The following information should be read in conjunction with the September 30, 2008 consolidated financial statements and notes thereto, along with management's discussion and analysis of financial condition and results of operations included in the Company's 2008 Annual Report on Form 10-K. References in the following discussion and analysis to "Three Months" refer to the three months ended March 31, 2009, compared to the three months ended March 31, 2008, while references to "Year-to-Date" refer to the six months ended March 31, 2009, compared to the six months ended March 31, 2008. Outlook
The global economic environment remained distressed during the second quarter of fiscal 2009. The automotive industry experienced prolonged production shut-downs in the North American and European automotive markets and industry forecasts for vehicle production for fiscal 2009 continued to decline. So far in fiscal 2009, automotive production has declined by a double digit rate in every region compared to the similar periods in 2008, with virtually every automotive manufacturer affected, including our top four customers: General Motors Corporation, Ford Motor Company, Daimler AG and Toyota Motor Corporation. However, with government support programs in both the U.S. and Europe, we expect profitability to improve in our automotive experience business unit in the second half of fiscal 2009 as compared to the first half of fiscal 2009. The softening in the commercial construction market is primarily concentrated in the office, retail and lodging sectors, whereas institutional buildings, such as government, healthcare and education, remained the strongest sectors of new construction and are the primary focus of our building efficiency business. Due to the uncertain economic environment, some commercial customers have deferred service and maintenance work, and U.S. housing starts and existing-home sales continued to decline. Additionally, there have been delays in energy efficiency projects pending government stimulus funding. In spite of these factors, our building efficiency backlog continued to grow, tax credits in the U.S. for first time home buyers have the potential to stabilize the domestic residential housing market, and we believe that we are well-positioned to benefit from additional future potential government energy efficiency programs. We are working to reduce our variable and fixed costs in both automotive experience and power solutions in response to the decline in automotive production volumes. In the fourth quarter of fiscal 2008 and in the second quarter of fiscal 2009, we announced restructuring plans intended to improve our cost structure and rebalance production within each regional footprint. We expect to see the benefits from these plans in the second half of fiscal 2009. Despite the decline in automotive production, we believe that power solutions is well positioned with its strong global market share in the historically more stable aftermarket sector. We continue to work on opportunities to grow with our existing customers, as well as win new accounts.
In April 2009, the U.S. Treasury Department finalized the Auto Supplier Support Program (the Program) to provide auto-parts suppliers with access to government-backed protection whereby amounts owed to them for the products they ship to General Motors Corporation or Chrysler LLC will be paid regardless of the financial viability of either automotive company. Participating suppliers have two options under the Program: Option 1 is to receive the protection for a modest fee, or Option 2 is to sell their receivables into the program for a modest discount, which will provide them with immediate liquidity. The Company has elected to participate in Option 1 of the Program and will pay a 2% fee on its eligible sales.
On April 30, 2009, Chrysler LLC (Chrysler) filed for bankruptcy protection after they were unable to reach an agreement with lenders to restructure their debt. Under the initial bankruptcy plan, Chrysler announced that they will temporarily idle all of their U.S. production facilities as of May 4, 2009, and that they intend to resume normal production schedules, under their new organizational structure upon emergence from bankruptcy, which they expect will be within 30 to 60 days. Chrysler has announced that eight plants are scheduled to close permanently, three of which have already closed as of the bankruptcy filing date. Because Chrysler contemplates that the bankruptcy filing will only result in a temporary shut down for the majority of its facilities, limited plant closings have been announced and no automotive platforms that are significant to the Company have been discontinued at this time, the Company believes no significant inventory obsolescence or fixed asset impairments exist at March 31, 2009. As a participant in the U.S. Treasury Department's Auto Supplier Support Program (the Program), the Company is guaranteed payment on its eligible sales defined under this program, less a nominal fee on those sales, for participation in the Program. Additionally, a federal bankruptcy judge gave Chrysler interim approval to utilize approximately $1.7 billion to begin settling obligations to its suppliers. Therefore, the Company believes its outstanding accounts receivable balance with Chrysler at March 31, 2009, is fully collectible.

