
      currency translation adjustments increased shareholders' equity by $168.7
      million.





30








**Contractual
      Obligations**


The
      following table summarizes the Company’s contractual cash obligations by
      required payment periods, in millions:


Payments
                    due by period
              
              
              Long-termdebt
              
              
              
              Purchaseobligations
              
              
              Operatingleases
              
              
              Totalcontractual
                  cash obligationsLess
                  than 1 year
              
              $856.6
              *
              
              $579.7
              
              $58.5
              
              $1,494.81
                  -
                  3 years
              
              
              419.2
              
              
              
              54.8
              
              
              82.1
              
              
              556.13
                  -
                  5 years
              
              
              21.0
              
              
              
              13.2
              
              
              34.8
              
              
              69.0More
                  than 5 years
              
              
              744.1
              
              
              
              -
              
              
              14.7
              
              
              758.8Total
              
              $2,040.9
              
              
              $647.7
              
              $190.1
              
              $2,878.7


*Includes
      required debt retirements of $507.5 million and $349.1 million of bonds
      redeemable at the option of the holder.





Future
      expected obligations under the Company’s pension and postretirement benefit
      plans have not been included in the contractual cash obligations table above.
      The Company’s pension plan 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 2006
      in
      accordance with contributions required by funding regulations or laws of each
      jurisdiction. The Company currently projects that it will be required to
      contribute approximately $25 million to its pension plans worldwide in 2006.
      Our
      postretirement benefit plans, excluding pensions, are not required to be funded
      in advance and are principally funded on a pay-as-you-go basis. The Company
      currently projects that it will make payments, net of plan participants’
contributions and Medicare Part D Subsidy, of approximately $71 million in
      2006
      for its postretirement benefit plans.





The
      average short-term borrowings outstanding, excluding current maturities of
      long-term debt, were $85.3 million compared with $88.0 million in 2004. The
      weighted-average interest rate for these borrowings was unchanged at 10.3%
      for
      short-term borrowings during 2005 and 2004. The maximum amounts of short-term
      borrowings outstanding during 2005 and 2004, excluding current maturities of
      long-term debt, were $134.7 million and $214.7 million,
      respectively.





Capital
      expenditures were $111.8 million, $108.6 million and $99.3 million for 2005,
      2004 and 2003, respectively. The Company continues investing to improve
      manufacturing productivity, reduce costs and provide environmental enhancements
      and advanced technologies for existing facilities. The capital expenditure
      program for 2006 is estimated at approximately $200 million, including amounts
      approved in prior periods. Many of these projects are subject to review and
      cancellation at the option of the Company without incurring substantial charges.
      There are no planned projects, either individually or in the aggregate, that
      represent a material commitment for the Company.





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





**Environmental
      and Asbestos 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 currently is engaged in site investigations and remedial activities
      to address environmental cleanup from past operations at current and former
      manufacturing facilities.





31




During
      2005, the Company spent $4.1 million on capital projects for pollution abatement
      and control, and an additional $13.0 million for environmental remediation
      expenditures at sites presently or formerly owned or leased by the Company.
      It
      should be noted that these amounts are difficult to estimate because
      environmental projects are generally a part of the overall improvement program
      at a particular plant. The Company believes that these expenditure 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.





The
      Company is 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 is 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 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.





Although
      uncertainties regarding environmental technology, U.S. federal and state laws
      and regulations and individual site information make estimating the liability
      difficult, management believes that the total liability for the cost of
      remediation and environmental lawsuits and claims will not have a material
      effect on the financial condition, results of operations, liquidity or cash
      flows of the Company for any year. It should be noted that when the Company
      estimates its liability for environmental matters, such estimates are based
      on
      current technologies, and the Company does not discount its liability or assume
      any insurance recoveries.





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 have been filed against IR-New Jersey and allege
      injury caused by exposure to asbestos contained in certain of IR-New Jersey’s
      products. 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 purchased from third-party
      suppliers.





All
      asbestos-related claims resolved to date have been dismissed or settled. For
      the
      year ended December 31, 2005, total costs for settlement and defense of asbestos
      claims after insurance recoveries and net of tax were approximately $16.8
      million, compared with $16.5 million for the year ended December 31, 2004.
      With
      the assistance of independent advisors, the Company performs a thorough
      analysis, updated periodically, of its actual and anticipated future asbestos
      liabilities projected seven years in the future. Based upon such analysis,
      the
      Company believes that its reserves and insurance are adequate to cover its
      asbestos liabilities, and that these asbestos liabilities are not likely to
      have
      a material adverse effect on its financial position, results of operations,
      liquidity or cash flows.





32




Legislation
      currently under consideration in Congress concerns pending and future
      asbestos-related personal injury claims. Whether and when such legislation
      will
      become law, and the final provisions of such legislation, are unknown.
      Consequently, the Company cannot predict with any reasonable degree of certainty
      what effect, if any, such legislation would have upon the Company’s financial
      position, results of operations or cash flows. See also the discussion under
      Note 8, Commitments and Contingencies, to the consolidated financial statements
      contained in this Annual Report on Form 10-K.





**Guarantees**


As
      part
      of its reorganization in 2001, the Company has fully and unconditionally
      guaranteed payment of all of the issued public debt securities of IR-New Jersey.
      No other subsidiary of the Company guarantees these securities.





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 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 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 the Company believes are the critical accounting
      policies and methods used by the Company:





·
            Allowance
                for doubtful accounts and inventory reserves - The Company has provided
                an
                allowance for doubtful accounts receivable and inventory reserves
                using a
                Company policy formula based upon its knowledge of its end markets,
                customer base and products.





·
            Goodwill
                and other 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 and the assignment of
                amortization lives 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 intangible assets are
                tested and reviewed annually for impairment during the fourth quarter
                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 - Long-lived assets 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.
                An
                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.







33







·
            Loss
                contingencies - Liabilities are recorded for various contingencies
                arising
                in the normal course of business, including litigation and administrative
                proceedings, environmental 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.





·
            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 health-care 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.
                Independent actuaries perform the required calculations to determine
                expense in accordance with U.S. generally accepted accounting principles.
                Actual results may differ from the actuarial assumptions and are
                generally
                accumulated and amortized over future periods. 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 assets 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 ten and fifteen-year periods
                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.





34








Changes
      in any of the assumptions can have an impact on the net periodic pension cost
      or
      postretirement 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 $6.3 million, the rate
      of
      compensation increase would decrease expense by approximately $4.2 million,
      and
      the estimated return on assets assumption would increase expense by
      approximately $6.5 million. A 0.25% rate decrease in the discount rate for
      postretirement benefits would increase net periodic postretirement benefit
      cost
      by $1.5 million and a 1.0% increase in the health care cost trend rate would
      increase the cost by approximately $5.2 million.





The
      preparation of all financial statements includes the use of estimates and
      assumptions that affect a number of amounts included in the Company’s 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
      significant impact on the consolidated financial statements.





**New
      Accounting Standards**


In
      November 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard No. 151, “Inventory Costs, an amendment of ARB
      No. 43, Chapter 4” (SFAS 151). SFAS 151 clarifies that abnormal amounts of idle
      facility expense, freight, handling costs and spoilage should be recognized
      as
      current-period charges and requires the allocation of fixed production overheads
      to inventory based on the normal capacity of the production facilities. SFAS
      151
      is effective for the Company on January 1, 2006. The adoption of SFAS 151 is
      not
      expected to have a material impact on the Company’s consolidated financial
      position and results of operations.





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share Based
      Payment” (SFAS 123(R)). SFAS 123(R) is a revision of SFAS No. 123, “Accounting
      for Stock-Based Compensation,” which supersedes Accounting Principles Board
      (APB) No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No.
      95, “Statement of Cash Flows.” SFAS 123(R) requires companies to recognize
      compensation expense in the income statement for an amount equal to the fair
      value of the share-based payment issued. This applies to all transactions
      involving the issuance of equity by a company in exchange for goods and
      services, including employees. In March 2005, the SEC issued Staff Accounting
      Bulletin No. 107 (SAB 107) outlining the SEC Staff’s interpretation of SFAS
      123(R). This interpretation provides their views regarding interactions between
      SFAS 123(R) and certain SEC rules and regulations and provides interpretations
      of the valuation of share-based payments for public companies. Subsequently
      in
      August, October and November 2005, the FASB released Financial Staff Position
      (FSP) 123(R)-1, “Classification and Measurement of Freestanding Financial
      Instruments Originally Issued in Exchange for Employee Services under FASB
      Statement No. 123(R),” FSP 123(R)-2, “Practical Accommodation to the Application
      of Grant Date as Defined in FASB Statement No. 123(R)” and FSP 123(R)-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
      Payment Awards.” Additionally, on February 1, 2006, the FASB agreed to issue FSP
      123(R)-4, “Classification of Options and Similar Instruments Issued as Employee
      Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
      Event.” The FSPs clarify certain accounting provisions set forth in SFAS 123(R).
      The Company will adhere to the requirements and guidance prescribed in SFAS
      123(R), SAB 107 and the FSPs in connection with its adoption in the first
      quarter of 2006. The Company estimates that the impact on 2006 earnings will
      approximate $0.03 to $0.04 of cost per share for the year.





35




In
      December 2004, the FASB released Financial Staff Position 109-2, “Accounting and
      Disclosure Guidance for the Foreign Earnings Repatriation Provision within
      the
      American Jobs Creation Act of 2004” (FSP 109-2). The American Jobs Creation Act
      (AJCA) provides for a special one-time tax deduction of 85% of certain foreign
      earnings that are repatriated in either an enterprise’s last tax year that began
      before the enactment date, or the first tax year that begins during the one-year
      period beginning on the date of enactment. FSP 109-2 allows time for enterprises
      beyond the financial reporting period of enactment to evaluate the effect of
      the
      AJCA on its plan for reinvestment or repatriation of foreign earnings for
      purposes of applying SFAS No. 109. We have completed our review of the foreign
      earnings repatriation provision of the AJCA. We concluded that, given the
      effective foreign tax rates applicable to our unrepatriated earnings, as well
      as
      certain restrictions in the AJCA and in the laws of other jurisdictions, and
      the
      composition of other tax attributes, the foreign earnings repatriation provision
      of the AJCA does not provide a material financial benefit to the Company. Based
      on that analysis, we do not plan to change our existing repatriation practices
      as a result of the AJCA.





In
      March
      2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset
      Retirement Obligations” (FIN 47). FIN 47 requires an entity to recognize a
      liability for a conditional asset retirement obligation when incurred if the
      liability can be reasonably estimated. The Interpretation also clarifies that
      the term Conditional Asset Retirement Obligation refers to a legal obligation
      to
      perform an asset retirement activity in which the timing and/or method of
      settlement are conditional on a future event that may or may not be within
      the
      control of the entity. FIN 47 also clarifies when an entity would have
      sufficient information to reasonably estimate the fair value of an asset
      retirement obligation. FIN 47 was effective for the Company on December 31,
      2005, and the adoption did not have a material impact on its consolidated
      financial position, results of operations and cash flows.





In
      May
      2005, the FASB issued 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 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      The Company does not expect the adoption of SFAS 154 to have a material impact
      on its consolidated financial position and results of operations.








36




Item
      7A.   **QUANTITATIVE
      AND QUALITATIVE DISCLOSURE**  **ABOUT
      MARKET**  **RISK**





The
      Company is exposed to fluctuations in the price of major raw materials used
      in
      the manufacturing process, currency fluctuations and interest rate changes.
      From
      time to time, the Company enters into agreements to reduce its raw material,
      currency and interest rate risks. To minimize the risk of counter party
      non-performance, those agreements are made only through major financial
      institutions with significant experience in such financial
      instruments.





The
      Company experiences currency exposures in the normal course of business. To
      mitigate the risk from currency exchange rate fluctuations, the Company will
      generally enter into forward currency exchange contracts for the purchase or
      sale of a currency to hedge this exposure.





The
      Company evaluates its exposure to changes in currency exchange rates using
      a
      sensitivity analysis. The sensitivity analysis is a measurement of the potential
      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, 2005, a hypothetical change in fair value
      of those financial instruments assuming a 10% increase in exchange rates against
      the U.S. dollar would result in an unrealized loss of approximately $16.0
      million, as compared with $15.0 million at December 31, 2004. These amounts
      would be offset by changes in the fair value of underlying currency
      transactions.





With
      regard to interest rate risk, the effect of a hypothetical 1% increase in
      interest rates, across all maturities, would decrease the estimated fair value
      of the Company’s total long-term debt from $2,191.5 million to an estimated fair
      value of $2,058.6 million at December 31, 2005, and from $1,990.8 million to
      an
      estimated fair value of $1,878.5 million at December 31, 2004.








Item
      8.  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





(a)
            The
                following consolidated financial statements and the report thereon
                of
                PricewaterhouseCoopers LLP dated February 28, 2006, are presented
                following Item 15 of this Annual Report on Form
                10-K.





Consolidated
      Financial Statements:


Report
      of
      independent registered public accounting firm


Consolidated
      balance sheets at December 31, 2005 and 2004


For
      the
      years ended December 31, 2005, 2004 and 2003:


Consolidated
      statements of income


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, 2005, 2004 and 2003:


Schedule
      II -- Valuation and Qualifying Accounts





Financial
      statement schedules not included in this Annual Report on Form 10-K have been
      omitted because they are not applicable or the required information is shown
      in
      the financial statements or notes thereto.




37




(b)
              The
                  unaudited quarterly financial data for the two years ended December
                  31, is
                  as follows:


*In
                millions, except per share amounts*2005
            
            Net
                    sales
            
            Cost
                      of goods sold
            
            Operating
                    income
            
            Netearnings
            
            Basic
                      earnings per common share*
            
            Diluted
                      earnings per common share*First
                quarter
            
            
            $2,458.8
            
            
            $1,810.6
            
            
            $297.0
            
            
            $223.0
            
            
            $0.64
            
            
            $0.64Second
                quarter
            
            
            2,759.5
            
            
            2,019.1
            
            
            379.1
            
            
            285.4
            
            
            0.84
            
            
            0.83Third
                quarter
            
            
            2,615.3
            
            
            1,920.7
            
            
            340.0
            
            
            254.2
            
            
            0.76
            
            
            0.75Fourth
                quarter
            
            
            2,713.3
            
            
            1,993.7
            
            
            345.7
            
            
            291.6
            
            
            0.88
            
            
            0.87Year
                2005
            
            
            $10,546.9
            
            
            $7,744.1
            
            
            $1,361.8
            
            
            $1,054.2
            
            
            $3.12
            
            
            $3.092004First
                quarter
            
            
            $2,122.2
            
            
            $1,554.5
            
            
            $225.5
            
            
            $179.5
            
            
            $0.52
            
            
            $0.51Second
                quarter
            
            
            2,444.4
            
            
            1,783.0
            
            
            318.7
            
            
            286.2
            
            
            0.83
            
            
            0.82Third
                quarter
            
            
            2,368.0
            
            
            1,738.8
            
            
            278.2
            
            
            237.8
            
            
            0.69
            
            
            0.68Fourth
                quarter
            
            
            2,459.0
            
            
            1,777.7
            
            
            297.9
            
            
            515.2
            
            
            1.50
            
            
            1.48Year
                2004
            
            
            $9,393.6
            
            
            $6,854.0
            
            
            $1,120.3
            
            
            $1,218.7
            
            
            $3.52
            
            
            $3.47


*
      The
      amounts have been restated to offset a two-for-one stock split.


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 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, 2005, 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.




***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, 2005. 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, 2005.
      Management’s assessment of the effectiveness of internal control over financial
      reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers
      LLP, an independent registered public accounting firm, as stated in their
      report.





The
      audited consolidated financial statements of the Company include the results
      of
      a number of business acquisitions completed during fiscal 2005. As permitted
      by
      the SEC’s June 23, 2004 implementation guidance to issuers relating to the SEC’s
      final rules on internal control over financial reporting, management’s
      assessment does not include an assessment of the internal control over financial
      reporting of those acquisitions. The total assets and total revenues of these
      acquisitions represent approximately 8% and 3%, respectively, of the related
      consolidated financial statement as of and for the year ended December 31,
      2005.
      None of the acquisitions were individually significant to the Company’s
      financial position, results of operations or cash flows.





***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, 2005 that has materially affected, or
      is
      reasonably likely to materially affect, the Company's internal control over
      financial reporting.




Item
      9B. ****  **OTHER
      INFORMATION**





None.





38








**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 2006 Annual
      General Meeting of Shareholders, which the Company intends to file within 120
      days after the close of its fiscal year ended December 31, 2005 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 Report, 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 2005
      Proxy Statement.





In
      early
      2005, our registered public accounting firm, PricewaterhouseCoopers LLP (PwC),
      informed the Securities Exchange Commission (the SEC), the Public Company
      Accounting Oversight Board and our Audit Committee that certain non-audit work
      that PwC previously performed in China and Taiwan has raised questions regarding
      PwC’s independence with respect to its performance of audit services for
      us.





During
      the fiscal years 2004, 2003, 2002 and 2001, certain PwC affiliates, in
      connection with the preparation of local tax returns, made payments to local
      tax
      authorities with respect to individual employee tax liabilities. As a result,
      PwC’s non-U.S. affiliates had temporary custody of small amounts of our
      corporate funds. The fees we paid to PwC’s non-U.S. affiliates in China and
      Taiwan for the preparation of these tax returns, including the services
      mentioned above, were $433, $14,765, $24,849 and $18,767 for the years 2004,
      2003, 2002 and 2001, respectively. These services were discontinued in
      2004.





Our
      Audit
      Committee has reviewed the facts surrounding these services provided by PwC.
      PwC
      has informed the Audit Committee that it does not believe that the performance
      of the tax services described above has impaired PwC’s independence. In light of
      the de minimis fees paid to PwC, the ministerial nature of the actions performed
      and the fact that the services have been discontinued, neither our Audit
      Committee nor PwC believes that PwC’s independence was impaired by the
      performance of these services.





39








**PART
      IV**





Item
      15.  **EXHIBITS
      AND FINANCIAL STATEMENTS SCHEDULES**





(a)
                1. and 2.
            Financial
                statements and financial statement
                schedules


See
                Item 8.





