Results of Operations

Non-GAAP Measures

The following discussion includes organic sales and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales in addition to a discussion of why we believe this non-GAAP measure is useful to investors. See Financial Condition for a reconciliation of cash flows from operating activities to free cash flow and a discussion of why we believe this non-GAAP measure is useful to investors.

Overview

We are a leading global provider of industrial automation power, control and information solutions that help manufacturers achieve a competitive advantage for their businesses. Overall demand for our products and services is driven by:

• investments in manufacturing capacity, including upgrades, modifications, and expansions of existing manufacturing facilities, and the creation of new manufacturing facilities;

• our customers' needs for greater productivity, sustainable production (cleaner, safer and more energy efficient), cost reduction, quality assurance and improvement and overall global competitiveness;

• industry factors that include our customers' new product introductions, trends in the actual and forecasted demand for our customers' products or services, and the regulatory and competitive environments in which our customers operate;

• levels of global industrial production;

• regional factors that include local political, social, regulatory and economic circumstances; and

• the seasonal spending patterns of our customers due to their annual budgeting processes and their working schedules.

Long-term Strategy

Our long-term growth and performance strategy is characterized by the careful balance of sustained organic growth and profitability. This strategy seeks to:

• deploy human and financial resources in order to strengthen our technology leadership and allow us to capture a larger share of our customers' spending and continue to transform our business model into one that is based less on tangible assets and more on intellectual capital;

• enhance our market access by increasing our solutions and service capabilities, advancing our global presence and delivering our products and solutions to a wider range of targeted industries;

• expand our served market by increasing our ability to meet our customers' needs in the areas of process control, safety control and information software;

• look for potential acquisitions that serve as catalysts to organic growth and add complementary technology, expand our served market, increase our domain expertise and/or continue our geographic diversification; and

• foster a robust productivity culture.

As we execute our long-term growth and performance strategy, we expect to provide value for our shareowners through revenue and earnings growth, free cash flow generation and superior returns.

We seek a technology leadership position in all facets of plant-wide control. We believe our core technologies are the foundation for long-term sustainable growth at a multiple of global Gross Domestic Product (GDP) growth.

Our customers face increasingly complex and volatile customer demand patterns, which are driving the need for flexible manufacturing. Our investments in new technology and domain expertise have expanded our served market beyond discrete control into process, safety and information. Our value proposition is to help our customers gain the benefits of faster time to market, lower total cost of ownership, better asset utilization and reduced business risks.

We believe that process automation is the largest growth opportunity for our company. Our Logix architecture enables us to compete effectively with traditional Distributed Control Systems (DCS) control solutions for many process applications.

We have one of the most comprehensive safety offerings in the industry and we see significant potential in the growing safety market. We successfully integrated safety into the Logix platform with our launch of GuardLogixฎ safety controllers. Our safety products are designed to bring a dual benefit to our customers: a safe environment for their employees and productivity in their operations.

Through internal investment and acquisitions, we have expanded our capability in the area of plant-wide information. This opportunity involves software and solutions that link the plant floor to the enterprise business systems.

We augment our product portfolio with solutions and service offerings to achieve greater customer intimacy. The combination of our leading technologies, such as integrated architecture, with the industry-specific domain expertise of our people, enables us to deliver effective solutions to our customers' manufacturing challenges.

Global Expansion and Enhanced Market Access

As the manufacturing world continues to globalize, we must be capable of meeting our customers' needs in emerging markets. We continue to add delivery resources and expand our sales force in emerging markets. We currently have greater than 50 percent of our employees outside the U.S., and achieved our goal of about 50 percent of our revenues outside of the U.S. during 2008.