Liquidity and Capital Resources
The Company believes its capital resources and liquidity position at March 31, 2009, were adequate to meet projected needs. The Company believes requirements for working capital, capital expenditures, dividends, minimum pension contributions, debt maturities and any potential acquisitions in fiscal 2009 will continue to be funded from operations, supplemented by short- and long-term borrowings, if required. The Company currently manages its short-term debt position in the U.S. and euro commercial paper markets and bank loan markets. The Company has experienced uninterrupted access in the U.S. commercial paper market, while the euro market periodically closes for U.S. multinationals. The Company continues to adjust its commercial paper maturities and issuance levels given market reactions to industry events and changes in the Company's credit rating. Further downgrades in our credit rating could negatively impact our access to the commercial paper market. In the event the Company is unable to issue commercial paper, it would have the ability to draw on its $2.05 billion revolving credit facility, which extends until December 2011. The Company does not have any significant debt maturities until fiscal 2011. As such, the Company believes it has sufficient financial resources to fund operations and meet its obligations for the foreseeable future.
The Company's debt financial covenants require a minimum consolidated stockholders' equity of at least $1.31 billion at all times and allow a maximum aggregated amount of 10% of consolidated stockholders' equity for liens and pledges. For purposes of calculating the Company's covenants, consolidated stockholders' equity is calculated without giving effect to (i) the application of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" or (ii) the cumulative foreign currency translation adjustment. As of March 31, 2009, consolidated stockholders' equity as defined per our covenants was $7.7 billion and there were no outstanding amounts for liens and pledges. The Company expects to be in compliance with all covenants and other requirements set forth in its credit agreements and indentures in the foreseeable future. None of the Company's debt agreements limit access to stated borrowing levels or require accelerated repayment in the event of a decrease in the Company's credit rating.
The key financial assumptions used in calculating the pension liability are determined annually, or whenever plan assets and liabilities are re-measured as required under accounting principles generally accepted in the U.S., including the expected rate of return on our plan assets. Our most recent actuarial valuation utilized an expected rate of return of 8.5% and 5.5% for U.S. and non-U.S. plans, respectively. Given the recent credit market crisis and losses in equity markets, the Company anticipates the actual rate of return will likely be well below these rates in fiscal 2009. However, the Company still believes the long-term rate of return will approximate 8.5% and 5.5% for U.S. and non-U.S. plans, respectively. Any differences between actual results and the expected long-term asset returns will be reflected in other comprehensive income and amortized to pension expense in future years. The Company's U.S. minimum funding requirement for the remainder of fiscal 2009, and through the first quarter of fiscal 2010, is approximately $21 million per quarter. The Company also monitors its non-U.S. plans' funded status and meets all minimum funding requirements. The Company is reviewing the annual incremental funding requirements for its non-U.S. plans resulting from the recent global equity market performance to determine if additional funding is required. In fiscal 2009, the Company made incremental discretionary pension contributions of approximately $75 million.
Segment Analysis
Management evaluates the performance of its business units based primarily on segment income, which is defined as income from continuing operations before income taxes and minority interests excluding net financing charges and restructuring costs.

Summary

                           Three Months Ended                    Six Months Ended
                               March 31,                             March 31,
       (in millions)        2009         2008       Change       2009         2008       Change
       Net sales         $  6,315      $ 9,406        -33 %   $ 13,651     $ 18,890        -28 %
       Segment income        (119 )        453          *         (429 )        827          *

* Measure not meaningful

Three Months:
• The $3.1 billion decrease in consolidated net sales was primarily due to lower sales in the automotive experience business ($1.8 billion) as a result of significantly reduced industry production levels by all our major original equipment manufacturers (OEM's) primarily in North America and Europe, the unfavorable impact of foreign currency translation ($712 million), the impact of lower lead costs on pricing and lower sales volumes in the power solutions business ($458 million) and lower net sales in the building efficiency business ($82 million) primarily due to a depressed U.S. residential market and lower technical services demand.