3.
            Exhibits


The
                exhibits listed on the accompanying index to exhibits are filed as
                part of
                this Annual Report on Form 10-K.







40





**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**





**Description**





2
            Agreement
                and Plan of Merger, dated as of October 31, 2001, among Ingersoll-Rand
                Company Limited, Ingersoll-Rand Company and IR Merger Corporation.
                Incorporated by reference to Amendment No. 1 to Form S-4. Registration
                Statement No, 333-71642, filed October 30,
                2001.




2.1
            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. Incorporated by reference to Form 8-K dated October
                16,
                2002.





2.2
            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. Incorporated by reference to Form Schedule 13D,
                filed
                March 5, 2003 by Ingersoll-Rand
                Company.





2.3
            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. Incorporated
                by
                reference to Form 8-K dated August 25,
                2004.





2.4
            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. Incorporated by reference to Form 8-K for
                Ingersoll-Rand Company Limited, dated May 24, 2005, filed May 27,
                2005.





3.1
            Memorandum
                of Association of Ingersoll-Rand Company Limited. Incorporated by
                reference to Amendment No. 1 to Form S-4 Registration Statement No.
                333-71642, filed October 30, 2001.





3.2
            Amended
                and Restated Bye-Laws of Ingersoll-Rand Company Limited, dated June
                1,
                2005. Incorporated by reference to Form 10-Q for the quarter ended
                June
                30, 2005, of Ingersoll-Rand Company Limited, filed August 5,
                2005.





4.1
            Certificate
                of Designation, Preferences and Rights of Series A Preference Shares
                of
                Ingersoll-Rand Company Limited. Incorporated by reference to Amendment
                No.
                1 to Form S-4 Registration Statement No. 333-71642, filed October
                30,
                2001.





4.2
            Rights
                Agreement between Ingersoll-Rand Company Limited and The Bank of
                New York,
                as Rights Agent. Incorporated by reference to Amendment No. 1 to
                Form S-4
                Registration Statement No. 333-71642, filed October 30,
                2001.





4.3
            Voting
                Agreement between Ingersoll-Rand Company Limited and Ingersoll-Rand
                Company. Incorporated by reference to Amendment No. 1 to Form S-4
                Registration Statement No. 333-71642, filed October 30,
                2001.







41








**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**





**Description**




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. Incorporated by reference to Ingersoll-Rand
                Company’s Form S-3 Registration Statement No. 333-39474 as filed March 18,
                1991 and to Form S-3 Registration Statement No. 333-50902 as filed
                November 29, 2000.





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. Incorporated by reference to Form 10-K of Ingersoll-Rand
                Company Limited for the year ended December 31, 2001, filed March
                13,
                2002.





4.6
            Credit
                Agreement dated as of August 12, 2005, among Ingersoll-Rand Company
                and
                Ingersoll-Rand Company Limited, the banks listed therein, and Citicorp
                USA, Inc., as Syndication Agent, and Bank of America, N.A., Deutsche
                Bank
                Securities Inc., The Bank 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.
                Filed
                herewith.




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. Incorporated by reference
                to Form
                10-K of Ingersoll-Rand Company Limited for the year ended December
                31,
                2004, filed March 16, 2005.





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.
                Incorporated by reference to Form 8-K for Ingersoll-Rand Company
                Limited,
                dated May 24, 2005, filed May 27, 2005.





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. Incorporated
                by reference to Form 10-K of Ingersoll-Rand Company for the year
                ended
                December 31, 1993, filed March 30,
                1994.





42








**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**





**Description**





10.2
            Reorganization
                Amendment to Management Incentive Unit Plan, dated December 31, 2001.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2001, filed March 13,
                2002.





10.3
            Amended
                and Restated Director Deferred Compensation and Stock Award Plan.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                for the
                year ended December 31, 2000, filed March 20,
                2001.





10.4
            First
                Amendment to Director Deferred Compensation and Stock Award Plan.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2001, filed March 13,
                2002.





10.5
            Second
                Amendment to Director Deferred Compensation and Stock Award Plan.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2003, filed February 27,
                2004.





10.6
            Third
                Amendment to Director Deferred Compensation and Stock Award Plan,
                dated
                December 31, 2004. Incorporated by reference to Form 8-K of Ingersoll-Rand
                Company Limited, dated December 31, 2004, filed January 6,
                2005.





10.7
            Fourth
                Amendment to Director Deferred Compensation and Stock Award Plan,
                dated
                March 10, 2005. Incorporated by reference to Form 10-K of Ingersoll-Rand
                Company Limited for the year ended December 31, 2004, filed March
                16,
                2005.





10.8
            Director
                Deferred Compensation and Stock Award Plan II, dated December 31,
                2004.
                Incorporated by reference to Form 8-K of Ingersoll-Rand Company Limited,
                dated December 31, 2004, filed January 6,
                2005.





10.9
            First
                Amendment to Director Deferred Compensation and Stock Award Plan
                II, dated
                March 10, 2005.Incorporated
                by reference to Form 10-K of Ingersoll-Rand Company Limited for the
                year
                ended December 31, 2004, filed March 16, 2005.





10.10
            Description
                of Annual Incentive Arrangements for Chairman, President, Sector
                Presidents and other Staff Officers of Ingersoll-Rand Company Limited.
                Filed herewith.





10.11
            Description
                of Performance Share Program for Chairman, President and Chief Executive
                Officer and the other Participants of Ingersoll-Rand Company Limited.
                Filed herewith.














43











**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**


**Description**





10.12
                  Amended
                      and Restated Form of Change of Control Agreement with Chairman,
                      dated as
                      of December 1, 2003. Incorporated by reference to Form 10-K
                      of
                      Ingersoll-Rand Company for the year ended December 31, 2003,
                      filed
                      February 27,
                      2004.





10.13
            Amended
                and Restated Form of Change of Control Agreement dated as of December
                1,
                2003, with selected executive officers of Ingersoll-Rand Company
                other
                than Chairman. Incorporated by reference to Form 10-K of Ingersoll-Rand
                Company for the year ended December 31, 2003, filed February 27,
                2004.





10.14
            Executive
                Supplementary Retirement Agreement for selected executive officers
                of
                Ingersoll- Rand Company. Incorporated by reference to Form 10-K of
                Ingersoll-Rand Company for the year ended December 31, 1993, filed
                March
                30, 1994.





10.15
            Executive
                Supplementary Retirement Agreement for selected executive officers
                of
                Ingersoll-Rand Company. Incorporated by reference to Form 10-K for
                the
                year ended December 31, 1996, filed March 26,
                1997.





10.16
            Forms
                of insurance and related letter agreements with certain executive
                officers
                of Ingersoll-Rand Company. Incorporated by reference to Form 10-K
                of
                Ingersoll-Rand Company for the year ended December 31, 1993, filed
                March
                30, 1994.





10.17
            Amended
                and Restated Supplemental Pension Plan, dated January 1, 2003.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2002, filed March 5,
                2003.





10.18
            First
                Amendment to the Amended and Restated Supplemental Pension Plan,
                dated
                January 1, 2003. Incorporated by reference to Form 10-K of Ingersoll-Rand
                Company Limited for the year ended December 31, 2003, filed February
                27,
                2004.





10.19
            Amended
                and Restated Supplemental Employee Savings Plan, dated January 1,
                2003.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2002, filed March 5,
                2003.





10.20
              First
                  Amendment to the Amended and Restated Supplemental Employee Savings
                  Plan,
                  datedJanuary
                  1, 2003. Incorporated by reference to Form 10-K of Ingersoll-Rand
                  Company
                  Limited for the year ended December 31, 2003, filed February 27,
                  2004.





10.21
            Incentive
                Stock Plan of 1995. Incorporated by reference to the Notice of 1995
                Annual
                Meeting of Shareholders and Proxy Statement dated March 15, 1995.
                See
                Appendix A of the Proxy Statement dated March 15,
                1995.





44








**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**


**Description**





10.22
            Reorganization
                Amendment to Incentive Stock Plan of 1995, dated December 21, 2001.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2001, filed March 13,
                2002.





10.23
                Senior
                    Executive Performance Plan. Incorporatedby
                    reference to the Notice of 2000 Annual Meeting of Shareholders
                    and Proxy
                    Statement of Ingersoll-Rand Company, dated March 7, 2000. See
                    Appendix A
                    of the Proxy Statement, dated March 7,
                    2000.





10.24
            Amended
                and Restated Elected Officers Supplemental Plan, dated December 31,
                2004.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2004, filed March 16,
                2005.





10.25
            Amendment,
                dated February 1, 2006, to Amended and Restated Elected Officers
                Supplemental Plan, dated December 31, 2004. Filed
                herewith.





10.26
            Elected
                Officers Supplemental Plan II, dated February 1, 2006. Filed herewith.





10.27
            Amended
                and Restated Executive Deferred Compensation Plan. Incorporated by
                reference to Form 10-K of Ingersoll-Rand Company for the year ended
                December 31, 2000, filed March 20, 2001.





10.28
            First
                Amendment to Executive Deferred Compensation Plan, dated December
                31,
                2001. Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited for the year ended December 31, 2001, filed March 13,
                2002.





10.29
            Second
                Amendment to Executive Deferred Compensation Plan, dated February
                24,
                2004. Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited for the year ended December 31, 2003, filed February 27,
                2004.





10.30
            Third
                Amendment to Executive Deferred Compensation Plan, dated December
                31,
                2004. Incorporated by reference to Form 8-K of Ingersoll-Rand Company
                Limited dated December 31, 2004, filed January 6,
                2005.





10.31
            Fourth
                Amendment to Executive Deferred Compensation Plan, dated March 10,
                2005.
                Incorporated by reference to Form 10-K of Ingersoll-Rand Company
                Limited
                for the year ended December 31, 2004, filed March 16,
                2005.





10.32
            Executive
                Deferred Compensation Plan II, dated December 31, 2004. Incorporated
                by
                reference to Form 8-K of Ingersoll-Rand Company Limited dated December
                31,
                2004, filed January 6, 2005.








45







**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**


**Description**





10.33
              First
                  Amendment to Executive Deferred Compensation Plan II, dated March
                  10,
                  2005. Incorporated by reference to Form 10-K of Ingersoll-Rand
                  Company
                  Limited for the year ended December 31, 2004, filed March 16,
                  2005.





10.34
                Amended
                    and Restated Incentive Stock Plan of 1998. Incorporated by reference
                    to
                    Ingersoll-Rand Company Limited’s Form S-8 Registration Statement, filed
                    December 1, 2005.





10.35
            Amendment
                to the Ingersoll-Rand Company Limited Amended and Restated Incentive
                Stock
                Plan of 1998, dated December 7, 2005. Incorporated by reference to
                Form
                8-K of Ingersoll-Rand Company Limited, dated December 7, 2005, filed
                December 9, 2005.





10.36
            Composite
                Employment Agreement with Chief Executive Officer.****Incorporated
                by reference to Form 10-K of Ingersoll-Rand Company for the year
                ended
                December 31, 1999, filed March 30,
                2000.





10.37
            Employment
                Agreement with Timothy McLevish, Senior Vice President and Chief
                Financial
                Officer. Incorporated by reference to Form 10-K of Ingersoll-Rand
                Company
                Limited for the year ended December 31, 2002, filed March 5,
                2003.





10.38
            Employment
                Agreement with Michael Lamach, Senior Vice President. Incorporated
                by
                reference to Form 10-K of Ingersoll-Rand Company Limitedfor the year ended December 31, 2003, filed February 27,
                2004.





10.39
            Addendum,
                dated June 3, 2005, to Employment Agreement with Timothy R. McLevish.
                Incorporated by reference to Form 8-K of Ingersoll-Rand Company Limited,
                dated June 1, 2005, filed June 6,
                2005.





10.40
            Employment
                Agreement with James R. Bolch, Senior Vice President. Filed
                herewith.





10.41
            Addendum,
                dated December 8, 2005, to Employment Agreement with James R. Bolch.
                Filed
                herewith.





12
                Computations
                    of Ratios of Earnings to Fixed Charges. Filed
                    herewith.


14
                Ingersoll-Rand
                    Company Limited Code of Ethics. Filed
                    herewith.





21
            List
                of Subsidiaries of Ingersoll-Rand Company Limited. Filed
                herewith.





23
            Consent
                of Independent Registered Public Accounting Firm. Filed
                herewith.








46











**INGERSOLL-RAND
      COMPANY LIMITED**


**INDEX
      TO EXHIBITS**


**(Item
      15(a))**


**(Continued)**


**Description**





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.





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.











47





**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:
              March
                  1, 2006
  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)
              
              March
                  1, 2006Senior
                  Vice President and/S/
                  Timothy R. McLevish
              
              Chief
                  Financial Officer(Timothy
                  R. McLevish)
              
              (Principal
                  Financial Officer)
              
              March
                  1, 2006/S/
                  Richard W. Randall
              
              Vice
                  President and Controller(Richard
                  W. Randall)
              
              (Principal
                  Accounting Officer)
              
              March
                  1, 2006/S/
                  Ann C. Berzin(Ann
                  C. Berzin)
              
              Director
              
              March
                  1, 2006/S/
                  George W. Buckley(George
                  W. Buckley)
              
              Director
              
              March
                  1, 2006/S/
                  Peter C. Godsoe(Peter
                  C. Godsoe)
              
              Director
              
              March
                  1, 2006/S/
                  Constance Horner(Constance
                  Horner)
              
              Director
              
              March
                  1, 2006/S/
                  H. William Lichtenberger(H.
                  William Lichtenberger)
              
              Director
              
              March
                  1, 2006/S/
                  Theodore E. Martin(Theodore
                  E. Martin)
              
              Director
              
              March
                  1, 2006/S/
                  Patricia Nachtigal(Patricia
                  Nachtigal)
              
              Director
              
              March
                  1, 2006/S/
                  Orin R. Smith(Orin
                  R. Smith)
              
              Director
              
              March
                  1, 2006/S/
                  Richard J. Swift(Richard
                  J. Swift)
              
              Director
              
              March
                  1, 2006/S/
                  Tony L. White(Tony
                  L. White)
              
              Director
              
              March
                  1, 2006


48





**INGERSOLL-RAND
        COMPANY LIMITED**
 **Index
        to Consolidated Financial Statements**
   PageReport
                  of Independent Registered Public Accounting Firm
              
              
              
              
              50-51Consolidated
                  Statements of Income
              
              
              
              
              52Consolidated
                  Balance Sheets
              
              
              
              
              
              53Consolidated
                  Statements of Shareholders' Equity
              
              
              
              
              
              54Consolidated
                  Statements of Cash Flows
              
              
              
              
              
              55Notes
                  to Consolidated Financial Statements
              
              
              
              
              
              56-90Schedule
                  II - Valuation and Qualifying Accounts
              
              
              
              
              
              91








49





**Report
      of Independent Registered Public Accounting Firm**





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





We
      have
      completed integrated audits of Ingersoll-Rand Company Limited's (successor
      company to Ingersoll-Rand Company) 2005 and 2004 consolidated financial
      statements and of its internal control over financial reporting as of December
      31, 2005, and an audit of its December 31, 2003 consolidated financial
      statements in accordance with the standards of the Public Company Accounting
      Oversight Board (United States). Our opinions, based on our audits, are
      presented below .





Consolidated
      Financial Statements and Financial Statement Schedule





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, 2005  and
      2004,
      and the results of their operations and their cash flows for each of the three
      years in the period ended December 31, 2005 **** 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), **** presents
      fairly, in all material respects, the information set forth therein when read
      in
      conjunction with the related consolidated **** financial
      statements. These financial statements and financial statement schedule are
      the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements and financial statement schedule **** based on our
      audits. We conducted our audits of these statements in accordance with the
      standards of the Public Company Accounting Oversight Board  (United
      States). Those standards require that we plan and perform the audit to obtain
      reasonable assurance about whether the financial statements are free of material
      misstatement. An audit of financial statements includes 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.
      We believe that our audits provide a reasonable basis for our
      opinion.





Internal
      control over financial reporting





Also,
      in
      our opinion, management’s assessment, included in Management's Report on
      Internal Control Over Financial Reporting, appearing under Item 9A, that the
      Company maintained effective internal control over financial reporting as of
      December 31, 2005  based
      on
      criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      is fairly stated, in all material respects, based on those criteria.
      Furthermore, in our opinion, the Company maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2005,
      based on criteria established in *Internal
      Control - Integrated Framework* issued
      by the COSO. The Company’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting. Our responsibility
      is to express opinions on management's assessment and on the effectiveness
      of the Company’s internal control over financial reporting based on our audit.
      We conducted our audit of internal control over financial reporting in
      accordance with the standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform the audit
      to
      obtain reasonable assurance about whether effective internal control over
      financial reporting was maintained in all material respects. An audit of
      internal control over financial reporting includes obtaining an understanding
      of
      internal control over financial reporting, evaluating management's assessment,
      testing and evaluating the design and operating effectiveness of internal
      control, and performing such other procedures as we consider necessary in the
      circumstances. We believe that our audit provides a reasonable basis for our
      opinions.





50








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. ****





As
      described in Management's Report on Internal Control Over Financial Reporting,
      management has excluded a number of business acquisitions from its assessment
      of
      internal control over financial reporting as of December 31, 2005 because they
      were acquired by the Company in purchase business combinations during 2005.
      We
      have also excluded these acquisitions from our audit of internal control over
      financial reporting. These subsidiaries are wholly-owned subsidiaries or
      majority-owned consolidated businesses whose total assets and total revenues
      represent approximately 8% and 3%, respectively, of the related consolidated
      financial statement amounts as of and for the year ended December 31,
      2005.