As we enter markets with considerable growth potential and expand our global footprint, we will seek to continue to broaden the portfolio of products, services and solutions that we provide to our customers in these regions. We have made significant investments to globalize our manufacturing and customer facing resources in order to be closer to our customers throughout the world. The emerging markets of Asia Pacific, including China and India, Latin America and eastern Europe have the potential to grow at rates in excess of global GDP, due to higher levels of infrastructure investment and the growing role of consumer spending in these markets. We believe that increased demand for consumer products in these markets will drive manufacturing investment and provide us with additional growth opportunities in the future.

Original Equipment Manufacturers (OEMs) represent another growth opportunity for us. The OEM market is large and we have an opportunity to increase market share with OEMs, particularly outside of North America. To remain competitive, OEMs need to continually improve their costs and machine performance and reduce their time to market. Our modular and scaleable Logix offering combined with motion and safety can assist OEMs in addressing these business needs.

We apply our knowledge of manufacturing applications to help customers solve their business challenges. We serve customers in a wide range of industries, including consumer, resource-based and transportation.

Our consumer industry customers are engaged in the food and beverage, home and personal care, and life sciences industries. These customers' needs include global expansion, incremental capacity from existing facilities, an increasingly flexible manufacturing environment and regulatory compliance. In addition, these customers operate in an environment where product innovation and time to market are critical factors.

We serve customers in resource-based industries, including oil and gas, mining, aggregates, cement, metals, water/wastewater and forest products. Higher commodity prices and higher global demand for basic materials encourage companies in these industries to invest in capacity and productivity.

In transportation, factors such as capacity utilization, geographic expansion, investment in new model introductions and more flexible manufacturing technologies are drivers of demand for our products, services and solutions.

Demand for our products, services and solutions across all industries benefit from outsourcing and sustainability needs of our customers. Customers increasingly desire to outsource engineering services in order to improve the flexibility of their cost base. Our manufacturing application knowledge enables us to serve these customers globally. The sustainability needs of our customers include energy efficiency and environmental and safety compliance. Higher energy prices have historically caused customers across all industries to invest in more energy-efficient manufacturing processes and technologies, such as intelligent motor controls and energy efficient solutions and services. In addition, environmental and safety regulations may cause customers to make investments to ensure compliance and implement acceptable business practices.

Productivity

Productivity and continuous improvements are important components of our culture. We have programs in place that drive ongoing process improvement, functional streamlining, material cost savings and manufacturing productivity. We are in the process of developing and implementing common global process standards and an enterprise-wide information system. These are designed to result in improved profitability that can be used to fund investment in growth and technology and to offset inflation and dilution from acquisitions. Our ongoing productivity initiatives target both cost and improved asset utilization. Charges for workforce reductions and facility rationalization may be required in order to effectively execute our productivity programs.

Acquisitions

During 2008 we acquired CEDES Safety & Automation AG (CEDES), Incuity Software, Inc. (Incuity) and Pavilion Technologies, Inc. (Pavilion) We believe the acquired companies will help us expand our market share and deliver value to our customers.

With our acquisition of CEDES, we have expanded our comprehensive machine safety component portfolio for our customers worldwide. CEDES is a supplier of safety and measuring light curtains, a leading product offering in the machine safety market.

Our acquisition of Incuity positions us for continued growth in the information solutions market. Incuity's enterprise manufacturing intelligence offerings will enable us to accelerate specific aspects of our plant-wide information strategy and extend the capabilities of our integrated architecture.

We believe that Pavilion's expertise in advanced process control, production optimization and environmental compliance solutions paired with our Logix architecture will help our customers create a more agile, efficient and productive environment. It will also benefit, in particular, our process growth initiative.

In 2008, sales to U.S. customers accounted for 50 percent of our total sales. The various indicators we use to gauge the direction and momentum of our served U.S. markets include:

• Industrial Equipment Spending, which is an economic statistic compiled by the Bureau of Economic Analysis (BEA). This statistic provides insight into spending trends in the broad U.S. industrial economy. This measure over the longer term has proven to demonstrate a reasonable correlation with our domestic growth.

