ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008

AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 2007

OVERVIEW

The Company is a leading worldwide diversified manufacturer of motion and control technologies and systems, providing precision engineered solutions for a wide variety of mobile, industrial and aerospace markets.

The Company's order rates provide a near-term perspective of the Company's outlook particularly when viewed in the context of prior and future order rates. The Company publishes its order rates on a quarterly basis. The lead time between the time an order is received and revenue is realized generally ranges from one day to 12 weeks for mobile and industrial orders and from one day to 18 months for aerospace orders. The Company believes the leading economic indicators of these markets that have a strong correlation to the Company's future order rates are as follows:

• Institute of Supply Management (ISM) index of manufacturing activity with respect to North American mobile and industrial markets;

• Purchasing Managers Index (PMI) on manufacturing activity with respect to most International mobile and industrial markets;

• Aircraft miles flown and revenue passenger miles for commercial aerospace markets and Department of Defense spending for military aerospace markets; and

• Housing starts with respect to the North American residential air conditioning market.

ISM and PMI indexes above 50 indicate that the manufacturing economy is expanding, resulting in the expectation that the Company's order rates in the mobile and industrial markets in the respective geographic areas should be positive year-over-year. ISM and PMI indexes below 50 would indicate the opposite effect. The ISM index at the end of September 2008 was 43.5 and the PMI for the Eurozone countries at the end of September 2008 was 45.0. With respect to the aerospace market, aircraft miles flown and revenue passenger miles continue to show improvement over comparable fiscal 2008 levels. The Company anticipates that Department of Defense spending in fiscal 2009 will be about 4 percent higher than the 2008 level. Housing starts in September 2008 were approximately 31 percent lower than housing starts in September 2007. The Company does not anticipate housing starts to improve in fiscal 2009.

The Company also believes that there is a high correlation between changes in interest rates throughout the world and worldwide industrial manufacturing activity. Increases in interest rates typically have a negative impact on industrial production thereby lowering future order rates while decreases in interest rates typically have the opposite effect. In October 2008, the world's leading central banks, including the U.S. Federal Reserve, the European Federal Reserve and the Bank of England, reduced their official interest rates. Given the current worldwide financial crisis, it is unknown whether these interest rate cuts will have the same impact on worldwide industrial manufacturing activity as past interest rate cuts.

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The Company's major opportunities for growth are as follows:

• Leveraging the Company's broad product line with customers desiring to consolidate their vendor base and outsource system engineering;

• Marketing systems solutions for customer applications;

• Expanding the Company's business presence outside of North America;

• Introducing new products, including those resulting from the Company's innovation initiatives;

• Completing strategic acquisitions in a consolidating motion and control industry; and

• Expanding the Company's vast distribution network.

The financial condition of the Company remains strong as evidenced by the continued generation of substantial cash flows from operations, a debt to debt-equity ratio of 35.0 percent (29.1 percent calculated on a net-debt to net-debt-equity basis) and a demonstrated ability to borrow needed funds at affordable interest rates despite the current tight credit environment.

Many acquisition opportunities remain available to the Company within its target markets. During the first quarter of fiscal 2009, the Company completed one acquisition whose aggregate incremental annual revenues were approximately $11 million. Subsequent to the end of the quarter, the Company completed seven acquisitions whose aggregate incremental annual revenues were approximately $503 million. Acquisitions will continue to be considered from time to time to the extent there is a strong strategic fit, while at the same time, maintaining the Company's strong financial position. The Company will also continue to assess the strategic fit of its existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term fit for the Company. Future business divestitures could have a negative effect on the Company's results of operations.

The Company routinely strives to improve customer service levels and manage changes in raw material prices and expenses related to employee health and welfare benefits. The current recessionary-like business conditions in the U.S. economy and the slowdown in some of the global economies make it difficult for the Company to anticipate the business conditions that are likely to be experienced by the Company's operations for the remainder of fiscal year 2009. The Company is currently focused on maintaining its financial strength through the current worldwide economic situation and has in place a number of strategic financial performance initiatives relating to growth and margin improvement in order to meet this challenge, including strategic procurement, strategic pricing, lean enterprise, product innovation, global diversification and business realignments.

The discussion below is structured to separately discuss the Consolidated Statement of Income, Results by Business Segment, Balance Sheet and Statement of Cash Flows.