PricewaterhouseCoopers LLPFlorham
                Park, New JerseyFebruary 28, 2006











51





**Ingersoll-Rand
                  Company Limited****Consolidated
                  Statements of Income***In
                  millions, except per share amounts*For
                  the years ended December 31,
              
              2005
              
              2004
              
              2003Net
                  revenues
              
              
              $10,546.9
              
              
              $9,393.6
              
              
              $8,249.3Cost
                  of goods sold
              
              
              7,744.1
              
              
              6,854.0
              
              
              6,109.0Selling
                  and administrative expenses
              
              
              1,441.0
              
              
              1,419.3
              
              
              1,355.9Restructuring
                  reversals
              
              
              -
              
              
              -
              
              
              (3.2
              )Operating
                  income
              
              
              1,361.8
              
              
              1,120.3
              
              
              787.6Interest
                  expense
              
              
              (144.3
              )
              
              (153.1
              )
              
              (175.5
              )Other
                  income, net
              
              
              53.0
              
              
              17.0
              
              
              10.9Minority
                  interests
              
              
              (12.7
              )
              
              (16.0
              )
              
              (14.9
              )Earnings
                  before income taxes
              
              
              1,257.8
              
              
              968.2
              
              
              608.1Provision
                  for income taxes
              
              
              204.7
              
              
              138.4
              
              
              75.3Earnings
                  from continuing operations
              
              
              1,053.1
              
              
              829.8
              
              
              532.8Discontinued
                  operations, net of tax
              
              
              1.1
              
              
              388.9
              
              
              111.7Net
                  earnings
              
              
              $1,054.2
              
              
              $1,218.7
              
              
              $644.5Basic
                  earnings per common share:Earnings
                  from continuing operations
              
              
              $3.12
              
              
              $2.40
              
              
              $1.56Discontinued
                  operations, net of tax
              
              
              -
              
              
              1.12
              
              
              0.32Net
                  earnings
              
              
              $3.12
              
              
              $3.52
              
              
              $1.88Diluted
                  earnings per common share:Earnings
                  from continuing operations
              
              
              $3.09
              
              
              $2.36
              
              
              $1.55Discontinued
                  operations, net of tax
              
              
              -
              
              
              1.11
              
              
              0.32Net
                  earnings
              
              
              $3.09
              
              
              $3.47
              
              
              $1.87*See
                  accompanying Notes to Consolidated Financial
                  Statements.*





52




**Ingersoll-Rand
                  Company Limited****Consolidated
                  Balance Sheets***In
                  millions, except share amounts*December
                  31,
              
              2005
              
              2004**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              
              $880.6
              
              
              $1,703.1Marketable
                  securities
              
              
              156.5
              
              
              0.6Accounts
                  and notes receivable, less allowance of$47.6
                  in 2005 and $70.1 in 2004
              
              
              1,679.0
              
              
              1,498.4Inventories
              
              
              1,128.8
              
              
              1,058.8Prepaid
                  expenses and deferred income taxes
              
              
              403.3
              
              
              348.8Total
                  current assets
              
              
              4,248.2
              
              
              4,609.7Property,
                  plant and equipment, net
              
              
              1,076.0
              
              
              1,013.2Goodwill
              
              
              4,433.4
              
              
              4,211.0Intangible
                  assets, net
              
              
              798.5
              
              
              618.2Other
                  assets
              
              
              1,200.3
              
              
              962.5Total
                  assets
              
              
              $11,756.4
              
              
              $11,414.6**LIABILITIES
                  AND EQUITY****Current
                  liabilities:**Accounts
                  payable
              
              
              $812.5
              
              
              $684.0Accrued
                  expenses and other current liabilities
              
              
              1,053.1
              
              
              1,146.6Accrued
                  compensation and benefits
              
              
              401.4
              
              
              433.5Loans
                  payable and current maturities of long-term debt
              
              
              932.7
              
              
              612.8Total
                  current liabilities
              
              
              3,199.7
              
              
              2,876.9Long-term
                  debt
              
              
              1,184.3
              
              
              1,267.6Postemployment
                  and other benefit liabilities
              
              
              1,000.9
              
              
              1,018.1Other
                  noncurrent liabilities
              
              
              609.5
              
              
              518.2Total
                  liabilities
              
              
              5,994.4
              
              
              5,680.8Commitments
                  and contingencies (Note 8)**Shareholders'
                  equity:**Class
                  A common shares, $1 par value (360,740,316 and356,754,024
                  shares issued in 2005 and 2004, respectively,and
                  net of 19,447,000 and 10,585,378 shares owned bysubsidiary
                  in 2005 and 2004, respectively)
              
              
              330.7
              
              
              173.1Capital
                  in excess of par value
              
              
              -
              
              
              469.6Retained
                  earnings
              
              
              5,558.9
              
              
              5,028.3Accumulated
                  other comprehensive (loss) income
              
              
              (127.6
              )
              
              62.8Total
                  shareholders' equity
              
              
              5,762.0
              
              
              5,733.8Total
                  liabilities and shareholders' equity
              
              
              $11,756.4
              
              
              $11,414.6*See
                  accompanying Notes to Consolidated Financial
                  Statements.*


53





**Ingersoll-Rand
                  Company Limited****Consolidated
                  Statements of Shareholders' Equity***In
                  millions*
   AccumulatedCapital
                  in
              
              
              
              otherTotal
              
              
              
              
              
              excess
              
              
              
              comprehensiveshareholders'
              
              Common
                  stock
              
              of
par
              
              Retained
              
              (loss)
              
              Comprehensiveequity
              
              Amount
              
              Shares
              
              value
              
              earnings
              
              income
              
              incomeBalance
                  at December 31, 2002
              
              
              $3,478.2
              
              
              $169.2
              
              
              169.2
              
              
              $364.7
              
              
              $3,457.4
              
              
              $(513.1
              )Net
                  earnings
              
              
              644.5
              
              
              
              
              
              
              
              
              
              
              
              644.5
              
              
              
              
              
              $644.5Currency
                  translation
              
              
              302.9
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              302.9
              
              
              302.9Change
                  in fair value of derivatives qualifyingas
                  cash flow hedges, net of tax of $3.2
              
              
              (18.1
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (18.1
              )
              
              (18.1
              )Minimum
                  pension liability adjustment, net of tax of $24.4
              
              
              (42.2
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (42.2
              )
              
              (42.2
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $887.1Shares
                  issued under incentive stock plans
              
              
              251.2
              
              
              5.3
              
              
              5.3
              
              
              245.9Cash
                  dividends
              
              
              (123.2
              )
              
              
              
              
              
              
              
              
              
              
              (123.2
              )Balance
                  at December 31, 2003
              
              
              4,493.3
              
              
              174.5
              
              
              174.5
              
              
              610.6
              
              
              3,978.7
              
              
              (270.5
              )Net
                  earnings
              
              
              1,218.7
              
              
              
              
              
              
              
              
              
              
              
              1,218.7
              
              
              
              
              
              $1,218.7Currency
                  translation
              
              
              168.7
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              168.7
              
              
              168.7Change
                  in fair value of derivatives qualifyingas
                  cash flow hedges, net of tax of $0.4
              
              
              3.1
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3.1
              
              
              3.1Minimum
                  pension liability adjustment, net of tax of $103.7
              
              
              161.5
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              161.5
              
              
              161.5Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $1,552.0Shares
                  issued under incentive stock plans
              
              
              213.5
              
              
              3.9
              
              
              3.9
              
              
              209.6Repurchase
                  of common shares by subsidary
              
              
              (355.9
              )
              
              (5.3
              )
              
              (5.3
              )
              
              (350.6
              )Change
                  in fiscal year end of subsidiary, net of tax of $7.3
              
              
              (16.5
              )
              
              
              
              
              
              
              
              
              
              
              (16.5
              )Cash
                  dividends
              
              
              (152.6
              )
              
              
              
              
              
              
              
              
              
              
              (152.6
              )Balance
                  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 marketable securities andderivatives
                  qualifying as cash flow hedges,net
                  of tax of $0.3
              
              
              5.7
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5.7
              
              
              5.7Minimum
                  pension liability adjustment, net of tax of $60.5
              
              
              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 subsidary
              
              
              (763.6
              )
              
              (19.4
              )
              
              (19.4
              )
              
              (587.3
              )
              
              (156.9
              )Stock
                  split
              
              
              -
              
              
              174.7
              
              
              174.7
              
              
              
              
              
              (174.7
              )Cash
                  dividends
              
              
              (192.0
              )
              
              
              
              
              
              
              
              
              
              
              (192.0
              )Balance
                  at December 31, 2005
              
              
              $5,762.0
              
              
              $330.7
              
              
              330.7
              
              
              $  
                          -
              
              
              $5,558.9
              
              
              $(127.6
              )
 *See
          accompanying Notes to Consolidated Financial
          Statements.*




54




**Ingersoll-Rand
                  Company Limited****Consolidated
                  Statements of Cash Flows***In
                  millions*
  For
                  the years ended December 31,
              
              2005
              
              2004
              
              2003**Cash
                  flows from operating activities:**Net
                  earnings
              
              
              $1,054.2
              
              
              $1,218.7
              
              
              $644.5Income
                  from discontinued operations, net of tax
              
              
              1.1
              
              
              388.9
              
              
              111.7Income
                  from continuing operations
              
              
              1,053.1
              
              
              829.8
              
              
              532.8Adjustments
                  to arrive at net cash provided by operating activities:Restructure
                  of operations
              
              
              -
              
              
              -
              
              
              (3.2
              )Depreciation
                  and amortization
              
              
              195.7
              
              
              174.4
              
              
              171.6Gain
                  on sale of businesses
              
              
              (1.5
              )
              
              -
              
              
              -Gain
                  on sale of property, plant and equipment
              
              
              (2.4
              )
              
              (8.9
              )
              
              (5.7
              )Minority
                  interests, net of dividends
              
              
              (1.3
              )
              
              6.3
              
              
              4.6Equity
                  earnings, net of dividends
              
              
              0.4
              
              
              (8.6
              )
              
              (0.1
              )Deferred
                  income taxes
              
              
              64.0
              
              
              (59.2
              )
              
              (26.9
              )Other
                  items
              
              
              (42.0
              )
              
              (16.6
              )
              
              (46.2
              )Changes
                  in other assets and liabilities(Increase)
                  decrease in:Accounts
                  and notes receivable
              
              
              (128.5
              )
              
              (70.1
              )
              
              (277.3
              )Inventories
              
              
              0.6
              
              
              (174.8
              )
              
              13.4Other
                  current and noncurrent assets
              
              
              (219.1
              )
              
              (156.2
              )
              
              (49.1
              )Increase
                  (decrease) in:Accounts
                  and notes payable
              
              
              87.8
              
              
              91.5
              
              
              5.2Other
                  current and noncurrent liabilities
              
              
              (163.6
              )
              
              145.6
              
              
              (180.7
              )Net
                  cash provided by continuing operating activities
              
              
              843.2
              
              
              753.2
              
              
              138.4Net
                  cash (used in) provided by discontinued operating activities
                  (revised)
              
              
              (34.1
              )
              
              27.3
              
              
              24.8**Cash
                  flows from investing activities:**Capital
                  expenditures
              
              
              (111.8
              )
              
              (108.6
              )
              
              (99.3
              )Proceeds
                  from sale of property, plant and equipment
              
              
              19.0
              
              
              50.4
              
              
              43.1Acquisitions,
                  net of cash
              
              
              (514.7
              )
              
              (33.7
              )
              
              (21.3
              )Proceeds
                  from business dispositions
              
              
              11.4
              
              
              1,413.2
              
              
              751.4Proceeds
                  from sales and maturities of marketable securities
              
              
              -
              
              
              0.3
              
              
              147.6Purchase
                  of marketable securities
              
              
              (153.2
              )
              
              -
              
              
              -Cash
                  provided by (invested in) equity companies, net
              
              
              7.6
              
              
              7.6
              
              
              (0.6
              )Net
                  cash (used in) provided by continuing investing activities
              
              
              (741.7
              )
              
              1,329.2
              
              
              820.9Net
                  cash used in discontinued investing activities (revised)
              
              
              -
              
              
              (7.4
              )
              
              (2.7
              )**Cash
                  flows from financing activities:**Decrease
                  in short-term borrowings
              
              
              (40.2
              )
              
              (16.3
              )
              
              (146.7
              )Proceeds
                  from long-term debt
              
              
              301.7
              
              
              -
              
              
              -Payments
                  of long-term debt
              
              
              (198.8
              )
              
              (453.1
              )
              
              (792.9
              )Net
                  change in debt
              
              
              62.7
              
              
              (469.4
              )
              
              (939.6
              )Redemption
                  of preferred stock of subsidiaries
              
              
              (73.6
              )
              
              -
              
              
              -Proceeds
                  from exercise of stock options
              
              
              90.9
              
              
              170.7
              
              
              211.1Dividends
                  paid
              
              
              (192.1
              )
              
              (152.6
              )
              
              (123.2
              )Purchase
                  of treasury shares
              
              
              (763.6
              )
              
              (355.9
              )
              
              -Net
                  cash used in continuing financing activities
              
              
              (875.7
              )
              
              (807.2
              )
              
              (851.7
              )Net
                  cash used in discontinued financing activities (revised)
              
              
              -
              
              
              (1.0
              )
              
              (0.3
              )**Effect
                  of change in fiscal year end of businesses**
              
              
              -
              
              
              (23.8
              )
              
              -**Effect
                  of exchange rate changes on cash and cash
                  equivalents**
              
              
              (14.2
              )
              
              16.5
              
              
              2.6Net
                  (decrease) increase in cash and cash equivalents
              
              
              (822.5
              )
              
              1,286.8
              
              
              132.0Cash
                  and cash equivalents - beginning of period
              
              
              1,703.1
              
              
              416.3
              
              
              284.3Cash
                  and cash equivalents - end of period
              
              
              $880.6
              
              
              $1,703.1
              
              
              $416.3**Cash
                  paid during the year for:**Interest,
                  net of amounts capitalized
              
              
              $131.2
              
              
              $124.2
              
              
              $190.2Income
                  taxes, net of refunds
              
              
              $270.0
              
              
              $170.8
              
              
              $73.5
 *See
          accompanying Notes to Consolidated Financial Statements.*


55





**NOTE
      1 - 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
      consolidated financial statements of Ingersoll-Rand Company Limited, a Bermuda
      company (IR-Limited or the Company), have been prepared in accordance with
      generally accepted accounting principles in the United States. 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 it did not result in any changes
      to the consolidated amounts of assets, liabilities and shareholders’
equity.





The
      results for Hussmann International, Inc. and its majority-owned affiliates
      had
      been on a 15-day lag for U.S. operations and a one-month lag for non-U.S.
      operations, since its acquisition in 2000. During the first quarter of 2004,
      these lags were eliminated, and the financial results were recorded on a current
      basis. The result of this action was a net loss of $16.5 million, which was
      recorded directly to retained earnings on the Consolidated Balance Sheet, and
      a
      resulting cash outflow of $23.8 million, which was shown as a separate line
      item
      on the Consolidated Statement of Cash Flows.





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, payable on September 1, 2005,
      to
      shareholders of record on August 16, 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 have been restated to reflect
      the effect of the stock split for all periods presented. 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.





**Use
      of Estimates:** In
      conformity with generally accepted accounting principles, management has used
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses, and the disclosure of contingent assets
      and
      liabilities. Significant estimates include accounting for doubtful accounts,
      depreciation and amortization, inventory reserves, valuation of assets including
      goodwill and other intangible assets, products warranties, sales allowances,
      taxes, environmental, product liability, asbestos and other contingencies.
      Actual results could differ from those estimates.





**Principles
      of Consolidation:** The
      Company’s consolidated financial statements include all wholly owned and
      majority owned subsidiaries. Partially owned equity affiliates are accounted
      for
      under the equity method. The Company is also required to include 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 transactions and balances have been eliminated.





56








**Reclassifications:** Certain
      prior year amounts have been reclassified to conform to the current year
      presentation.





**Cash
      Flow Revision:** The
      Company has revised its 2004 and 2003 consolidated statements of cash flows
      to
      separately disclose the operating, investing and financing portions of the
      cash
      flows attributable to its discontinued operations. The Company had previously
      reported these amounts on a combined basis.




**Cash
      Equivalents:** The
      Company considers all highly liquid investments, consisting primarily of time
      deposits and commercial paper with maturities of three months or less when
      purchased, to be cash equivalents. Cash equivalents were $498.5 million and
      $1,517.6 million at December 31, 2005 and 2004, respectively.





**Marketable
      Securities:** The
      Company invests in marketable securities and classifies the securities as
      available-for-sale under Statement of Financial Accounting Standard (SFAS)
      No.
      115, “Accounting for Certain Investments in Debt and Equity Securities.” In
      accordance with SFAS 115, available-for-sale marketable securities are accounted
      for at market prices, with the unrealized gain or loss, less applicable deferred
      income taxes, shown as a separate component of stockholders’
equity.





Included
      in short-term marketable securities are auction rate securities which are highly
      liquid, variable-rate debt securities. While the underlying security has a
      long-term nominal maturity, the interest rate is reset through Dutch auctions
      that are typically held every 7, 28, or 35 days, creating a short-term
      instrument. The securities trade at par and are callable at par on any interest
      payment date at the option of the issuer. Interest is paid at the end of the
      each auction period.





**Inventories:** Inventories
      are stated at cost, which is not in excess of market. Most U.S. manufactured
      inventories, excluding the Climate Control Technologies segment, are valued
      using the last-in, first-out (LIFO) method. All other inventories are valued
      using the first-in, first-out (FIFO) method.





**Allowance
      for Doubtful Accounts and Inventory Reserves** :
      The
      Company has provided an allowance for doubtful accounts receivable and inventory
      reserves using a Company policy formula based upon its knowledge of its end
      markets, customer base and products.





**Property,
      Plant and Equipment:** Property,
      plant and equipment are stated at cost, less accumulated depreciation. The
      Company principally uses accelerated depreciation methods for assets placed
      in
      service prior to December 31, 1994. Fixed assets, excluding leasehold
      improvements, acquired subsequent to that date are depreciated using the
      straight-line method over their estimated useful lives. Leasehold improvements
      are depreciated using the shorter of their economic life or the lease term.
      Useful lives range from 10 to 50 years for buildings and improvements and from
      3
      to 12 years for machinery and equipment. At December 31, 2005 and 2004, gross
      land and buildings totaled $603.3 million and $570.4 million, respectively,
      while gross machinery and equipment totaled $1,391.5 million and $1,288.1
      million, respectively. Accumulated depreciation at December 31, 2005 and 2004,
      was $918.8 million and $845.3 million, respectively. Depreciation expense was
      $135.5 million, $134.1 million and $133.0 million in 2005, 2004 and 2003,
      respectively.