• Capacity Utilization (Total Industry), which is an indication of plant operating activity published by the Federal Reserve. Historically there has been a meaningful correlation between Capacity Utilization and the level of capital investment made by our U.S. customers in their manufacturing base.

• The Manufacturing Purchasing Managers' Index (PMI), published by the Institute for Supply Management (ISM), which is an indication of the current and near-term state of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the U.S. manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.

• The Industrial Production Index (Total Index), published by the Federal Reserve, which measures the real output of manufacturing, mining, and electric and gas utilities. The Industrial Production Index is expressed as a percentage of real output in a base year, currently 2002.

The table below depicts the trends in these indicators from fiscal 2006 to 2008. U.S. Industrial Equipment Spending declined slightly in 2008, yet remained at higher levels than 2006 and the first half of 2007. Capacity Utilization has moderated after reaching a peak in 2007. The PMI has remained below or near 50 during fiscal 2008, but declined significantly in September 2008, indicating expected weakness in the U.S. manufacturing sector. The Industrial Production Index has gradually increased from 2006 through March of 2008, followed by a decline in the last two quarters. We expect 2009 to be a challenging year based on the recent deterioration of these indices.

                              Industrial
                               Equipment       Capacity            Industrial
                               Spending       Utilization          Production
                             (in billions)     (percent)    PMI      Index
           Fiscal 2008
           Quarter ended:
           September 2008   $         181.4          78.2   43.5        109.7
           June 2008                  183.2          79.7   50.2        111.4
           March 2008                 182.0          80.7   48.6        112.3
           December 2007              179.9          81.0   48.4        112.2
           Fiscal 2007
           Quarter ended:
           September 2007             185.2          81.3   50.5        112.1
           June 2007                  185.1          81.0   53.4        111.1
           March 2007                 172.1          80.7   50.7        110.2
           December 2006              173.4          80.7   51.5        109.8
           Fiscal 2006
           Quarter ended:
           September 2006             172.6          81.2   51.9        110.1
           June 2006                  174.2          81.0   52.7        109.5
           March 2006                 164.7          80.8   54.3        108.9
           December 2005              165.8          80.4   54.4        108.0

Note: Economic indicators are subject to revisions by the issuing organizations.

In 2008, sales to non-U.S. customers accounted for 50 percent of our total sales. Outside the U.S., demand for our products and services is principally driven by the strength of the industrial economy in each region and by our customers' ability and propensity to invest in their manufacturing assets. These customers include both multinational companies with expanding global presence and indigenous companies. Recent strength in demand has, in part, been driven by investments in infrastructure in developing economies, investments in basic materials production capacity in response to higher end-product pricing and expanding consumer markets.

We use GDP growth rates as one indication of the growth opportunities in each region where we do business. In the first half of fiscal 2008, GDP growth rates remained fairly robust in all regions, especially in China, India, Russia and Brazil, but have slowed recently. Consensus forecasts project lower GDP growth in all regions next year.

Revenue by Geographic Region

The table below presents our actual sales for the year ended September 30, 2008
by geographic region and the change in sales from the year ended September 30,
2007 (in millions, except percentages):



                                                                                                  Change in
                                                                     Change vs.                 Organic Sales
                                       Year Ended                    Year Ended                vs. Year Ended
                                  September 30, 2008(1)          September 30, 2007         September 30, 2007(2)
United States                    $               2,850.8                 6%                           4%
Canada                                             396.4                16%                           5%
Europe, Middle East and
Africa                                           1,319.0                25%                           5%
Asia-Pacific                                       717.2                22%                          15%
Latin America                                      414.4                25%                          14%

Total sales                      $               5,697.8                14%                          6%

(1) We attribute sales to the geographic regions based upon country of destination.

(2) Organic sales are sales excluding the effect of changes in currency exchange rates and acquisitions. See Supplemental Sales Information for information on this non-GAAP measure.

