ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2009

AND COMPARABLE PERIODS ENDED MARCH 31, 2008

OVERVIEW

The Company is a leading worldwide diversified manufacturer of motion 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 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 March 2009 was 36.3 and the most recent PMI for the Eurozone countries was 33.9. The ISM index and the PMI index for the Eurozone countries have both decreased significantly during the first nine months of fiscal 2009 and the Company's order rates during this same time period have reflected this decline. At this time, the Company is unable to determine if the downward trend in order rates will continue and if so, for how long and at what rate of decline. With respect to the aerospace market, aircraft miles flown and revenue passenger miles during fiscal 2009 have declined moderately from 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 March 2009 were approximately 48 percent lower than housing starts in March 2008. The Company does not anticipate housing starts to improve in the foreseeable future.

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. However, recent interest rate cuts have not had the same impact on worldwide industrial manufacturing activity as past interest rate cuts.

The Company remains focused on maintaining its financial strength through the current worldwide economic downturn by adjusting its cost structure to reflect changing demand levels, maintaining a strong balance sheet and managing its cash. The Company's WIN Strategy initiatives relating to growth and margin improvement are well designed to assist in meeting this challenge. The Company

- 15 -

---

has implemented several additional initiatives, including workforce reductions, salary freezes, and short work weeks, to reduce costs in response to the continued deterioration in worldwide economic conditions and the corresponding decline in the Company's order rates. The Company has also developed contingency plans to further control costs if economic conditions continue to deteriorate.

Despite the current economic conditions, the financial condition of the Company remains strong. The Company continues to generate substantial cash flows from operations, has proactively managed working capital and controlled capital spending, currently has a debt to debt-equity ratio of 36.8 percent and has been able to borrow needed funds at affordable interest rates.

While current worldwide economic conditions necessitate that the Company concentrate its efforts on maintaining its financial strength, the Company believes many opportunities for growth remain available. The Company will pursue these opportunities as appropriate in the current environment in order to strongly position itself for when the economic recovery ultimately occurs. Major opportunities for growth are as follows:

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

• Marketing systems solutions for customer applications;

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

• New product introductions, 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.

During the first nine months of fiscal 2009, the Company completed nine acquisitions whose aggregate incremental annual revenues were approximately $532 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 discussion below is structured to separately discuss the Consolidated Statement of Income, Results by Business Segment, Balance Sheet and Statement of Cash Flows.