57








**Goodwill
      and Other Intangible Assets:** Goodwill
      and other intangible assets deemed to have indefinite lives are tested at least
      annually for impairment during the fourth quarter. The carrying value of
      goodwill and other intangibles is also reviewed if the facts and circumstances,
      such as a significant decline in sales, earnings or cash flows or material
      adverse changes in the business climate, suggest that it may be impaired. If
      this review indicates that goodwill will not be recoverable as determined based
      on the estimated discounted cash flows of the reporting unit, impairment is
      measured by comparing the carrying value of goodwill to fair value. Fair value
      is determined based on quoted market values, discounted cash flows or
      appraisals. The Company amortizes finite-lived intangible assets over their
      estimated useful lives on a straight-line basis, unless the economic benefits
      of
      the intangible are otherwise consumed.





**Long-lived
      Assets:** Long-lived
      assets are reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable. An
      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.




**Income
      Taxes:** Deferred
      taxes are provided on temporary differences between assets and liabilities
      for
      financial reporting and tax purposes as measured by enacted tax rates expected
      to apply when temporary differences are settled or realized. A valuation
      allowance is established for deferred tax assets for which realization is not
      likely.





**Product
      Warranties:** Warranty
      accruals are recorded at the time of sale and are estimated based upon product
      warranty terms and historical experience. Warranty accruals are adjusted for
      known or anticipated warranty claims as new information becomes
      available.





**Environmental
      Costs:** 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. Costs to prepare environmental site evaluations and feasibility
      studies are accrued when the Company commits to perform them. Liabilities for
      remediation costs are recorded when they are probable and reasonably estimable,
      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.





**Revenue
      Recognition:** Revenue
      is generally 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; and (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. For multiple-element arrangements, the Company
      recognizes revenue for delivered elements when the delivered item has
      stand-alone value to the customer, fair values or undelivered elements are
      known, customer acceptance has occurred, and there are only customary refund
      or
      return rights related to the delivered elements.





58








**Research
      and Development Costs:** Research
      and development expenditures, including qualifying engineering costs, are
      expensed when incurred and amounted to $162.4 million in 2005, $149.2 million
      in
      2004 and $164.5 million in 2003. The Company also incurs engineering costs
      that
      are not considered research and development expenditures.





**Comprehensive
      Income:** Comprehensive income includes net income, currency translation adjustments,
      amounts relating to cash flow hedges, additional minimum pension liability
      adjustments and unrealized holding gains and losses on marketable securities,
      net of taxes. The balances at December 31, 2005 and 2004, for the components
      of
      accumulated other comprehensive income were currency translation adjustment
      of
      $5.1 million and $272.9 million, unrealized gains on cash flow hedges of $(6.7)
      million and $(12.2) million, and minimum pension liability adjustments of
      $(126.2) million and $(197.9) million, respectively. The balance at December
      31,
      2005, also includes unrealized holding gains on marketable securities of $0.2
      million.





**Currency
      Translation:** Assets
      and liabilities of non-U.S. entities, where the local currency is the functional
      currency, have been translated at year-end exchange rates, and income and
      expenses have been translated using average-for-the-year exchange rates.
      Adjustments resulting from translation have been recorded in accumulated other
      comprehensive income and are included in net earnings only upon sale or
      liquidation of the underlying investment.





For
      non-U.S. entities where the U.S. dollar is the functional currency, inventory
      and property balances and related income statement accounts have been translated
      using historical exchange rates, and resulting gains and losses have been
      credited or charged to net earnings.





Net
      currency transaction gains (losses) recorded in “Other income, net” were, $2.2
      million, $(9.6) million and $(6.3) million in 2005, 2004 and 2003, respectively.





**Earnings
      Per Share:** Basic
      earnings per share is based on the weighted-average number of Class A common
      shares outstanding. Diluted earnings per share is based on the weighted-average
      number of Class A common shares outstanding, as well as potentially dilutive
      common shares, which in the Company’s case include shares issuable under
      stock-based compensation plans. The weighted-average number of Class A common
      shares outstanding for basic earnings per share calculations was 337.6 million,
      346.5 million and 342.2 million for 2005, 2004 and 2003, respectively. For
      diluted earnings per share purposes, these balances increased by 3.7 million,
      4.4 million and 2.6 million shares for 2005, 2004 and 2003, respectively. For
      the years ended December 31, 2005 and 2003, 0.1 million and 3.8 million,
      respectively, were excluded because the effect would be anti-dilutive. There
      were no anti-dilutive shares for the year ended December 31, 2004.





**Stock-based
      Compensation:** Under
      the
      Company’s Incentive Stock Plans, approved in 1990, 1995, and 1998, key employees
      have been granted options to purchase Class A common shares. The Company
      accounts for these plans under the recognition and measurement principles of
      APB
      No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation
      expense is recognized for employee stock options since options granted are
      at
      prices not less than fair market value at the date of grant. The plans also
      authorize stock appreciation rights (SARs) and stock awards, which result in
      compensation expense. Additionally, the Company maintains a shareholder-approved
      Management Incentive Unit Award Plan, which results in compensation expense.
      All
      plans are described more fully in Note 10, Incentive Stock Plans.





59








On
      December 7, 2005, the Compensation Committee of the Board of Directors of the
      Company approved the acceleration of the vesting of all outstanding and unvested
      stock options under the Company’s stock plans for active employees, effective
      December 31, 2005. This acceleration facilitates the transition to the new
      accounting standard, SFAS 123(R), “Share Based Payments,” by providing a
      consistent application of the accounting rules for stock-based compensation
      for
      the Company’s 2006 and future SFAS 123(R) compensation expense. 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. Options issued on or prior to December 31, 2002, were fully vested
      as of
      December 31, 2005. 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 (including sales, gifts, pledges or other
      transfers of any kind) 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.





In
      connection with the modification of the terms of these options to accelerate
      their vesting, approximately $41.9 million, net of tax, is included in the
      pro
      forma table below for the fiscal year ended December 31, 2005, representing
      the
      remaining unamortized value of the newly vested options. In accordance with
      FIN
      44, “Accounting for Certain Transactions Involving Stock Compensation, an
      Interpretation of APB 25”, the company recognized $1.0 million (pre-tax) as
      compensation expense in the income statement upon acceleration of the vesting
      of
      the options. The compensation expense represents the intrinsic value for the
      estimated number of stock options that would have been forfeited had the
      acceleration not occurred.





The
      following table is presented in accordance with SFAS No. 148, “Accounting for
      Stock-Based Compensation - Transition and Disclosure” and illustrates the effect
      on net income and earnings per share if the Company had applied the fair value
      recognition provisions of SFAS No. 123, “Accounting for Stock-Based
      Compensation,” to stock-based employee compensation.





60







For
                  the years ended December 31,*In
                  millions, except per share amounts*
              
              2005
              
              2004
              
              2003Net
                  earnings, as reported
              
              
              $1,054.2
              
              
              $1,218.7
              
              
              $644.5Add:
                    Stock-based employee compensation expense included in reported
                    net income,
                    net of tax
              
              5.8
              
              
              34.0
              
              
              34.4Deduct:
                    Total stock-based employee compensation expense determined underfair
                  value based method for all awards, net of tax
              
              
              79.8
              
              
              63.9
              
              
              60.5Pro
                  forma net earnings
              
              
              $980.2
              
              
              $1,188.8
              
              
              $618.4Basic
                  earnings per share:As
                  reported
              
              
              $3.12
              
              
              $3.52
              
              
              $1.88Pro
                  forma
              
              
              2.90
              
              
              3.43
              
              
              1.81Diluted
                  earnings per share:As
                  reported
              
              
              $3.09
              
              
              $3.47
              
              
              $1.87Pro
                  forma
              
              
              2.87
              
              
              3.39
              
              
              1.80


**New
      Accounting Standards:** In
      November 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard No. 151, “Inventory Costs, an amendment of ARB
      No. 43, Chapter 4” (SFAS 151). SFAS 151 clarifies that abnormal amounts of idle
      facility expense, freight, handling costs and spoilage should be recognized
      as
      current-period charges and requires the allocation of fixed production overheads
      to inventory based on the normal capacity of the production facilities. SFAS
      151
      is effective for the Company on January 1, 2006. The adoption of SFAS 151 is
      not
      expected to have a material impact on the Company’s consolidated financial
      position and results of operations.





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share Based
      Payment” (SFAS 123(R)). SFAS 123(R) is a revision of SFAS No. 123, “Accounting
      for Stock-Based Compensation,” which supersedes Accounting Principles Board
      (APB) No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No.
      95, “Statement of Cash Flows.” SFAS 123(R) requires companies to recognize
      compensation expense in the income statement for an amount equal to the fair
      value of the share-based payment issued. This applies to all transactions
      involving the issuance of equity by a company in exchange for goods and
      services, including employees. In March 2005, the SEC issued Staff Accounting
      Bulletin No. 107 (SAB 107) outlining the SEC Staff’s interpretation of SFAS
      123(R). This interpretation provides their views regarding interactions between
      SFAS 123(R) and certain SEC rules and regulations and provides interpretations
      of the valuation of share-based payments for public companies. Subsequently
      in
      August, October and November 2005, the FASB released Financial Staff Position
      (FSP) 123(R)-1, “Classification and Measurement of Freestanding Financial
      Instruments Originally Issued in Exchange for Employee Services under FASB
      Statement No. 123(R),” FSP 123(R)-2, “Practical Accommodation to the Application
      of Grant Date as Defined in FASB Statement No. 123(R)” and FSP 123(R)-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
      Payment Awards.” Additionally on February 1, 2006, the FASB agreed to issue FSP
      123(R)-4, “Classification of Options and Similar Instruments Issued as Employee
      Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
      Event.” The FSPs clarify certain accounting provisions set forth in SFAS 123(R).
      The Company will adhere to the requirements and guidance prescribed in SFAS
      123(R), SAB 107 and the FSPs in connection with its adoption in the first
      quarter of 2006. The Company estimates that the impact on 2006 earnings will
      approximate $0.03 to $0.04 of cost per share for the year.




61




In
      December 2004, the FASB released Financial Staff Position 109-2, “Accounting and
      Disclosure Guidance for the Foreign Earnings Repatriation Provision within
      the
      American Jobs Creation Act of 2004” (FSP 109-2). The American Jobs Creation Act
      (AJCA) provides for a special one-time tax deduction of 85% of certain foreign
      earnings that are repatriated in either an enterprise’s last tax year that began
      before the enactment date, or the first tax year that begins during the one-year
      period beginning on the date of enactment. FSP 109-2 allows time for enterprises
      beyond the financial reporting period of enactment to evaluate the effect of
      the
      AJCA on its plan for reinvestment or repatriation of foreign earnings for
      purposes of applying SFAS No. 109. We have completed our review of the foreign
      earnings repatriation provision of the AJCA. We concluded that, given the
      effective foreign tax rates applicable to our unrepatriated earnings, as well
      as
      certain restrictions in the AJCA and in the laws of other jurisdictions, and
      the
      composition of other tax attributes, the foreign earnings repatriation provision
      of the AJCA does not provide a material financial benefit to the Company. Based
      on that analysis, we do not plan to change our existing repatriation practices
      as a result of the AJCA.





In
      March
      2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset
      Retirement Obligations” (FIN 47). FIN 47 requires an entity to recognize a
      liability for a conditional asset retirement obligation when incurred if the
      liability can be reasonably estimated. The Interpretation also clarifies that
      the term Conditional Asset Retirement Obligation refers to a legal obligation
      to
      perform an asset retirement activity in which the timing and/or method of
      settlement are conditional on a future event that may or may not be within
      the
      control of the entity. FIN 47 also clarifies when an entity would have
      sufficient information to reasonably estimate the fair value of an asset
      retirement obligation. FIN 47 was effective for the Company on December 31,
      2005, and the adoption did not have a material impact on its consolidated
      financial position, results of operations and cash flows.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(SFAS 154), which replaces APB Opinion 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 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      The Company does not expect the adoption of SFAS 154 to have a material impact
      on its consolidated financial position and results of operations.





**NOTE
      2** - **DISCONTINUED
      OPERATIONS**


The
      Company has continued its transition to become a more diversified company with
      strong growth prospects by divesting cyclical, low-growth, asset intensive
      businesses. In 2004, the Company sold its Dresser-Rand and Drilling Solutions
      businesses. Dresser-Rand was engaged in the design, manufacture, sale, and
      service of gas compressors, gas and steam turbines, and generators. Dresser-Rand
      had 2003 revenues of approximately $1.3 billion and employed approximately
      4,500
      people, with manufacturing and service facilities worldwide. Drilling Solutions
      manufactured drilling equipment and accessories for the worldwide construction,
      mining, quarrying, and water-well drilling industries. Drilling Solutions had
      2003 revenues of approximately $300 million and employed approximately 950
      people. During 2003, the Company sold its Engineered Solutions, Laidlaw and
      Waterjet businesses. In 2000, the Company sold its Ingersoll-Dresser Pump
      Company (IDP) business. Discontinued operations include the operating results,
      gains and on-going costs for each of these businesses during the respective
      periods.




62





Discontinued
      operations for the year ended December 31, 2005, amounted to income of $1.1
      million, net of tax benefits of $48.2 million. This total includes net after
      tax
      gains of $35.2 million, mainly due to Ingersoll-Dresser Pump Company (IDP)
      ($12.0 million), Dresser-Rand ($10.3 million) and Waterjet ($12.2 million),
      primarily from the resolution of tax matters regarding these divestitures.
      The
      after-tax loss from on-going discontinued operations costs amounted to $34.1
      million. These costs are mainly due to Engineered Solutions ($7.7 million),
      IDP
      ($18.3 million) and Dresser-Rand ($6.3 million), and include product liability
      costs, primarily related to asbestos liability claims, environmental costs
      and
      employee benefit costs.





Discontinued
      operations for the year ended December 31, 2004, amounted to income of $388.9
      million, net of tax provisions of $343.5 million. This total includes net after
      tax gains of $334.9 million, primarily comprised of gains from the sales of
      Dresser-Rand ($282.5 million) and Drilling Solutions ($38.6 million). After-tax
      income from discontinued operations amounted to $54.0 million. This income
      mainly includes profit from Dresser-Rand ($45.0 million) and Engineered
      Solutions ($20.9 million), which includes an antidumping subsidy net of tax
      of
      $29.5 million. This income is partially offset by retained costs related to
      IDP
      ($14.9 million), which mostly include product liability costs, primarily related
      to asbestos liability claims, and employee benefit costs.





Discontinued
      operations for the year ended December 31, 2003, amounted to income of $111.7
      million, net of tax provisions of $58.6 million. This total includes net after
      tax gains of $68.8 million, comprised of gains from the sales of Engineered
      Solutions ($58.2 million) and Waterjet ($18.2 million), offset by a loss from
      the sale of Laidlaw ($7.6 million). After-tax income from discontinued
      operations amounted to $42.9 million. This income principally includes profit
      from Dresser-Rand ($41.1 million) and Drilling Solutions ($19.6 million),
      partially offset by retained costs related to IDP ($19.8 million), which include
      product liability costs, primarily related to asbestos liability claims, and
      employee benefit costs.




Net
      revenues and pretax earnings for discontinued operations are as
      follows:


*In
                  millions*
              
              2005
              
              2004
              
              2003Net
                  revenues
              
              
              $-
              
              
              $882.0
              
              
              $1,822.2Pretax
                  (loss) earnings
              
              
              (51.4
              )
              
              64.0
              
              
              30.2


**NOTE
      3 - INVENTORIES**


At
      December 31, inventories were as follows:


*In
                  millions*
              
              2005
              
              2004Raw
                  materials and supplies
              
              
              $436.3
              
              
              $359.4Work-in-process
              
              
              193.4
              
              
              190.1Finished
                  goods
              
              
              622.4
              
              
              612.31,252.1
              
              
              1,161.8Less
                  - LIFO reserve
              
              
              123.3
              
              
              103.0Total
              
              
              $1,128.8
              
              
              $1,058.8




At
      December 31, 2005 and 2004, LIFO inventories were approximately 37% and 38%,
      respectively, of inventories. During 2005, 2004 and 2003, certain LIFO inventory
      quantities were reduced, which resulted in a liquidation of LIFO inventory
      layers carried at lower costs than in prior years. The effect of the liquidation
      was to decrease cost of goods sold by $3.0 million, $1.7 million and $7.2
      million, respectively, and to increase after-tax earnings by $1.8 million,
      $1.0
      million and $4.4 million, respectively.





**NOTE
      4 - GOODWILL AND OTHER INTANGIBLE ASSETS**


Goodwill
      and other intangible assets deemed to have indefinite lives are no longer
      subject to amortization, but rather are tested at least annually for impairment
      during the fourth quarter. All finite-lived intangible assets are amortized
      over
      their estimated useful lives.





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


Climate
              
              CompactControl
              
              Vehicle
              
              Construction
              
              Industrial
              
              Security*In
                  millions*
              
              Technologies
              
              Technologies
              
              Technologies
              
              Technologies
              
              Technologies
              
              TotalBalance
                  at December 31, 2003
              
              
              $2,577.6
              
              
              $798.3
              
              
              $103.3
              
              
              $112.2
              
              
              $571.2
              
              
              $4,162.6Acquisitions
              
              
              0.2
              
              
              -
              
              
              -
              
              
              3.5
              
              
              1.6
              
              
              5.3Dispositions
              
              
              (0.6
              )
              
              -
              
              
              (3.3
              )
              
              -
              
              
              (1.4
              )
              
              (5.3
              )Translation
                  and adjustments*
              
              
              41.5
              
              
              3.1
              
              
              1.3
              
              
              3.7
              
              
              (1.2
              )
              
              48.4Balance
                  at December 31, 2004
              
              
              2,618.7
              
              
              801.4
              
              
              101.3
              
              
              119.4
              
              
              570.2
              
              
              4,211.0Acquisitions
              
              
              3.9
              
              
              0.3
              
              
              10.8
              
              
              23.0
              
              
              371.1
              
              
              409.1Dispositions
              
              
              (0.3
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (0.3
              )Translation
                  and adjustments*
              
              
              (108.1
              )
              
              (7.2
              )
              
              (0.4
              )
              
              (5.0
              )
              
              (65.7
              )
              
              (186.4
              )Balance
                  at December 31, 2005
              
              
              $2,514.2
              
              
              $794.5
              
              
              $111.7
              
              
              $137.4
              
              
              $875.6
              
              
              $4,433.4


*
      Includes
      current year adjustments related to income taxes and final purchase price
      allocations.