Summary of Results of Operations



                                                              Year Ended September 30,
                                                         2008           2007           2006
                                                                    (in millions)
Sales
Architecture & Software                                $ 2,419.7      $ 2,221.3      $ 2,059.2
Control Products & Solutions                             3,278.1        2,782.6        2,497.2

Total                                                  $ 5,697.8      $ 5,003.9      $ 4,556.4

Segment operating earnings(a)
Architecture & Software                                $   584.7      $   587.7      $   533.9
Control Products & Solutions                               440.5          397.0          339.9
Purchase accounting depreciation and amortization          (24.2 )        (16.4 )        (10.6 )
General corporate-net                                      (77.2 )        (72.8 )        (90.7 )
Interest expense                                           (68.2 )        (63.4 )        (56.6 )
Special charges(b)                                         (46.7 )        (43.5 )            -
Gain on sale of investment(c)                                  -              -           19.9

Income from continuing operations before income
taxes and cumulative effect of accounting change           808.9          788.6          735.8
Provision for income taxes                                (231.3 )       (219.3 )       (206.5 )

Income from continuing operations before cumulative
effect of accounting change                                577.6          569.3          529.3
Income from discontinued operations(d)                         -          918.5           95.4
Cumulative effect of accounting change(e)                      -              -          (17.7 )

Net income                                             $   577.6      $ 1,487.8      $   607.0

Diluted earnings per share:
Continuing operations                                  $    3.90      $    3.53      $    2.94
Discontinued operations                                        -           5.70           0.53
Cumulative effect of accounting change                         -              -          (0.10 )

Net income                                             $    3.90      $    9.23      $    3.37

Diluted weighted average outstanding shares                148.2          161.2          179.9

(a) Information regarding how we define segment operating earnings is included in Note 18 in the Financial Statements.

(b) Amount in 2008 represents net costs ($30.4 million after tax, or $0.21 per diluted share) related primarily to restructuring actions designed to better align resources with growth opportunities and to reduce costs as a result of current and anticipated market conditions. Amount in 2007 represents costs ($27.7 million after tax, or $0.17 per diluted share) related to various restructuring activities designed to execute on our cost productivity initiatives and to advance our globalization strategy. See Note 14 in the Financial Statements for more information.

(c) Amount in 2006 represents a gain on sale ($12.0 million after tax, or $0.07 per diluted share) related to the sale of our 50 percent interest in RSC. See Note 2 in the Financial Statements for more information.

(d) See Note 13 in the Financial Statements for a description of items reported as discontinued operations.

(e) Effective September 30, 2006, we adopted FIN 47, resulting in a charge of $28.6 million ($17.7 million after tax, or $0.10 per diluted share). See Note 17 in the Financial Statements for more information.

2008 Compared to 2007



 (in millions, except per share amounts)                   2008        2007      Change
 Sales                                                   $ 5,697.8   $ 5,003.9   $ 693.9
 Income from continuing operations                           577.6       569.3       8.3
 Diluted earnings per share from continuing operations        3.90        3.53      0.37

Sales

Sales increased 14 percent in 2008 compared to 2007. Organic sales increased 6 percent, with effects of currency translation and acquisitions adding 5 and 3 percentage points to the growth rate, respectively. In 2008, we continued the execution of our ongoing globalization strategy and our focus on emerging markets, as approximately 50 percent of our sales during 2008 were to non-U.S. customers. Sales in emerging markets grew at above our average growth rate. We demonstrated improved performance in the Asia-Pacific region, with particular strength in China and India. The growth rate in Asia-Pacific accelerated every quarter during 2008, resulting in a full year organic growth rate of 15 percent compared to 2007. We continued to see strong organic growth in Latin America of 14 percent, benefiting from strength in resource-based industries. Sales to customers in the United States, Canada and EMEA each grew at 4-5 percent organically.