• The $572 million decrease in segment income was primarily due to lower volumes primarily in the automotive experience and power solutions businesses, inventory and related charges in the building efficiency business, and the unfavorable effects of foreign currency translation ($42 million).

Year-to-Date:
• The $5.2 billion decrease in consolidated net sales was primarily due to lower sales in the automotive experience business ($3.0 billion) as a result of significantly reduced industry production levels by all our major OEM's primarily in North America and Europe, the unfavorable impact of foreign currency translation ($1.2 billion), and in the power solutions business, primarily the impact of lower lead costs on pricing and lower sales volumes ($947 million).

• The $1.3 billion decrease in segment income was primarily due to lower volumes mainly in the automotive experience business as a result of significantly reduced industry production volumes, lead costs not recovered by pricing, first quarter impairment charges recorded on an equity investment ($152 million) in the building efficiency North American unitary products segment and certain fixed asset impairment charges recorded in the automotive experience North America and Europe segments ($77 million and $33 million, respectively) and the unfavorable impact of foreign currency translation ($75 million).

Building Efficiency - Net Sales

                                  Net Sales                                      Net Sales
                                Three Months                                    Six Months
                               Ended March 31,                                Ended March 31,
(in millions)                2009           2008           Change           2009           2008           Change
North America systems      $    571        $   563               1 %      $  1,108        $ 1,075               3 %
North America service           526            582             -10 %         1,058          1,123              -6 %
North America unitary
products                        117            153             -24 %           250            315             -21 %
Global workplace
solutions                       659            781             -16 %         1,387          1,562             -11 %
Europe                          498            616             -19 %         1,070          1,281             -16 %
Rest of world                   594            604              -2 %         1,179          1,187              -1 %

                           $  2,965        $ 3,299             -10 %      $  6,052        $ 6,543              -8 %

Three Months:
• The increase in North America systems was primarily due to higher control systems and product commercial volumes in the construction and replacement markets ($11 million) and the impact of prior

year acquisitions ($5 million), partially offset by the unfavorable impact from foreign currency translation ($8 million).

• The decrease in North America service was primarily due to lower truck-based business ($67 million) and the unfavorable impact of foreign currency translation ($9 million), partially offset by higher volumes in energy solutions ($20 million).

• The decrease in North America unitary products was primarily due to a depressed U.S. residential market, which impacts the demand for HVAC equipment in new construction housing starts.

• The decrease in global workplace solutions was primarily due to the unfavorable impact of foreign currency translation ($110 million), and lower volume of pass through contracts in Europe and Asia ($27 million), partially offset by higher volumes in North America ($15 million).

• The decrease in Europe reflects the unfavorable impact of foreign currency translation ($111 million) and lower control systems and product demand in emerging markets.

• The decrease in rest of world was due to volume decreases in Latin America ($21 million) and the unfavorable impact of foreign currency translation ($14 million), partially offset by higher volumes in the Middle East ($25 million).

Year-to-Date:
• The increase in North America systems was primarily due to higher control systems and product commercial volumes in the construction and replacement markets ($38 million) and the impact of prior year acquisitions ($10 million), partially offset by the unfavorable impact of foreign currency translation ($15 million).

• The decrease in North America service was primarily due to lower truck-based business ($82 million) and the unfavorable impact of foreign currency translation ($17 million), partially offset by increased volume of energy solutions ($34 million).

• The decrease in North America unitary products was primarily due to a depressed U.S. residential market, which impacts the demand for HVAC equipment in new construction housing starts.

• The decrease in global workplace solutions primarily reflects the unfavorable impact of foreign currency translation ($199 million) and lower volume of pass through contracts in Europe and Asia, partially offset by higher volumes in North America.

• The decrease in Europe reflects the unfavorable impact of foreign currency translation ($198 million) and a reduction in control systems and products in emerging markets and specialty volumes ($13 million).

• The decrease in rest of world is due to volume decreases in Latin America ($24 million) and the unfavorable impact of foreign currency translation ($14 million), partially offset by higher volumes in the Middle East and other regions ($30 million).