63


The
      Company initially records to goodwill the excess of the purchase price over
      the
      preliminary valuation of the net assets acquired. Once the final valuation
      has
      been performed for each acquisition, the Company may record an adjustment to
      goodwill. The Company made several acquisitions during 2005.





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


2005
              
              2004Gross
              
              Accumulated
              
              Gross
              
              Accumulated*In
                  millions*
              
              amount
              
              amortization
              
              amount
              
              amortizationCustomer
                  relationships
              
              
              $484.0
              
              
              $58.6
              
              
              $384.9
              
              
              $44.5Software
              
              
              169.6
              
              
              88.0
              
              
              141.6
              
              
              61.3Trademarks
              
              
              93.7
              
              
              5.3
              
              
              12.1
              
              
              6.5Patents
              
              
              36.6
              
              
              23.5
              
              
              26.5
              
              
              21.2Other
              
              
              55.4
              
              
              20.8
              
              
              45.1
              
              
              13.9Total
                  amortizable intangible assets
              
              
              839.3
              
              
              196.2
              
              
              610.2
              
              
              147.4Total
                  indefinite-lived intangible assets - trademarks
              
              
              155.4
              
              
              -
              
              
              155.4
              
              
              -Total
              
              
              $994.7
              
              
              $196.2
              
              
              $765.6
              
              
              $147.4




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.
      Software amortization expense was $28.1 million, $25.0 million and $21.6 million
      for 2005, 2004 and 2003, respectively. Other intangible asset amortization
      expense for 2005, 2004 and 2003 was $30.5 million, $14.4 million and $14.2
      million, respectively.





Estimated
      intangible asset amortization expense for each of the next five fiscal years
      is
      expected to be $35.6 million in 2006, $33.4 million in 2007, $27.9 million
      in
      2008, $19.9 million in 2009 and $16.2 million in 2010.




**NOTE
      5 - MARKETABLE SECURITIES**


At
      December 31, 2005, available-for-sale marketable securities consisted of the
      following:




*In
                  millions*
              
              Amortized
                Cost
                  or Cost
              
              Gross
                Unrealized
                Gains
              
              Fair
                  ValueShort-term
                  marketable securities:Equity
                  securities
              
              
              $0.6
              
              
              $-
              
              
              $0.6Commercial
                  paper
              
              
              4.5
              
              
              -
              
              
              4.5Municipal
                  bonds
              
              
              151.4
              
              
              -
              
              
              151.4Total
              
              
              $156.5
              
              
              $-
              
              
              $156.5Long-term
                  marketable securities:Equity
                  securities
              
              
              $20.6
              
              
              $0.3
              
              
              $20.9Total
              
              
              $20.6
              
              
              $0.3
              
              
              $20.9





Long-term
      marketable securities are included in “Other Assets” on the Consolidated Balance
      Sheet as of December 31, 2005. At December 31, 2004, the Company had $0.6
      million of short-term equity securities with minimal unrealized
      gain.





64


**NOTE
      6 - FINANCIAL INSTRUMENTS**


The
      Company, as a large multinational company, maintains significant operations
      in
      countries other than the United States. As a result of these global activities,
      the Company is exposed to changes in currency exchange rates, which affect
      the
      results of operations and financial condition. The Company manages exposure
      to
      changes in currency exchange rates through its normal operating and financing
      activities, as well as through the use of financial instruments. Generally,
      the
      only financial instruments the Company utilizes are forward exchange
      contracts.





The
      purpose of the Company's currency hedging activities is to mitigate the impact
      of changes in currency exchange rates. The Company attempts to hedge transaction
      exposures through natural offsets. To the extent that this is not practicable,
      major exposure areas considered for hedging include non-U.S. denominated
      receivables and payables, intercompany loans, firm-committed transactions,
      and
      forecasted sales and purchases. The estimated fair value of currency forward
      contracts outstanding was a projected gain of $3.0 million and a projected
      loss
      of $16.6 million at December 31, 2005 and 2004, respectively. The notional
      amount of the currency forward contracts was $252.1 million and $282.7 million
      at December 31, 2005 and 2004, respectively.




The
      Company purchases, on a limited basis, commodity derivatives to hedge the
      variable portion in supplier contracts of the costs of metals used in its
      products. Gains and losses on the derivatives are included in cost of sales
      in
      the same period as the hedged transaction. During 2004, fixed-priced supplier
      agreements replaced maturing commodity forward contracts, which decreased the
      number of outstanding contracts at December 31, 2004. The fair value of
      outstanding commodity contracts at December 31, 2005 and 2004, were minimal.
      The
      notional amount of the outstanding commodity contracts was $0.7 million and
      $1.2
      million at December 31, 2005 and 2004, respectively.




The
      Company entered into interest rate locks for the second quarter issuance of
      $300
      million of its 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 and will be recognized into interest
      expense over the life of the debt.





Included
      in accumulated other comprehensive income at December 31, 2005, is $3.4 million
      related to the fair value of currency derivatives qualifying as cash flow hedges
      and $0.3 million related to an interest rate swap qualified as a cash flow
      hedge
      of a forecasted issuance of debt, both of which are expected to be reclassified
      to earnings over the next twelve months. Additionally a $10.4 million loss,
      related to interest rate locks qualified as cash flow hedges, is included in
      accumulated other comprehensive income. During the next twelve months, $0.9
      million is expected to be reclassified to earnings, with the remaining loss
      reclassified over the next 10 years. The actual amounts that will be
      reclassified to earnings may vary from this amount as a result of changes in
      market conditions. No material amounts were reclassified to earnings during
      2005
      in connection with forecasted transactions that were no longer considered
      probable of occurring. Fair values of forward contracts are based on dealer
      quotes at the respective reporting dates. At December 31, 2005, the maximum
      term
      of derivative instruments that hedge forecasted transactions was 12 months.





The
      counterparties to the Company's forward contracts consist of a number of 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.





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.





65


**NOTE
      7 - DEBT AND CREDIT FACILITIES**


At
      December 31, loans payable consisted of the following:





*In
                  millions*
              
              2005
              
              2004Current
                  portion of long-term debt
              
              
              $856.6
              
              
              $551.0Other
                  short-term borrowings
              
              
              76.1
              
              
              61.8Total
              
              
              $932.7
              
              
              $612.8





Excluding
      current maturities of long-term debt, the weighted-average interest rate for
      short-term debt at December 31, 2005 and 2004, was 12.6% and 11.2%,
      respectively.




At
      December 31, long-term debt consisted of:


*In
                  millions*
              
              2005
              
              20046.25%
                  Notes Due 2006
              
              
              $-
              
              
              $529.86.57%
                  Medium-term Note Due 2007
              
              
              40.0
              
              
              40.06.75%
                  Senior Notes Due 2008
              
              
              124.8
              
              
              124.74.75%
                  Senior Notes Due 2015
              
              
              298.9
              
              
              -9.00%
                  Debentures Due 2021
              
              
              125.0
              
              
              125.07.20%
                  Debentures Due 2007-2025
              
              
              142.5
              
              
              150.06.48%
                  Debentures Due 2025
              
              
              149.7
              
              
              -6.44%
                  Debentures Due 2027
              
              
              200.0
              
              
              200.0Medium-term
                  Notes Due 2023, at an average rate of 8.22%
              
              
              50.3
              
              
              50.3Other
                  loans and notes, at end-of-year average interest rates of
                  3.06%in
                  2005 and 2.70% in 2004, maturing in various amounts to
                  2016
              
              
              53.1
              
              
              47.8Total
              
              
              $1,184.3
              
              
              $1,267.6
  The
      fair
      value of long-term debt, including current maturities of long-term debt, at
      December 31, 2005 and 2004, was $2,191.5 million and $1,990.8 million,
      respectively. The fair value of long-term debt was determined by reference
      to
      the December 31, 2005, and 2004, market values of comparably rated debt
      instruments.





During
      the second quarter of 2005, the Company issued $300 million aggregate principal
      amount of its 4.75% Senior Notes due in 2015. 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%, which is calculated excluding non-cash
      items. As of December 31, 2005, the Company’s debt-to-total capital ratio was
      significantly beneath this limit.





66


During
      2005 the company retired approximately $145.5 million of long-term debt prior
      to
      its scheduled maturity. Debt retirements for the next five years are as follows:
      $856.6 million in 2006, $282.7 million in 2007, $136.5 million in 2008, $10.5
      million in 2009 and $10.5 million in 2010. Long-term debt retirements include
      $349.1 million for 2006 and $200.0 million for 2007, which only requires
      repayment at the option of the holder. If these options are not exercised,
      the
      final maturity dates of the instruments would range between 2025 and 2028.





At
      December 31, 2005, the Company’s 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 commercial paper 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
      these lines with fees equal to a weighted average of .0775% per annum. Available
      non-U.S. lines of credit were $667.8  million,
      of which $510.9 million were unused at December 31, 2005. These lines provide
      support for bank guarantees, letters of credit and other working capital
      purposes.





Capitalized
      interest on construction and other capital projects amounted to $2.9 million,
      $2.2 million and $3.1 million in 2005, 2004 and 2003, respectively. Interest
      income, included in other income, net, was $29.6 million, $12.3 million and
      $2.5
      million for 2005, 2004 and 2003, respectively.




**NOTE
      8 - 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
      remediation costs are determined on a site-by-site basis and accruals are made
      when it is probable a liability exists and the cost can be estimated reasonably.
      The Company estimates the amount of recurring and non-recurring costs at each
      site using internal and external experts. In arriving at cost estimates the
      following factors are considered: the type of contaminant, the stage of the
      clean-up, applicable law and existing technology. These estimates, and the
      resultant accruals, are reviewed and updated quarterly to reflect changes in
      facts and law. The Company does not discount its liability or assume any
      insurance recoveries when environmental liabilities are recorded.





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 have been filed against IR-New Jersey and
      generally allege injury caused by exposure to asbestos contained in certain
      of
      IR-New Jersey’s products. 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 purchased from third-party
      suppliers.





All
      asbestos-related claims resolved to date have been dismissed or settled. For
      the
      year ended December 31, 2005, total costs for settlement and defense of asbestos
      claims after insurance recoveries and net of tax were approximately $16.8
      million, compared with $16.5 million for the year ended December 31, 2004.
      With
      the assistance of independent advisors, the Company performs a thorough
      analysis, updated periodically, of its actual and anticipated future asbestos
      liabilities projected seven years in the future. Based upon such analysis,
      the
      Company believes that its reserves and insurance are adequate to cover its
      asbestos liabilities, and that these asbestos liabilities are not likely to
      have
      a material adverse effect on its financial position, results of operations,
      liquidity or cash flows.





67


Legislation
      currently under consideration in Congress concerns pending and future
      asbestos-related personal injury claims. Whether and when such legislation
      will
      become law, and the final provisions of such legislation, are unknown.
      Consequently, the Company cannot predict with any reasonable degree of certainty
      what effect, if any, such legislation would have upon the Company’s financial
      position, results of operations or cash flows.





The
      Company sells products 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 approximately
      $7.7 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 consolidated financial statements.




The
      Company has remained contingently liable for approximately $25.7 million
      relating to performance bonds associated with prior sale of products of IDP,
      which the Company divested in 2000. The acquirer of IDP is the primary obligor
      under these performance bonds; however, should the acquirer default under these
      arrangements the Company would be required to satisfy these financial
      obligations. The Company estimates that $24.6 million of the obligation will
      expire during 2006. The remainder extends through 2008.





The
      Company is contingently liable for customs duties in certain non-U.S. countries
      which totaled $7.0 million at December 31, 2005. These amounts are not accrued
      as the Company intends on exporting the product to another country for final
      sale.





In
      connection with the disposition of certain businesses and facilities, the
      Company has indemnified the purchasers for the expected cost of remediation
      of
      environmental contamination, if any, existing on the date of disposition. Such
      expected costs are accrued when environmental assessments are made or remedial
      efforts are probable and the costs can be reasonably estimated.





The
      following table represents the changes in the product warranty liability for
      2005 and 2004:


*In
                  millions*
              
              2005
              
              2004Balance
                  at beginning of year
              
              
              $190.5
              
              
              $160.3Reductions
                  for payments
              
              
              (85.4
              )
              
              (74.2
              )Accruals
                  for warranties issued during the current period
              
              
              70.2
              
              
              94.7Changes
                  for accruals related to preexisting warranties
              
              
              11.9
              
              
              1.5Acquisitions
              
              
              1.1
              
              
              -Translation
              
              
              (4.8
              )
              
              8.2Balance
                  at end of the year
              
              
              $183.5
              
              
              $190.5




Certain
      office and warehouse facilities, transportation vehicles and data processing
      equipment are leased. Total rental expense was $61.9 million in 2005, $62.7
      million in 2004 and $64.3 million in 2003. Minimum lease payments required
      under
      noncancellable operating leases with terms in excess of one year for the next
      five years and thereafter, are as follows: $58.5 million in 2006, $47.0 million
      in 2007, $35.1 million in 2008, $21.1 million in 2009, $13.7 million in 2010
      and
      $14.7 million thereafter.





68


**NOTE
      9 - COMMON SHARES**


In
      August
      2005, the Board of Directors declared a two-for-one stock split of the Company’s
      Class A common shares to be effected in the form of a stock distribution. The
      additional shares of stock were distributed to shareholders on September 1,
      2005. All share and per share amounts presented have been retroactively restated
      for 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
      a
      corporate 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, 2005 or 2004.





On
      August
      3, 2005, the Board of Directors of the Company expanded the Company’s existing
      share repurchase program to allow the repurchase of up to a total of $2 billion
      worth of Class A common shares. The plan was established on August 4, 2004,
      and
      initially authorized the Company to repurchase up to 20 million Class A common
      shares. During 2005, the Company repurchased 19.4 million Class A common shares
      at a cost of $763.6 million. Total purchases under the program as of December
      31, 2005, have been 23.4 million Class A common shares at a cost of $903.7
      million. Based on market conditions, share repurchases will be made from time
      to
      time in the open market and in privately negotiated transactions at the
      discretion of management. This long-term repurchase program will serve primarily
      to offset dilution from the Company’s incentive stock plan. Class A common
      shares owned by a subsidiary are treated as treasury shares and are recorded
      at
      cost.





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.





69


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.





Annual
      dividends per common share were $0.57, $0.44, and $0.36, for 2005, 2004 and
      2003, respectively.





**NOTE
      10 - INCENTIVE STOCK PLANS**


Under
      the
      Company's Incentive Stock Plans, key employees have been granted options to
      purchase Class A common shares at prices not less than the fair market value
      at
      the date of the grant. Options issued before December 31, 1998, became
      exercisable one year after the date of the grant and expire at the end of 10
      years. Options issued after January 1, 1999, generally become exercisable
      ratably over a three-year period from their date of grant and expire at the
      end
      of 10 years. On December 7, 2005, the Compensation Committee of the Board of
      Directors of the Company approved the acceleration of the vesting of all
      outstanding and unvested stock options under the Company’s stock plans for
      active employees effective December 31, 2005. The terms and conditions of the
      stock option agreements governing the stock options were changed to prohibit
      transfers (including sales, gifts, pledges or other transfers of any kind)
      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 plans, approved by shareholders
      in 1990, 1995 and 1998, also authorize stock appreciation rights (SARs) and
      stock awards, which result in compensation expense. The total number of stock
      incentives authorized by the 1998 amended plan is 60,000,000.





The
      average fair values of the options granted during 2005, 2004 and 2003 were
      estimated at $12.67, $11.39, and $6.58, respectively, on the date of grant,
      using the Black-Scholes option-pricing model, which included the following
      assumptions:


2005
              
              2004
              
              2003Dividend
                  yield
              
              
              1.30
              %
              
              1.19
              %
              
              1.75
              %Volatility
              
              
              35.57
              %
              
              39.31
              %
              
              39.83
              %Risk-free
                  interest rate
              
              
              3.60
              %
              
              3.29
              %
              
              3.12
              %Expected
                  life
              
              
              5
                  years
              
              
              5
                  years
              
              
              5
                  years




70




Changes
        in options outstanding under the plans were as follows:


Shares
              
              
              
              
              
              
              
              Weighted-subject
              
              Option
                  price
              
              averageto
                  option
              
              range
                  per share
              
              exercise
                  priceDecember
                  31, 2002
              
              
              26,846,102
              
              
              $10.82
              
              
              -
              
              $34.88
              
              
              $21.70Granted
              
              
              6,206,642
              
              
              19.53
              
              
              -
              
              31.56
              
              
              19.61Exercised
              
              
              (10,331,678
              )
              
              10.82
              
              
              -
              
              26.52
              
              
              20.28Cancelled
              
              
              (1,424,072
              )
              
              19.53
              
              
              -
              
              32.71
              
              
              21.83December
                  31, 2003
              
              
              21,296,994
              
              
              $12.04
              
              
              -
              
              $34.88
              
              
              $21.77Granted
              
              
              6,555,680
              
              
              32.18
              
              
              -
              
              37.96
              
              
              32.24Exercised
              
              
              (7,847,656
              )
              
              12.04
              
              
              -
              
              32.71
              
              
              21.85Cancelled
              
              
              (1,151,544
              )
              
              18.43
              
              
              -
              
              32.19
              
              
              25.38December
                  31, 2004
              
              
              18,853,474
              
              
              $13.11
              
              
              -
              
              $37.96
              
              
              $25.19Granted
              
              
              6,091,600
              
              
              38.47
              
              
              -
              
              39.85
              
              
              38.70Exercised
              
              
              (3,921,949
              )
              
              13.10
              
              
              -
              
              38.69
              
              
              23.10Cancelled
              
              
              (1,140,649
              )
              
              18.42
              
              
              -
              
              38.69
              
              
              33.77December
                  31, 2005
              
              
              19,882,476
              
              
              $16.83
              
              
              -
              
              $39.85
              
              
              $29.26





At
      December 31, 2005, there were 1,766,934 SARs outstanding with no stock options
      attached. The Company has reserved 20,457,789 shares for future incentive stock
      awards at December 31, 2005.





