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Article by DailyStocks_admin    (04-04-08 07:06 AM)

The Daily Warren Buffett Stock is IR. Berkshire Hathaway owns 636,600 shares. As of Dec 31,2007, this represents 0.04% percent of portfolio.

BUSINESS OVERVIEW

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

We seek to drive shareholder value by achieving:


•

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


•

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


•

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

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

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

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

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

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


2001 Reorganization
Our predecessor company, Ingersoll-Rand Company ( IR-New Jersey) , was organized in 1905 under the laws of the State of New Jersey as a consolidation of Ingersoll-Sergeant Drill Company and the Rand Drill Company, whose businesses were established in the early 1870’s.

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


•

help enhance business growth;

•

create a more favorable corporate structure for expansion of our current 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 of our debt;

•

reduce our worldwide effective tax rate;

•

enable us to implement our business strategy more effectively; and

•

expand our investor base as our shares may become more attractive to non-U.S. investors.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CEO BACKGROUND

Gary D. Forsee — age 57


•

Chairman of the Board (since December 2006) and Chief Executive Officer (since August 2005) of Sprint Nextel Corporation.


•

Chairman of the Board and Chief Executive Officer of Sprint Corporation from 2003 to 2005.


•

Vice Chairman—Domestic Operations of BellSouth Corporation from 2002 to 2003.


•

Vice Chairman and President of BellSouth International from 2001 to 2002.


•

Other Activities:


•

Chairman, National Security Telecommunications Advisory Committee


•

Trustee, Board of Trustees, University of Missouri at Rolla


•

Trustee, National Board of Trustees, Boy Scouts of America

Peter C. Godsoe — age 68, director since 1998


•

Chairman of the Board and Chief Executive Officer of The Bank of Nova Scotia (a Canadian-based international bank) from 1995 until retirement in 2004.


•

Director of:


•

Barrick Gold Corporation


•

Lonmin plc


•

Onex Corporation


•

Rogers Communications Inc.


•

Sobeys Inc.


•

Templeton Emerging Markets Investment Trust plc


•

Other Activities:


•

Director, Atlantic Institute for Market Studies

•

Director, Canadian Council of Christians and Jews


•

Director, Mount Sinai Hospital

Constance J. Horner— age 65, director since 1994


•

Guest Scholar at the Brookings Institution from 1993 to 2005.


•

Commissioner of U.S. Commission on Civil Rights from 1993 to 1998.


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Assistant to the President and Director of Presidential Personnel from 1991 to 1993.


•

Deputy Secretary, U.S. Department of Health and Human Services from 1989 to 1991.


•

Director of:


•

Pfizer Inc.


•

Prudential Financial, Inc.


•

Other Activities:


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Trustee, Annie E. Casey Foundation


•

Trustee, The Prudential Foundation


•

Fellow, National Academy of Public Administration

Theodore E. Martin— age 67, director since 1996


•

President and Chief Executive Officer of Barnes Group Inc. (manufacturer and distributor of precision springs and custom metal parts) from 1995 until retirement in 1998.


•

Director of:


•

Applera Corporation


•

C. R. Bard, Inc.


•

Strong Tool Company


•

Unisys Corporation


•

Other Activities:


•

Director, Edna McConnell Clark Foundation


•

Trustee (emeritus), Syracuse University

Patricia Nachtigal— age 60, director since 2002


•

Senior Vice President and General Counsel of the Company since 2000.


•

Vice President and General Counsel of the Company from 1992 to 2000.


•

Other Activities:


•

Governor, Rutgers, The State University of New Jersey


•

Trustee, Rutgers, The State University of New Jersey


•

Advisory Trustee, National Multiple Sclerosis Society—Greater North Jersey Chapter

Orin R. Smith— age 71, director since 1995


•

Chairman and Chief Executive Officer of Engelhard Corporation (provider of specialty chemical products, engineered materials and industrial commodities management services for various industries) from 1995 until retirement in 2000.

•

President and Chief Executive Officer of Engelhard Corporation from 1984 to 1995.


•

Director of:


•

Applera Corporation


•

Vulcan Materials Company


•

Other Activities: Trustee, Duxbury Bay Maritime School

Richard J. Swift— age 62, director since 1995


•

Chairman of Financial Accounting Standards Advisory Council from January 2002 until December 2006.


•

Chairman, President and Chief Executive Officer of Foster Wheeler Ltd. (provider of design, engineering, construction, manufacturing, management and environmental services) from 1994 until 2001.


•

Director of:


•

CVS Corporation


•

Hubbell Incorporated


•

Kaman Corporation


•

Public Service Enterprise Group

Directors Continuing in Office until 2008

Ann C. Berzin— age 55, director since 2001


•

Private investor since 2001.