In 2008, we experienced considerable growth in our key process and OEM growth initiatives, demonstrating the ongoing diversification of our revenue base. We achieved above average growth in resource-based industries, primarily due to higher commodity prices, infrastructure spending and continued demand for oil, gas and other resources, particularly in emerging markets. Sales to global automotive customers grew at about our average growth rate, but U.S. automotive growth was below our average growth rate. Sales to customers in the life sciences industries were significantly below our average growth rate. Our sales growth in the food and beverage and home and personal care industries was also below our average growth rate; however, these industries tend to provide for more consistent rates of growth over time.

Purchase Accounting Depreciation and Amortization

Purchase accounting depreciation and amortization was $24.2 million in 2008 compared to $16.4 million in 2007. The increase was due to amortization of intangibles from recent acquisitions, particularly CEDES, Incuity, Pavilion and Industrial Control Services Group Limited, which does business as ICS Triplex.

General Corporate - Net

General corporate expenses were $77.2 million in 2008 compared to $72.8 million in 2007. The increase was primarily due to lower interest and dividend income in 2008 compared to 2007, partially offset by reduced charitable contributions in 2008 and lower environmental remediation charges at legacy sites compared to 2007.

Interest Expense

Interest expense was $68.2 million in 2008 compared to $63.4 million in 2007. The increase was due to higher average outstanding borrowings, partially offset by lower interest rates than the prior year.

Special Charges

In 2008, we incurred special charges of $50.7 million ($34.0 million after tax or $0.23 per diluted share) related to restructuring actions designed to better align resources with growth opportunities and to reduce costs as a result of current and anticipated market conditions. This current year charge was partially offset by the reversal of $4.0 million ($3.6 million net of tax or $0.02 per diluted share) of severance accruals established as part of our 2007 restructuring actions as employee attrition differed from our original estimates. The 2008 restructuring actions include workforce reductions aimed at streamlining administrative functions, realigning selling resources

Special charges of $43.5 million in 2007 include costs related to various restructuring actions designed to execute on our cost productivity initiatives and to advance our globalization strategy. Actions included workforce reductions, realignment of administrative functions and rationalization and consolidation of global operations. We paid $16.6 million related to these charges during the year ended September 30, 2008 and $5.3 million during the year ended September 30, 2007.

Income Taxes

The effective tax rate for 2008 was 28.6 percent compared to 27.8 percent in 2007. The effective tax rate in 2008 was lower than the statutory tax rate of 35 percent because of lower tax rates on income outside the United States and because we used foreign tax credits. The tax rate in 2008 was higher than 2007 because we favorably resolved various federal and state matters in the prior year.

The 2007 effective tax rate differed from the federal statutory rate of 35 percent because we benefited from lower non-U.S. tax rates, resolved certain tax matters and claims related to the closure of the 2005 U.S. federal audit cycle and various state tax audits and made other provision adjustments.

See Note 16 in the Financial Statements for a complete reconciliation of the United States statutory tax rate to the effective tax rate and more information on tax events in 2008 and 2007 affecting the respective tax rates.

Income from Continuing Operations

Income from continuing operations in 2008 increased $8.3 million compared to 2007. The increase was primarily due to productivity performance and higher volume, partially offset by increased investment spending to support globalization, growth and technology, increased purchase accounting depreciation and amortization, inflation and a higher effective income tax rate.

Discontinued Operations

Amounts reported for discontinued operations in 2007 primarily relate to the operating results of the principal businesses of our former Power Systems operating segment for periods before the divestiture and the gain on sale of the principal businesses of that operating segment. Net income on operating activities of Power Systems was $42.3 million in 2007. We reported an after-tax gain on the sale of Power Systems of $868.2 million ($5.39 per share) in 2007.

We also reported after-tax income of $8.0 million during 2007 related to other discontinued operations activities. See Note 13 in the Financial Statements for more information on discontinued operations.

Architecture & Software



        (in millions, except percentages)     2008          2007          Change
. . .