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




Options
                  outstanding
              
              Options
                  exercisableRange
                  ofexercise
                  price
              
              Numberoutstandingat
                  12/31/05
              
              Weighted-averageremaining
                life
              
              Weighted-averageexercise
                  price
              
              Numberexercisableat
                12/31/05
              
              Weighted-averageexercise
                  price$15.01
              
              -
              $20.00
              
              3,182,959
              
              5.9
              
              $19.50
              
              3,182,959
              
              $19.5020.01
              
              -
              
              25.00
              
              4,083,116
              
              4.4
              
              
              21.57
              
              4,083,116
              
              
              21.5725.01
              
              -
              
              30.00
              
              1,831,050
              
              3.3
              
              
              26.21
              
              1,831,050
              
              
              26.2130.01
              
              -
              
              35.00
              
              5,245,317
              
              7.1
              
              
              32.25
              
              5,245,317
              
              
              32.2535.01
              
              -
              
              40.00
              
              5,540,034
              
              8.9
              
              
              38.70
              
              5,540,034
              
              
              38.7019,882,476
              
              6.5
              
              $29.26
              
              19,882,476
              
              $29.26




The
      number of shares exercisable and the weighted-average exercise prices were
      8,968,204 shares at a price of $23.00 for December 31, 2004, and 10,968,880
      shares at a price of $23.11 for December 31, 2003.





The
      Company also maintains a shareholder-approved Management Incentive Unit Award
      Plan. Under the plan, participating executives are awarded incentive units.
      When
      dividends are paid on Class A common shares, dividends are awarded to unit
      holders, one-half of which is paid in cash, the remaining half of which is
      credited to the participant's account in the form of so-called Class A common
      share equivalents. The fair value of accumulated common share equivalents is
      paid in cash upon the participant's retirement. The number of common share
      equivalents credited to participants’ accounts at December 31, 2005 and 2004 are
      316,165 and 396,062, respectively.







71











**NOTE
      11 - INCOME TAXES**


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




*In
                millions*
            
            2005
            
            2004
            
            2003United
                States
            
            
            $337.2
            
            
            $199.9
            
            
            $(33.3
            )Non-U.S.
            
            
            920.6
            
            
            768.3
            
            
            641.4Total
            
            
            $1,257.8
            
            
            $968.2
            
            
            $608.1


The
      provision was as follows:


*In
                  millions*
              
              2005
              
              2004
              
              2003Current
                  tax expense:United
                  States
              
              
              $63.8
              
              
              $132.6
              
              
              $53.9Non-U.S.
              
              
              76.9
              
              
              65.0
              
              
              48.3Total
                  current
              
              
              140.7
              
              
              197.6
              
              
              102.2Deferred
                  tax (benefit) expense:United
                  States
              
              
              23.7
              
              
              (78.9
              )
              
              (25.0
              )Non-U.S.
              
              
              40.3
              
              
              19.7
              
              
              (1.9
              )Total
                  deferred
              
              
              64.0
              
              
              (59.2
              )
              
              (26.9
              )Total
                  provision for income taxes
              
              
              $204.7
              
              
              $138.4
              
              
              $75.3





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 income2005
              
              2004
              
              2003Statutory
                  U.S. rate
              
              
              35.0
              %
              
              35.0
              %
              
              35.0
              %Increase
                  (decrease) in rates resulting from:Non-U.S.
                  operations
              
              
              (17.6
              )
              
              (19.0
              )
              
              (22.9
              )Extraterritorial
                  income / foreign sales corporation
              
              
              (0.7
              )
              
              (2.4
              )
              
              (2.4
              )State
                  and local income taxes, net of U.S. tax
              
              
              0.7
              
              
              0.7
              
              
              0.1Puerto
                  Rico - Sec 936 Credit
              
              
              (0.9
              )
              
              (1.2
              )
              
              (1.9
              )Other
              
              
              (0.2
              )
              
              1.2
              
              
              4.5Effective
                  tax rate
              
              
              16.3
              %
              
              14.3
              %
              
              12.4
              %







72





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


*In
                  millions*
              
              2005
              
              2004Current
                  deferred assets and (liabilities)Difference
                  between book and tax basesof
                  inventories and receivables
              
              
              $23.4
              
              
              $12.8Difference
                  between book and tax expense forother
                  employee-related benefits and allowances
              
              
              70.6
              
              
              64.2Other
                  reserves and valuation allowancesin
                  excess of tax deductions
              
              
              233.3
              
              
              199.4Other
                  differences between tax andfinancial
                  statement values
              
              
              (14.8
              )
              
              (70.5
              )Gross
                  current deferred net tax assets
              
              
              312.5
              
              
              205.9Noncurrent
                  deferred assets and (liabilities)Postretirement
                  and postemployment benefitsother
                  than pensions in excess of tax deductions
              
              
              321.1
              
              
              300.8Tax
                  benefit of operating losses and creditcarryforwards
              
              
              484.1
              
              
              338.0Other
                  reserves in excess of tax expense
              
              
              77.7
              
              
              (9.5
              )Tax
                  depreciation / amortization in excess ofbook
                  depreciation / amortization
              
              
              (408.4
              )
              
              (327.6
              )Pension
                  contributions in excess of book expense
              
              
              (148.5
              )
              
              (23.4
              )Taxes
                  provided on undistributed accumulatedsubsidiary
                  earnings
              
              
              -
              
              
              (2.4
              )Gross
                  noncurrent deferred net taxassets
              
              
              326.0
              
              
              275.9Less:
                  deferred tax valuation allowances
              
              
              (107.9
              )
              
              (68.5
              )Total
                  net deferred tax assets
              
              
              $530.6
              
              
              $413.3







Included
      in “Accrued expenses and other current liabilities” on the Consolidated Balance
      Sheet are $376.8 million and $352.9 million of current income taxes payable
      at
      December 31, 2005 and 2004, respectively. Included in “Prepaid expenses and
      deferred income taxes” on the Consolidated Balance Sheet are $309.2 million and
      $249.2 million of current deferred tax assets at December 31, 2005 and 2004,
      respectively.





At
      December 31, 2005, net U.S and non-U.S. federal operating loss carryforwards
      of
      $904.1 million are available to offset taxable income in future years. The
      U.S.
      federal carryforwards will begin to expire in 2022, while the non-U.S. generally
      have unlimited carryforward periods. The net operating loss carryforwards were
      incurred in various jurisdictions, predominantly the United States, the United
      Kingdom, Germany and Switzerland. State net operating loss carryforwards at
      December 31, 2005 of $2,863.5 million are available to offset taxable income
      in
      future periods. The state carryforwards will expire in future years generally
      through 2025. A valuation allowance of $107.9 million has been recorded for
      certain state and non-U.S. carryforwards, which will likely not be realized.
      The
      change in the valuation allowance is predominantly attributable to increases
      in
      state net operating loss carryforwards, a reclassification of state deferred
      income taxes, increases in certain non-U.S. valuation allowances and the
      strengthening of the U.S. dollar against European currencies, partially offset
      by the utilization of net operating losses with full valuation allowances.
      Approximately $9.2 million of the valuation allowance was acquired in prior
      year
      business combination transactions and any tax benefit, when realized, will
      reduce goodwill rather than the income tax provision.





73


At
      December 31, 2005, no deferred taxes have been provided for any portion of
      the
      $5.5 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, 2004, the Company had provided $2.4 million of noncurrent
      deferred taxes and $47.3 million of current income taxes payable for a portion
      of the undistributed earnings. The American Jobs Creation Act (the AJCA)
      replaces an export incentive with a deduction from domestic manufacturing
      income. This provision of the AJCA did not have a material impact on the
      Company's income tax provision for 2005.





Tax
      incentives have been provided 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 2005 benefit for all tax holidays was approximately $4.4
      million, or $0.01 of income per share.





As
      part
      of the audit of the tax years 2000-2002, the Company is actively engaged in
      discussion with the Internal Revenue Service regarding issues related to its
      reincorporation in Bermuda in 2001. The Company has provided for reasonably
      foreseeable resolution of all tax disputes, **** but
      will
      adjust its estimate if significant events so dictate. In the event that the
      ultimate resolution of an issue differs materially from the original or adjusted
      estimate of the Company, the effect will be recorded in the provision for income
      taxes in the period that the matter is finally resolved.




**NOTE
      12 - 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.





As
      of
      January 1, 2003, postretirement health care benefits are no longer available
      for
      new non-bargaining employees. These benefits were also curtailed for existing
      non-bargaining employees not meeting minimum eligibility requirements. Hourly
      bargaining employees are eligible if they attain normal retirement age with
      the
      required years of service. When eligible employees retire from the Company
      between ages 55 and 65, they receive, at a cost to the retiree, certain health
      care benefits. After attaining age 65, an eligible retiree’s health care benefit
      coverage becomes coordinated with Medicare. Postretirement health care benefits
      for eligible non-bargaining employees and retirees have their benefits
      subsidized to a flat dollar cap with cost escalation equally shared between
      the
      Company and the retiree. When the cap is reached, the retiree becomes
      responsible for all additional cost escalation.








74




Summary information on the Company’s plans at December 31 was
      as follows:




*In
                  millions*
              
              2005
              
              2004Change
                  in benefit obligations:Benefit
                  obligation at beginning of year
              
              
              $964.6
              
              
              $1,019.7Service
                  cost
              
              
              9.3
              
              
              10.2Interest
                  cost
              
              
              54.9
              
              
              57.3Plan
                  participants' contributions
              
              
              10.2
              
              
              10.1Actuarial
                  losses (gains)
              
              
              52.4
              
              
              (49.8
              )Benefits
                  paid
              
              
              (81.7
              )
              
              (84.4
              )Other
              
              
              (0.4
              )
              
              1.5Benefit
                  obligation at end of year
              
              
              $1,009.3
              
              
              $964.6Funded
                  status:Plan
                  assets less than benefit obligations
              
              
              $(1,009.3
              )
              
              $(964.6
              )Unrecognized:Prior
                  service gains
              
              
              (26.4
              )
              
              (51.4
              )Plan
                  net losses
              
              
              295.4
              
              
              277.6Accrued
                  costs in the balance sheet
              
              
              $(740.3
              )
              
              $(738.4
              )
  The
        components of net periodic postretirement benefits cost for the years ended
        December 31, were as follows:




*In
                  millions*
              
              2005
              
              2004
              
              2003Service
                  cost
              
              
              $9.3
              
              
              $10.2
              
              
              $10.1Interest
                  cost
              
              
              54.9
              
              
              57.3
              
              
              60.4Net
                  amortization and deferral losses
              
              
              9.8
              
              
              9.4
              
              
              6.6Net
                  periodic postretirement benefit costs
              
              
              74.0
              
              
              76.9
              
              
              77.1Curtailment
                  gains
              
              
              -
              
              
              -
              
              
              (6.9
              )Net
                  postretirement benefit cost
              
              
              $74.0
              
              
              $76.9
              
              
              $70.2
  The
      Company uses an annual measurement date of November 30 for all of its
      postretirement benefit plans for all years presented. The sale of Engineered
      Solutions in February 2003 was deemed to be a significant event and required
      a
      remeasurement of the postretirement benefit plan. The weighted-average
      assumptions used in the February 2003 remeasurement due to the sale were a
      discount rate of 6.50% and increases in per capita cost of covered health care
      benefits of 11.00%, gradually reducing to 5.25% by 2009.





75





Assumptions:
              
              2005
              
              2004
              
              2003Weighted-average
                  discount rate assumption used to determine:Benefit
                  obligations at December 31
              
              
              5.50
              %
              
              5.75
              %
              
              6.00
              %Net
                  periodic benefit cost*
              
              
              5.75
              %
              
              6.00
              %
              
              6.50
              %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
              
              
              2012
              
              
              2011
              
              
              2010


*
      The
      assumptions used for the first quarter of 2004 were determined to be appropriate
      as of April 1, 2004 when the postretirement plan was remeasured to reflect
      the
      federal subsidy. In 2003, the postretirement plan was measured as of the date
      of
      the sale of Engineered Solutions and the discount rate used was decreased from
      6.75% to 6.50%, while the health care cost trend rate remained at 11.00%,
      gradually reducing to 5.25%.





A
      1%
      change in the medical trend rate assumed for postretirement benefits would
      have
      the following effects at December 31, 2005:


*In
                  millions*
              
              1%
                  Increase
              
              1%
                  DecreaseEffect
                  on total of service and interest cost components
              
              
              $5.2
              
              
              $4.3Effect
                  on postretirement benefit obligation
              
              
              73.9
              
              
              62.5


Benefit
      payments for postretirement benefits, which reflect future service and are
      net
      of expected Medicare Part D subsidy, as appropriate, are expected to be paid
      as
      follows: $71.1 million in 2006, $73.1 million in 2007, $75.1 million in 2008,
      $76.2 million in 2009, $77.2 million in 2010 and $372.7 million for the years
      2011 to 2015.





In
      December 2003, the Medicare
      Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was
      enacted. The Act introduced a government-provided subsidy based on the
      percentage of a beneficiary’s annual prescription drug benefits, within defined
      limits, and the opportunity for a retiree to obtain prescription drug benefits
      under Medicare. The Company adopted FASB Staff Position 106-2 as of April 1,
      2004. The Company and its actuarial advisors determined that many benefits
      provided by the plan were at least actuarially equivalent to Medicare Part
      D.
      The Company remeasured the accumulated postretirement benefit obligation effects
      of the Act as of April 1, 2004. The effect of the federal subsidy to which
      the
      Company is entitled has been accounted for as an actuarial gain of $86.3
      million, which is amortized and reduces current and future benefit costs. The
      subsidy had the effect of reducing postretirement benefit expense for 2005
      and
      2004 by $18.5 million and $9.2 million, respectively. The components of the
      reduction in expense were a decrease in the amortization of the actuarial loss
      of $9.7 million and $5.0 million, a reduction in service cost of $0.5 million
      and $0.3 million and a reduction in the interest cost on the benefit obligation
      of $8.3 million and $3.9 million for 2005 and 2004, respectively.





76





**NOTE
      13 - 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 modest 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.





Information
      regarding the Company's pension plans at December 31 was as
      follows:




*In
                  millions*
              
              2005
              
              2004Change
                  in benefit obligations:Benefit
                  obligation at beginning of year
              
              
              $2,942.4
              
              
              $3,080.1Service
                  cost
              
              
              52.9
              
              
              46.7Interest
                  cost
              
              
              161.3
              
              
              173.0Employee
                  contributions
              
              
              2.8
              
              
              3.2Acquisitions
              
              
              18.4
              
              
              -Amendments
              
              
              (2.0
              )
              
              7.6Expenses
                  paid
              
              
              (2.7
              )
              
              (4.9
              )Actuarial
                  losses
              
              
              121.7
              
              
              72.9Benefits
                  paid
              
              
              (208.0
              )
              
              (214.2
              )Currency
                  exchange impact
              
              
              (87.0
              )
              
              57.7Curtailments
                  and settlements
              
              
              (3.3
              )
              
              (293.4
              )Other
              
              
              36.7
              
              
              13.7Benefit
                  obligation at end of year
              
              
              $3,033.2
              
              
              $2,942.4Change
                  in plan assets:Fair
                  value at beginning of year
              
              
              $2,647.5
              
              
              $2,637.9Actual
                  return on assets
              
              
              232.3
              
              
              277.3Company
                  contributions
              
              
              119.4
              
              
              174.6Employee
                  contributions
              
              
              2.8
              
              
              3.2Expenses
                  paid
              
              
              (2.7
              )
              
              (4.9
              )Benefits
                  paid
              
              
              (208.0
              )
              
              (214.2
              )Currency
                  exchange impact
              
              
              (68.0
              )
              
              45.2Settlements
              
              
              (3.2
              )
              
              (244.3
              )Other
              
              
              6.9
              
              
              (27.3
              )Fair
                  value of assets end of year
              
              
              $2,727.0
              
              
              $2,647.5


77





*In
                  millions*
              
              2005
              
              2004Funded
                  status:Plan
                  assets less than the benefit obligations
              
              
              $(306.2
              )
              
              $(294.9
              )Unrecognized:Net
                  transition asset
              
              
              2.9
              
              
              3.9Prior
                  service costs
              
              
              53.5
              
              
              64.7Plan
                  net losses
              
              
              672.1
              
              
              619.7Net
                  amount recognized
              
              
              $422.3
              
              
              $393.4Costs
                  included in the balance sheet:Long-term
                  prepaid expenses
              
              
              $435.1
              
              
              $305.4Accrued
                  current and non-current liabilities
              
              
              (212.6
              )
              
              (222.0
              )Pension
                  intangible included in other assets
              
              
              13.2
              
              
              16.1Accumulated
                  other comprehensive income
              
              
              186.6
              
              
              293.9Net
                  amount recognized
              
              
              $422.3
              
              
              $393.4Weighted-average
                  assumptions used:Benefit
                  obligations at December 31
              
              
              2005
              
              
              2004Discount
                  rate:U.S.
                  plans
              
              
              5.50
              %
              
              5.75
              %Non-U.S.
                  plans
              
              
              5.00
              %
              
              5.25
              %Rate
                  of compensation increase:U.S.
                  plans
              
              
              4.00
              %
              
              4.00
              %Non-U.S.
                  plans
              
              
              4.00
              %
              
              4.00
              %


The
      accumulated benefit obligation for all defined benefit pension plans was
      $2,868.6 million and $2,799.7 million at December 31, 2005 and 2004,
      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 $1,053.4 million, $953.1 million and
      $746.6 million respectively, as of December 31, 2005, and $1,316.7 million,
      $1,227.1 million and $1,008.4 million, respectively, as of December 31, 2004.





Pension
      benefit payments, which reflect future service, as appropriate, are expected
      to
      be paid as follows: $180.9 million in 2006, $184.5 million in 2007, $184.8
      million in 2008, $195.7 million in 2009, $219.5 million in 2010 and $1,049.9
      million for the years 2011 to 2015.