•

Chairman and Chief Executive Officer of Financial Guaranty Insurance Company (insurer of municipal bonds and structured finance obligations), a subsidiary of General Electric Capital Corporation, from 1992 to 2001.


•

Director of Kindred Healthcare, Inc.


•

Other Activities: Director, ArtsConnection

Herbert L. Henkel— age 59, director since 1999


•

Chairman of the Board (since May 2000) and President and Chief Executive Officer (since October 1999) of the Company.


•

President and Chief Operating Officer of the Company from April 1999 to October 1999.


•

Chief Operating Officer of Textron Inc. (a multi-industry company with operations in aircraft, automotive, industrial and finance) from 1998 to March 1999.


•

Vice President of Textron Inc. responsible for Textron Industrial Products Segment from 1993 to 1998.


•

Director of C. R. Bard, Inc.

H. William Lichtenberger— age 71, director since 1995


•

Chairman and Chief Executive Officer of Praxair, Inc. (an industrial gases company) from 1992 until retirement in 2000.


•

Director of:


•

AEA LLC

•

Arch Chemicals, Inc.


•

Huntsman Corporation


•

Other Activities: Director and Vice Chairman, Treasure Coast Hospices

Tony L. White— age 60, director since 1997


•

Chairman, President and Chief Executive Officer of Applera Corporation (a developer, manufacturer and marketer of life science systems and genomic information products) since 1995.


•

Executive Vice President of Baxter International Inc. (provider of medical products and services) from 1993 to 1995.


•

Director of C.R. Bard, Inc.

MANAGEMENT DISCUSSION FROM LATEST 10K

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

We seek to drive shareholder value by achieving:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Significant Events in 2005
In January, we completed the acquisition of the remaining 70% interest in Italy-based CISA S.p.A. (CISA) for approximately $267 million in cash and the assumption of approximately $244 million of debt. CISA manufactures an array of security products, including electronic locking systems, cylinders, door closers, and emergency exit hardware, and also markets safes and padlocks.

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

Provision for Income Taxes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations - Three Months Ended September 30, 2007 and 2006

Net Revenues
Net revenues for the third quarter of 2007 increased by 9.9%, or $201.0 million, compared with the same period of 2006, primarily due to higher volumes (5%), improved pricing (2%), a favorable currency impact (2%) and acquisitions. Increased revenues from all geographic regions, especially in Europe, Asia Pacific and Latin America, enhanced growth in all three operating segments during the quarter. The Company also continues to make progress in increasing recurring revenues, which improved by 6% over the third quarter of 2006 and accounted for 18% of net revenues for that period.

Cost of Goods Sold
Cost of goods sold as a percentage of revenue decreased slightly in the third quarter of 2007 compared with the same period of 2006, as increased revenues were offset by higher material costs and $14 million of restructuring expenses. See Note 3 of the Company’s condensed consolidated financial statements for further details of the restructuring charges.

Selling and Administrative Expenses
Selling and administrative expenses as a percentage of revenue increased in the third quarter of 2007 compared with the same period of 2006. The benefit of higher revenues was more than offset by additional costs related to share-based compensation of approximately $14 million, acquisitions and investments in new product development of approximately $8 million and increased regulatory and compliance costs of approximately $6 million. The increase in share-based compensation costs is a result of a decrease in the value of the Company’s Class A common shares in the third quarter of 2006. See Note 8 of the Company’s condensed consolidated financial statements for further details of the Company’s share-based compensation programs.

Operating Income
Operating income for the third quarter of 2007 increased by 2.8%, or $7.4 million, compared with the same period of 2006, mainly due to revenue growth and improved pricing. These increases were offset by higher commodity prices, unfavorable product mix, increased share-based compensation expense and investments in restructuring programs and new product and market development.

Interest Expense
Interest expense for the third quarter of 2007 increased $1.8 million compared with the same period of 2006, due to increased short-term borrowings under the Company’s commercial paper program and higher average short-term interest rates.

Other Income (Expense), Net
Other income (expense), net includes currency gains and losses, equity in earnings of partially owned affiliates, minority interests, and other miscellaneous income and expense items. Other income (expense), net reflects $5.2 million of more expense in the third quarter of 2007 compared with the same period of 2006. The higher expense was mainly due to an unfavorable currency impact ($7 million), partially offset by increased interest income ($2 million).

Provision for Income Taxes
The Company’s effective tax rate for the third quarter of 2007 was 16.1%, compared with 14.7% in the third quarter of 2006. The rate for the third quarter of 2007 reflects an expected annual rate of 15.4% before discrete items. The rate for the third quarter of 2006 reflects an expected annual rate of 9.2% before discrete items. The increase in the expected annual effective tax rate was mainly due to higher interest costs resulting from our adoption of FIN 48, as well as increased tax costs primarily associated with intercompany cash movements to fund our share repurchase program.

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