78


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


*In
                  millions*
              
              2005
              
              2004
              
              2003Service
                  cost
              
              
              $52.9
              
              
              $46.7
              
              
              $45.4Interest
                  cost
              
              
              161.3
              
              
              173.0
              
              
              174.8Expected
                  return on plan assets
              
              
              (213.9
              )
              
              (221.1
              )
              
              (179.0
              )Net
                  amortization of unrecognized:Prior
                  service costs
              
              
              8.8
              
              
              8.8
              
              
              8.9Transition
                  amount
              
              
              0.9
              
              
              0.9
              
              
              0.9Plan
                  net losses
              
              
              22.4
              
              
              18.2
              
              
              32.0Net
                  pension cost
              
              
              32.4
              
              
              26.5
              
              
              83.0Curtailment/settlement
                  losses (gains)
              
              
              4.0
              
              
              41.1
              
              
              (10.1
              )Net
                  pension cost after curtailments/settlements
              
              
              $36.4
              
              
              $67.6
              
              
              $72.9
  Settlement
      losses were recorded in 2005 as a result of lump sum distributions under
      supplemental benefit plans for officers and other key employees. The curtailment
      and settlement losses in 2004 are associated primarily with the sale of
      Dresser-Rand and Drilling Solutions. The curtailment and settlement gains in
      2003 are associated primarily with the sale of Engineered Solutions.





The
      Company uses an annual measurement date of November 30 for substantially all
      of
      its pension plans for the years presented. The sale of Engineered Solutions
      in
      February 2003 was a significant event. The Engineered Solutions employees
      participated in the Company’s largest U.S. pension plan and a remeasurement of
      that pension plan was required as of the date of sale.





Pension
      expense for 2006 is projected to be approximately $37.1 million, utilizing
      the
      assumptions for calculating the pension benefit obligations at 2005 year
      end.




Weighted-average
                  assumption used:Net
                  periodic pension cost for the year ended December 31,
              
              2005
              
              2004
              
              2003Discount
                  rate:U.S.
                  plans*
              
              
              5.75
              %
              
              6.00
              %
              
              6.50
              %Non-U.S.
                  plans
              
              
              5.25
              %
              
              5.75
              %
              
              5.75
              %Rate
                  of compensation increase:U.S.
                  plans
              
              
              4.00
              %
              
              4.00
              %
              
              4.00
              %Non-U.S.
                  plans
              
              
              4.00
              %
              
              3.75
              %
              
              3.00
              %Expected
                  return on plan assets:U.S.
                  plans
              
              
              8.75
              %
              
              8.75
              %
              
              8.75
              %Non-U.S.
                  plans
              
              
              7.50
              %
              
              7.50
              %
              
              7.50
              %


*Prior
      to
      the remeasurement date of February 15, 2003, the discount rate used for 2003
      was
      6.75%. The rate for the smaller U.S. plans not requiring remeasurement during
      the year was 6.75% for all of 2003. There was no change to the rate of
      compensation increase and the expected return on plan assets upon remeasurement.




The
      expected long-term rates of return on plan assets are determined as of the
      measurement date. 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.
      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 assets return trends for the larger plans are reviewed
      over fifteen, ten and five-year periods. The actual rate of return for plan
      assets over the last ten- and fifteen-year periods 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.





79


The
      Company’s pension plans weighted-average asset allocations at December 31, 2005
      and 2004, by asset category are as follows:




Asset
                  category
              
              2005
              
              2004Equity
                  securities
              
              
              58.4
              %
              
              61.2
              %Debt
                  securities
              
              
              33.5
              %
              
              30.4
              %Real
                  estate
              
              
              0.3
              %
              
              0.4
              %Other
                  (including cash)
              
              
              7.8
              %
              
              8.0
              %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 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. The Company’s current
      strategic global asset allocation for its pension plans is 60% in equity
      securities and 40% 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 reflected
      quarterly.





The
      Company made required and discretionary contributions of $33.0 million and
      $86.4
      million, respectively, to its pension plans in 2005. The Company currently
      projects that it will be required to contribute approximately $25 million to
      its
      plans worldwide in 2006. 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. While the Company anticipates funding the
      plans in 2006 in accordance with contributions required by funding regulations
      or the laws of each jurisdiction, most of the non-U.S. plans require employer
      contributions based on the employees’ earnings.





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 $46.8 million,
      $52.6 million and $51.8 million in 2005, 2004 and 2003, respectively. The
      Company's contributions relating to non-U.S. defined contribution plans, insured
      plans and other non-U.S. benefit plans were $8.1 million, $11.1 million and
      $9.3
      million in 2005, 2004 and 2003, respectively.







80








**NOTE
      14 - 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 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 2004, the
      Company sold its Drilling Solutions and Dresser-Rand businesses. During 2003,
      the Company sold its Engineered Solutions, Waterjet and Laidlaw businesses.
      The
      results of these divested businesses have been excluded from their previous
      reportable segments for business segment reporting and have been shown
      separately in “Discontinued operations, net of tax” in the financial
      statements.





During
      the first quarter of 2005, the Company realigned its internal organization
      and
      operating segments to reflect its market focus and to promote greater
      transparency of results. The former Infrastructure segment was disaggregated
      into two segments - the Compact Vehicle Technologies segment and the
      Construction Technologies segment. The prior year segment results have been
      restated to conform to this change.





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 to transport, preserve, store and
      display temperature-sensitive products by engaging in the design, manufacture,
      sale and service of transport temperature control units, HVAC systems,
      refrigerated display merchandisers, beverage coolers, and walk-in storage
      coolers and freezers. The segment includes the Thermo King and Hussmann
      brands.





The
      Compact Vehicle Technologies segment is engaged in the design, manufacture,
      sale
      and service of skid-steer loaders, all-wheel steer loaders, compact truck
      loaders, compact excavators, attachments and golf and utility vehicles. The
      segment includes the Bobcat and Club Car brands.





Construction
      Technologies is engaged in the design, manufacture, sale and service of road
      construction and repair equipment, portable power products, general-purpose
      construction equipment, attachments and portable light towers and compressors.
      The segment is comprised of the Utility Equipment and Road Development
      businesses.





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 and energy
      generation systems. The segment includes the Air Solutions and Productivity
      Solutions businesses.





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. The segment includes the Schlage, LCN
      and
      Von Duprin brands.








81




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





*Dollar
                  amounts in millions*
              
              2005
              
              2004
              
              2003**Climate
                  Control Technologies**Revenues
              
              
              $2,853.6
              
              
              $2,793.7
              
              
              $2,648.9Operating
                  income
              
              
              315.1
              
              
              309.1
              
              
              219.1Operating
                  income as a percentage of sales
              
              
              11.0
              %
              
              11.1
              %
              
              8.3
              %Depreciation
                  and amortization
              
              
              53.7
              
              
              59.2
              
              
              57.0Capital
                  expenditures
              
              
              9.7
              
              
              13.5
              
              
              18.1**Compact
                  Vehicle Technologies**Revenues
              
              
              2,681.1
              
              
              2,261.7
              
              
              1,827.6Operating
                  income
              
              
              415.2
              
              
              332.0
              
              
              244.3Operating
                  income as a percentage of sales
              
              
              15.5
              %
              
              14.7
              %
              
              13.4
              %Depreciation
                  and amortization
              
              
              31.8
              
              
              28.1
              
              
              28.4Capital
                  expenditures
              
              
              40.4
              
              
              28.3
              
              
              23.0**Construction
                  Technologies**Revenues
              
              
              1,168.6
              
              
              1,007.1
              
              
              804.2Operating
                  income
              
              
              103.8
              
              
              105.2
              
              
              48.6Operating
                  income as a percentage of sales
              
              
              8.9
              %
              
              10.4
              %
              
              6.0
              %Depreciation
                  and amortization
              
              
              14.3
              
              
              15.5
              
              
              15.2Capital
                  expenditures
              
              
              18.5
              
              
              11.3
              
              
              12.3**Industrial
                  Technologies**Revenues
              
              
              1,743.9
              
              
              1,552.8
              
              
              1,363.6Operating
                  income
              
              
              224.9
              
              
              180.5
              
              
              104.1Operating
                  income as a percentage of sales
              
              
              12.9
              %
              
              11.6
              %
              
              7.6
              %Depreciation
                  and amortization
              
              
              19.6
              
              
              23.2
              
              
              23.4Capital
                  expenditures
              
              
              16.1
              
              
              12.2
              
              
              19.0**Security
                  Technologies**Revenues
              
              
              2,099.7
              
              
              1,778.3
              
              
              1,605.0Operating
                  income
              
              
              380.7
              
              
              304.8
              
              
              316.6Operating
                  income as a percentage of sales
              
              
              18.1
              %
              
              17.1
              %
              
              19.7
              %Depreciation
                  and amortization
              
              
              44.6
              
              
              21.9
              
              
              22.9Capital
                  expenditures
              
              
              22.8
              
              
              12.2
              
              
              14.0Total
                  revenues
              
              
              $10,546.9
              
              
              $9,393.6
              
              
              $8,249.3Operating
                  income from reportable segments
              
              
              1,439.7
              
              
              1,231.6
              
              
              932.7Unallocated
                  corporate expense
              
              
              (77.9
              )
              
              (111.3
              )
              
              (145.1
              )Total
                  operating income
              
              
              $1,361.8
              
              
              $1,120.3
              
              
              $787.6Total
                  operating income as a percentage of sales
              
              
              12.9
              %
              
              11.9
              %
              
              9.5
              %Depreciation
                  and amortization from reportable segments
              
              
              164.0
              
              
              147.9
              
              
              146.9Unallocated
                  depreciation and amortization
              
              
              31.7
              
              
              26.5
              
              
              24.7Total
                  depreciation and amortization
              
              
              $195.7
              
              
              $174.4
              
              
              $171.6Capital
                  expenditures from reportable segments
              
              
              107.5
              
              
              77.5
              
              
              86.4Corporate
                  capital expenditures
              
              
              4.3
              
              
              31.1
              
              
              12.9Total
                  capital expenditures
              
              
              $111.8
              
              
              $108.6
              
              
              $99.3


82


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





*In
                  millions*
              
              2005
              
              2004
              
              2003**Revenues**United
                  States
              
              
              $6,305.7
              
              
              $5,775.1
              
              
              $5,047.0Non-U.S.
              
              
              4,241.2
              
              
              3,618.5
              
              
              3,202.3Total
              
              
              $10,546.9
              
              
              $9,393.6
              
              
              $8,249.3
  *In
                  millions*
              
              2005
              
              2004**Long-lived
                  assets**United
                  States
              
              
              $1,376.2
              
              
              $1,239.6Non-U.S.
              
              
              509.1
              
              
              408.8Total
              
              
              $1,885.3
              
              
              $1,648.4




**NOTE
      15 - 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. 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 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.





83







**Condensed
                  Consolidating Income Statement**For
                  the year ended December 31, 2005
              
              IR-
              
              IR-
              
              Other
              
              Consolidating
              
              IR-Limited*In
                  millions*
              
              Limited
              
              New
                  Jersey
              
              Subsidiaries
              
              Adjustments
              
              ConsolidatedNet
                  revenues
              
              
              $-
              
              
              $1,638.3
              
              
              $8,908.6
              
              
              $-
              
              
              $10,546.9Cost
                  of goods sold
              
              
              -
              
              
              1,271.4
              
              
              6,472.7
              
              
              -
              
              
              7,744.1Selling
                  and administrative expenses
              
              
              1.2
              
              
              338.7
              
              
              1,101.1
              
              
              -
              
              
              1,441.0Operating
                  (loss) income
              
              
              (1.2
              )
              
              28.2
              
              
              1,334.8
              
              
              -
              
              
              1,361.8Equity
                  earnings in affiliates (net of tax)
              
              
              1,104.8
              
              
              487.1
              
              
              197.7
              
              
              (1,789.6
              )
              
              -Interest
                  expense
              
              
              (9.1
              )
              
              (104.7
              )
              
              (30.5
              )
              
              -
              
              
              (144.3
              )Intercompany
                  interest and fees
              
              
              (38.4
              )
              
              (425.8
              )
              
              464.2
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              (1.9
              )
              
              104.7
              
              
              (62.5
              )
              
              -
              
              
              40.3Earnings
                  (loss) before income taxes
              
              
              1,054.2
              
              
              89.5
              
              
              1,903.7
              
              
              (1,789.6
              )
              
              1,257.8(Benefit)
                  provision for income taxes
              
              
              -
              
              
              (112.7
              )
              
              317.4
              
              
              -
              
              
              204.7Earnings
                  (loss) from continuing operations
              
              
              1,054.2
              
              
              202.2
              
              
              1,586.3
              
              
              (1,789.6
              )
              
              1,053.1Discontinued
                  operations, net of tax
              
              
              -
              
              
              (4.5
              )
              
              5.6
              
              
              -
              
              
              1.1Net
                  earnings (loss)
              
              
              $1,054.2
              
              
              $197.7
              
              
              $1,591.9
              
              
              $(1,789.6
              )
              
              $1,054.2
  **Condensed
                  Consolidating Income Statement**For
                  the year ended December 31, 2004IR-
              
              IR-
              
              Other
              
              Consolidating
              
              IR-Limited*In
                  millions*
              
              Limited
              
              New
                  Jersey
              
              Subsidiaries
              
              Adjustments
              
              ConsolidatedNet
                  revenues
              
              
              $-
              
              
              $1,390.2
              
              
              $8,003.4
              
              
              $-
              
              
              $9,393.6Cost
                  of goods sold
              
              
              -
              
              
              1,071.5
              
              
              5,782.5
              
              
              -
              
              
              6,854.0Selling
                  and administrative expenses
              
              
              0.1
              
              
              354.5
              
              
              1,064.7
              
              
              -
              
              
              1,419.3Operating
                  (loss) income
              
              
              (0.1
              )
              
              (35.8
              )
              
              1,156.2
              
              
              -
              
              
              1,120.3Equity
                  earnings in affiliates (net of tax)
              
              
              1,231.6
              
              
              956.3
              
              
              576.2
              
              
              (2,764.1
              )
              
              -Interest
                  expense
              
              
              (0.2
              )
              
              (122.2
              )
              
              (30.7
              )
              
              -
              
              
              (153.1
              )Intercompany
                  interest and fees
              
              
              (7.5
              )
              
              (538.4
              )
              
              545.9
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              (5.1
              )
              
              87.3
              
              
              (81.2
              )
              
              -
              
              
              1.0Earnings
                  (loss) before income taxes
              
              
              1,218.7
              
              
              347.2
              
              
              2,166.4
              
              
              (2,764.1
              )
              
              968.2(Benefit)
                  provision for income taxes
              
              
              -
              
              
              (219.5
              )
              
              357.9
              
              
              -
              
              
              138.4Earnings
                  (loss) from continuing operations
              
              
              1,218.7
              
              
              566.7
              
              
              1,808.5
              
              
              (2,764.1
              )
              
              829.8Discontinued
                  operations, net of tax
              
              
              -
              
              
              9.5
              
              
              379.4
              
              
              -
              
              
              388.9Net
                  earnings (loss)
              
              
              $1,218.7
              
              
              $576.2
              
              
              $2,187.9
              
              
              $(2,764.1
              )
              
              $1,218.7


84





**Condensed
                  Consolidating Income Statement**For
                  the year ended December 31, 2003IR-
              
              IR-
              
              Other
              
              Consolidating
              
              IR-Limited*In
                  millions*
              
              Limited
              
              New
                  Jersey
              
              Subsidiaries
              
              Adjustments
              
              ConsolidatedNet
                  revenues
              
              
              $-
              
              
              $1,137.4
              
              
              $7,111.9
              
              
              $-
              
              
              $8,249.3Cost
                  of goods sold
              
              
              -
              
              
              908.5
              
              
              5,200.5
              
              
              -
              
              
              6,109.0Selling
                  and administrative expenses
              
              
              -
              
              
              282.9
              
              
              1,073.0
              
              
              -
              
              
              1,355.9Restructuring
                  charges
              
              
              -
              
              
              -
              
              
              (3.2
              )
              
              -
              
              
              (3.2
              )Operating
                  income
              
              
              -
              
              
              (54.0
              )
              
              841.6
              
              
              -
              
              
              787.6Equity
                  earnings in affiliates (net of tax)
              
              
              653.1
              
              
              1,058.2
              
              
              (122.3
              )
              
              (1,589.0
              )
              
              -Interest
                  expense
              
              
              -
              
              
              (141.6
              )
              
              (33.9
              )
              
              -
              
              
              (175.5
              )Intercompany
                  interest and fees
              
              
              (5.9
              )
              
              (442.1
              )
              
              448.0
              
              
              -
              
              
              -Other
                  income (expense), net
              
              
              (2.7
              )
              
              (759.8
              )
              
              758.5
              
              
              -
              
              
              (4.0
              )Earnings
                  (loss) before income taxes
              
              
              644.5
              
              
              (339.3
              )
              
              1,891.9
              
              
              (1,589.0
              )
              
              608.1(Benefit)
                  provision for income taxes
              
              
              -
              
              
              (224.5
              )
              
              299.8
              
              
              -
              
              
              75.3Earnings
                  (loss) from continuing operations
              
              
              644.5
              
              
              (114.8
              )
              
              1,592.1
              
              
              (1,589.0
              )
              
              532.8Discontinued
                  operations, net of tax
              
              
              -
              
              
              (7.5
              )
              
              119.2
              
              
              -
              
              
              111.7Net
                  earnings (loss)
              
              
              $644.5
              
              
              $(122.3
              )
              
              $1,711.3
              
              
              $(1,589.0
              )
              
              $644.5








85







**Condensed
                  Consolidating Balance Sheet**December
                  31, 2005Other
              
              Consolidating
              
              IR-Limited*In
                  millions*
              
              IR-Limited
              
              IR-New
                  Jersey
              
              Subsidiaries
              
              Adjustments
              
              ConsolidatedCurrent
                  assets:Cash
                  and cash equivalents
              
              
              $25.5
              
              
              $207.1
              
              
              $648.0
              
              
              $-
              
              
              $880.6Marketable
                  securities
              
              
              -
              
              
              -
              
              
              156.5
              
              
              -
              
              
              156.5Accounts
                  and notes receivable, net
              
              
              1.3
              
              
              311.8
              
              
              1,365.9
              
              
              -
              
              
              1,679.0Inventories,
                  net
              
              
              -
              
              
              188.9
              
              
              939.9
              
              
              -
              
              
              1,128.8Prepaid
                  expenses and deferred income taxes
              
              
              -
              
              
              62.1
              
              
              341.2
              
              
              -
              
              
              403.3Accounts
                  and notes receivable affiliates
              
              
              299.6
              
              
              3,660.9
              
              
              22,687.9
              
              
              (26,648.4
              )
              
              -Total
                  current assets
              
              
              326.4
              
              
              4,430.8
              
              
              26,139.4
              
              
              (26,648.4
              )
              
              4,248.2Investment
                  in affiliates
              
              
              7,092.7
              
              
              11,440.6
              
              
              29,894.4
              
              
              (48,427.7
              )
              
              -Property,
                  plant and equipment, net
              
              
              -
              
              
              246.8
              
              
              829.2
              
              
              -
              
              
              1,076.0Intangible
                  assets, net
              
              
              -
              
              
              163.7
              
              
              5,068.2
              
              
              -
              
              
              5,231.9Other
                  assets
              
              
              1.9
              
              
              854.0
              
              
              344.4
              
              
              -
              
              
              1,200.3Total
                  assets
              
              
              $7,421.0
              
              
              $17,135.9
              
              
              $62,275.6
              
              
              $(75,076.1
              )
              
              $11,756.4Current
                  liabilities:Accounts
                  payable and accruals
              
              
              $5.8
              
              
              $561.2
              
              
              $1,700.0
              
              
              $-
              
              
              $2,267.0Loans
                  payable and current maturitiesof
                  long-term debt
              
              
              -
              
              
              849.4
              
              
              83.3
              
              
              -
              
              
              932.7Accounts
                  and note payable affiliates
              
              
              956.6
              
              
              5,870.1
              
              
              19,821.7
              
              
              (26,648.4
              )
              
              -Total
                  current liabilities
              
              
              962.4
              
              
              7,280.7
              
              
              21,605.0
              
              
              (26,648.4
              )
              
              3,199.7Long-term
                  debt
              
              
              298.9
              
              
              658.1
              
              
              227.3
              
              
              -
              
              
              1,184.3Note
                  payable affiliate
              
              
              300.0
              
              
              3,347.4
              
              
              -
              
              
              (3,647.4
              )
              
              -Other
                  noncurrent liabilities
              
              
              97.7
              
              
              1,389.0
              
              
              123.7
              
              
              -
              
              
              1,610.4Total
                  liabilities
              
              
              1,659.0
              
              
              12,675.2
              
              
              21,956.0
              
              
              (30,295.8
              )
              
              5,994.4Shareholders'
                  equity:Class
                  A common shares
              
              
              360.8
              
              
              -
              
              
              (30.1
              )
              
              -
              
              
              330.7Class
                  B common shares
              
              
              270.6
              
              
              -
              
              
              -
              
              
              (270.6
              )
              
              -Common
                  shares
              
              
              -
              
              
              -
              
              
              2,362.8
              
              
              (2,362.8
              )
              
              -Other
                  shareholders' equity
              
              
              9,740.2
              
              
              5,066.6
              
              
              42,376.2
              
              
              (51,624.1
              )
              
              5,558.9Accumulated
                  other comprehensive income (loss)
              
              
              193.9
              
              
              (158.7
              )
              
              (33.2
              )
              
              (129.6
              )
              
              (127.6
              )10,565.5
              
              
              4,907.9
              
              
              44,675.7
              
              
              (54,387.1
              )
              
              5,762.0Less:
                  Contra account
              
              
              (4,803.5
              )
              
              (447.2
              )
              
              (4,356.1
              )
              
              9,606.8
              
              
              -Total
                  shareholders' equity
              
              
              5,762.0
              
              
              4,460.7
              
              
              40,319.6
              
              
              (44,780.3
              )
              
              5,762.0Total
                  liabilities and equity
              
              
              $7,421.0
              
              
              $17,135.9
              
              
              $62,275.6
              
              
              $(75,076.1
              )
              
              $11,756.4





86





**Condensed
                  Consolidating Balance Sheet**December
                  31, 2004Other
              
              Consolidating
              
              IR-Limited*In
                  millions*
              
              IR-Limited
              
              IR-New
                  Jersey
              
              Subsidiaries
              
              Adjustments
              
              ConsolidatedCurrent
                  assets:Cash
                  and cash equivalents
              
              
              $236.8
              
              
              $844.1
              
              
              $622.2
              
              
              $-
              
              
              $1,703.1Marketable
                  securities
              
              
              -
              
              
              -
              
              
              0.6
              
              
              -
              
              
              0.6Accounts
                  and notes receivable, net
              
              
              1.1
              
              
              265.3
              
              
              1,232.0
              
              
              -
              
              
              1,498.4Inventories,
                  net
              
              
              -
              
              
              152.7
              
              
              906.1
              
              
              -
              
              
              1,058.8Prepaid
                  expenses and deferred income taxes
              
              
              0.2
              
              
              88.9
              
              
              259.7
              
              
              -
              
              
              348.8Accounts
                  and notes receivable affiliates
              
              
              51.7
              
              
              1,757.7
              
              
              17,064.3
              
              
              (18,873.7
              )
              
              -Total
                  current assets
              
              
              289.8
              
              
              3,108.7
              
              
              20,084.9
              
              
              (18,873.7
              )
              
              4,609.7Investment
                  in affiliates
              
              
              6,759.6
              
              
              10,938.1
              
              
              15,773.8
              
              
              (33,471.5
              )
              
              -Property,
                  plant and equipment, net
              
              
              -
              
              
              239.4
              
              
              773.8
              
              
              -
              
              
              1,013.2Intangible
                  assets, net
              
              
              -
              
              
              151.4
              
              
              4,677.8
              
              
              -
              
              
              4,829.2Other
                  assets
              
              
              -
              
              
              649.5
              
              
              313.0
              
              
              -
              
              
              962.5Total
                  assets
              
              
              $7,049.4
              
              
              $15,087.1
              
              
              $41,623.3
              
              
              $(52,345.2
              )
              
              $11,414.6Current
                  liabilities:Accounts
                  payable and accruals
              
              
              $5.0
              
              
              $481.1
              
              
              $1,778.0
              
              
              $-
              
              
              $2,264.1Loans
                  payable and current maturitiesof
                  long-term debt
              
              
              -
              
              
              546.3
              
              
              66.5
              
              
              -
              
              
              612.8Accounts
                  and note payable affiliates
              
              
              1,310.6
              
              
              3,525.0
              
              
              14,038.1
              
              
              (18,873.7
              )
              
              -Total
                  current liabilities
              
              
              1,315.6
              
              
              4,552.4
              
              
              15,882.6
              
              
              (18,873.7
              )
              
              2,876.9Long-term
                  debt
              
              
              -
              
              
              1,048.3
              
              
              219.3
              
              
              -
              
              
              1,267.6Note
                  payable affiliate
              
              
              -
              
              
              3,647.4
              
              
              -
              
              
              (3,647.4
              )
              
              -Other
                  noncurrent liabilities
              
              
              -
              
              
              434.5
              
              
              1,101.8
              
              
              -
              
              
              1,536.3Total
                  liabilities
              
              
              1,315.6
              
              
              9,682.6
              
              
              17,203.7
              
              
              (22,521.1
              )
              
              5,680.8Shareholders'
                  equity:Class
                  A common shares
              
              
              178.4
              
              
              -
              
              
              (5.3
              )
              
              -
              
              
              173.1Class
                  B common shares
              
              
              135.3
              
              
              -
              
              
              -
              
              
              (135.3
              )
              
              -Common
                  shares
              
              
              -
              
              
              -
              
              
              2,362.8
              
              
              (2,362.8
              )
              
              -Other
                  shareholders' equity
              
              
              10,006.3
              
              
              6,051.6
              
              
              26,386.6
              
              
              (36,946.6
              )
              
              5,497.9Accumulated
                  other comprehensive income (loss)
              
              
              384.2
              
              
              (186.5
              )
              
              185.5
              
              
              (320.4
              )
              
              62.810,704.2
              
              
              5,865.1
              
              
              28,929.6
              
              
              (39,765.1
              )
              
              5,733.8Less:
                  Contra account
              
              
              (4,970.4
              )
              
              (460.6
              )
              
              (4,510.0
              )
              
              9,941.0
              
              
              -Total
                  shareholders' equity
              
              
              5,733.8
              
              
              5,404.5
              
              
              24,419.6
              
              
              (29,824.1
              )
              
              5,733.8Total
                  liabilities and equity
              
              
              $7,049.4
              
              
              $15,087.1
              
              
              $41,623.3
              
              
              $(52,345.2
              )
              
              $11,414.6




87





**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
              )
              
              $(510.9
              )
              
              $1,386.1
              
              
              $843.2Net
                  cash used in discontiued operating activities
              
              
              -
              
              
              (18.5
              )
              
              (15.6
              )
              
              (34.1
              )Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              -
              
              
              (26.2
              )
              
              (85.6
              )
              
              (111.8
              )Proceeds
                  from sale of property, plant and equipment
              
              
              -
              
              
              2.2
              
              
              16.8
              
              
              19.0Acquisitions,
                  net of cash
              
              
              -
              
              
              -
              
              
              (514.7
              )
              
              (514.7
              )Proceeds
                  from business dispositions
              
              
              -
              
              
              3.7
              
              
              7.7
              
              
              11.4Purchase
                  of marketable securities
              
              
              -
              
              
              -
              
              
              (153.2
              )
              
              (153.2
              )Cash
                  provided by equity companies
              
              
              -
              
              
              -
              
              
              7.6
              
              
              7.6Net
                  cash used in continuing investing activities
              
              
              -
              
              
              (20.3
              )
              
              (721.4
              )
              
              (741.7
              )Net
                  cash (used in) provided by discontinued investing
                  activities
              
              
              -
              
              
              -
              
              
              -
              
              
              -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
              )Redemption
                  of preferred stock of subsidiary
              
              
              (73.6
              )
              
              -
              
              
              -
              
              
              (73.6
              )Purchase
                  of treasury shares
              
              
              -
              
              
              -
              
              
              (763.6
              )
              
              (763.6
              )Discontinued
                  operations
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  cash used in 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
                  (decrease) increase in cash and cash equivalents
              
              
              (211.3
              )
              
              (649.0
              )
              
              37.8
              
              
              (822.5
              )Cash
                  and cash equivalents - beginning of period
              
              
              236.8
              
              
              844.1
              
              
              622.2
              
              
              1,703.1Cash
                  and cash equivalents - end of period
              
              
              $25.5
              
              
              $195.1
              
              
              $660.0
              
              
              $880.6







88







**Condensed
                  Consolidating Statement of Cash Flows**For
                  the year ended December 31, 2004IR-
              
              IR-
              
              Other
              
              IR-Limited*In
                  millions*
              
              Limited
              
              New
                  Jersey
              
              Subsidiaries
              
              ConsolidatedNet
                  cash (used in) provided by continuing operating activities
              
              
              $(14.5
              )
              
              $(578.1
              )
              
              $1,345.8
              
              
              $753.2Net
                  cash (used in) provided by discontinued operatingactivities
                  (revised)
              
              
              -
              
              
              (13.5
              )
              
              40.8
              
              
              27.3Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              -
              
              
              (38.2
              )
              
              (70.4
              )
              
              (108.6
              )Proceeds
                  from sale of property, plant and equipment
              
              
              -
              
              
              17.7
              
              
              32.7
              
              
              50.4Acquisitions,
                  net of cash
              
              
              -
              
              
              -
              
              
              (33.7
              )
              
              (33.7
              )Proceeds
                  from the sale of marketable securities
              
              
              -
              
              
              -
              
              
              0.3
              
              
              0.3Proceeds
                  from business dispositions
              
              
              -
              
              
              189.0
              
              
              1,224.2
              
              
              1,413.2Cash
                  provided by equity companies
              
              
              -
              
              
              -
              
              
              7.6
              
              
              7.6Net
                  cash provided by continuing investing activities
              
              
              -
              
              
              168.5
              
              
              1,160.7
              
              
              1,329.2Net
                  cash used in discontinued investing activities (revised)
              
              
              -
              
              
              -
              
              
              (7.4
              )
              
              (7.4
              )Cash
                  flows from financing activities:Net
                  change in debt
              
              
              -
              
              
              (409.5
              )
              
              (59.9
              )
              
              (469.4
              )Net
                  inter-company (payments) proceeds
              
              
              191.4
              
              
              1,562.4
              
              
              (1,753.8
              )
              
              -Proceeds
                  from the exercise of stock options
              
              
              170.7
              
              
              -
              
              
              -
              
              
              170.7Dividends
                  (paid) received
              
              
              (271.3
              )
              
              10.2
              
              
              108.5
              
              
              (152.6
              )Purchase
                  of treasury shares
              
              
              -
              
              
              -
              
              
              (355.9
              )
              
              (355.9
              )Net
                  cash provided by (used in) continuing financing activities
              
              
              90.8
              
              
              1,163.1
              
              
              (2,061.1
              )
              
              (807.2
              )Net
                  cash used in discontinued financing activities (revised)
              
              
              -
              
              
              -
              
              
              (1.0
              )
              
              (1.0
              )Effect
                  of change in fiscal year end of business
              
              
              -
              
              
              -
              
              
              (23.8
              )
              
              (23.8
              )Effect
                  of exchange rate changes on cash andcash
                  equivalents
              
              
              -
              
              
              -
              
              
              16.5
              
              
              16.5Net
                  increase in cash and cash equivalents
              
              
              76.3
              
              
              740.0
              
              
              470.5
              
              
              1,286.8Cash
                  and cash equivalents - beginning of period
              
              
              160.5
              
              
              104.1
              
              
              151.7
              
              
              416.3Cash
                  and cash equivalents - end of period
              
              
              $236.8
              
              
              $844.1
              
              
              $622.2
              
              
              $1,703.1


89





**Condensed
                  Consolidating Statement of Cash Flows**For
                  the year ended December 31, 2003IR-
              
              IR-
              
              Other
              
              IR-Limited*In
                  millions*
              
              Limited
              
              New
                  Jersey
              
              Subsidiaries
              
              ConsolidatedNet
                  cash (used in) provided by continuing operating activities
              
              
              $(12.5
              )
              
              $2,704.2
              
              
              $(2,553.3
              )
              
              $138.4Net
                  cash (used in) provided by discontinued operatingactivities
                  (revised)
              
              
              -
              
              
              (7.0
              )
              
              31.8
              
              
              24.8Cash
                  flows from investing activities:Capital
                  expenditures
              
              
              -
              
              
              (20.5
              )
              
              (78.8
              )
              
              (99.3
              )Proceeds
                  from sale of property, plant and equipment
              
              
              -
              
              
              11.6
              
              
              31.5
              
              
              43.1Acquisitions,
                  net of cash
              
              
              (19.6
              )
              
              (1.5
              )
              
              (0.2
              )
              
              (21.3
              )Proceeds
                  from business dispositions
              
              
              43.0
              
              
              395.5
              
              
              312.9
              
              
              751.4Proceeds
                  from sales and maturities ofmarketable
                  securities
              
              
              -
              
              
              147.6
              
              
              -
              
              
              147.6Cash
                  invested in equity companies
              
              
              -
              
              
              -
              
              
              (0.6
              )
              
              (0.6
              )Net
                  cash provided by continuing investing activities
              
              
              23.4
              
              
              532.7
              
              
              264.8
              
              
              820.9Net
                  cash used in discontinuing investing activities (revised)
              
              
              -
              
              
              -
              
              
              (2.7
              )
              
              (2.7
              )Cash
                  flows from financing activities:Net
                  change in debt
              
              
              -
              
              
              (924.2
              )
              
              (15.4
              )
              
              (939.6
              )Net
                  inter-company (payments) proceeds
              
              
              158.9
              
              
              (2,418.6
              )
              
              2,259.7
              
              
              -Proceeds
                  from the exercise of stock options
              
              
              211.1
              
              
              -
              
              
              -
              
              
              211.1Dividends
                  (paid) received
              
              
              (220.4
              )
              
              8.0
              
              
              89.2
              
              
              (123.2
              )Net
                  cash provided by (used in) continuing financing activities
              
              
              149.6
              
              
              (3,334.8
              )
              
              2,333.5
              
              
              (851.7
              )Net
                  cash used in discontinuing financing activities (revised)
              
              
              -
              
              
              -
              
              
              (0.3
              )
              
              (0.3
              )Effect
                  of exchange rate changes on cash andcash
                  equivalents
              
              
              -
              
              
              -
              
              
              2.6
              
              
              2.6Net
                  increase (decrease) in cash and cash equivalents
              
              
              160.5
              
              
              (104.9
              )
              
              76.4
              
              
              132.0Cash
                  and cash equivalents - beginning of period
              
              
              -
              
              
              209.0
              
              
              75.3
              
              
              284.3Cash
                  and cash equivalents - end of period
              
              
              $160.5
              
              
              $104.1
              
              
              $151.7
              
              
              $416.3







90





**SCHEDULE
        II**


**INGERSOLL
        RAND COMPANY LIMITED**
 **VALUATION
        AND QUALIFYING ACCOUNTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003**
 (Amounts
        in millions)
   **Allowances
                  for Doubtful Accounts:****Balance
                  December 31, 2002**
              
              $58.1Additions
                  charged to costs and expenses *
              
              
              24.4Deductions
                  **
              
              
              (26.5
              )Currency
                  translation
              
              
              2.7**Balance
                  December 31, 2003**
              
              
              58.7Additions
                  charged to costs and expenses *
              
              
              21.0Deductions
                  **
              
              
              (13.1
              )Currency
                  translation
              
              
              3.5**Balance
                  December 31, 2004**
              
              
              70.1Additions
                  charged to costs and expenses *
              
              
              0.8Deductions
                  **
              
              
              (21.0
              )Currency
                  translation
              
              
              (2.3
              )**Balance
                  December 31, 2005**
              
              
              $47.6
  (*)
                  "Additions" also include business acquisitions.(**)
                  "Deductions" include business divestitures and accounts and advances
                  written off, less recoveries.








91