Building Efficiency - Segment Income

                                Segment Income                                  Segment Income
                                 Three Months                                     Six Months
                               Ended March 31,                                 Ended March 31,
(in millions)                2009             2008          Change            2009            2008          Change
North America systems      $      55         $   63             -13 %      $      110        $  112              -2 %
North America service             37             42             -12 %              71            68               4 %
North America unitary
products                         (49 )          (14 )             *              (225 )         (23 )             *
Global workplace
solutions                          8             11             -27 %              14            29             -52 %
Europe                            12             14             -14 %              24            40             -40 %
Rest of world                     27             61             -56 %              75           114             -34 %

                           $      90         $  177             -49 %      $       69        $  340             -80 %

* Measure not meaningful

Three Months:
• The decrease in North America systems was primarily due to a mix of a higher volume of lower margin commercial products ($12 million), partially offset by lower SG&A expenses ($2 million) and improved volumes ($2 million).

• The decrease in North America service was primarily due to lower volumes in truck-based services ($14 million) offset by lower SG&A expenses ($9 million).

• The decrease in North America unitary products was primarily due to the decline in sales volumes and inventory and related charges ($20 million).

• The decrease in global workplace solutions is primarily due to the unfavorable impact of foreign currency translation ($3 million).

• The decrease in Europe was primarily due to lower margin rates on lower sales volumes ($14 million) and the unfavorable impact of foreign currency translation ($3 million), partially offset by lower SG&A costs ($15 million) due in part to the benefits of restructuring activities.

• The decrease in rest of world was primarily due to lower overall sales volumes, the impact of foreign currency on imported products sold in Latin America and higher SG&A expenses for investments in other regions.

Year-to-Date:
• The decrease in North America systems was primarily due to a mix of a higher volume of lower margin commercial products, partially offset by lower SG&A expenses and higher volumes.

• The increase in North America service was primarily due to lower SG&A expenses, partially offset by lower volumes.

• The decrease in North America unitary products was primarily due to an equity investment impairment charge ($152 million), the decline in sales volumes and inventory and related charges ($20 million).

• The decrease in global workplace solutions was primarily due to higher bad debt expense due to a customer bankruptcy ($4 million), unfavorable mix in North America ($5 million), and the unfavorable impact of foreign currency translation ($6 million).

• The decrease in Europe was primarily due to lower volumes ($21 million), the unfavorable impact of foreign currency translation ($10 million), partially offset by lower SG&A expenses ($15 million) due in part to the benefits of restructuring activities.

• The decrease in rest of world was primarily due to lower volumes, a gain on the sale of a business in the prior year ($6 million), the impact of foreign currency on imported products sold in Latin America and higher SG&A expense for investments in other regions.

Automotive Experience - Net Sales

                            Net Sales                             Net Sales
                           Three Months                           Six Months
                         Ended March 31,                       Ended March 31,
       (in millions)     2009        2008        Change        2009        2008        Change
       North America   $    888     $ 1,699          -48 %   $  2,291     $ 3,518          -35 %
       Europe             1,333       2,551          -48 %      2,772       4,952          -44 %
       Asia                 224         400          -44 %        513         769          -33 %

                       $  2,445     $ 4,650          -47 %   $  5,576     $ 9,239          -40 %

Three Months:
• The decrease in North America was primarily due to the significantly reduced industry production volumes by all our major OEM's.

• The decrease in Europe was primarily due to lower production volumes across all customers ($878 million), the unfavorable impact of foreign currency translation ($329 million) and lower pricing ($11 million).

• The decrease in Asia was primarily due to lower volumes in Korea and Japan ($139 million) and the unfavorable impact of foreign currency translation ($37 million).

Year-to-Date:
• The decrease in North America was primarily due to the significantly reduced industry production volumes by all our major OEM's ($1.3 billion), partially offset by the acquisition of the interior product assets of Plastech Engineered Products, Inc. in July 2008, which had a favorable impact of $87 million.

• The decrease in Europe was primarily due to lower industry production volumes across all customers ($1.6 billion), the unfavorable impact of foreign currency translation ($576 million) and lower pricing ($11 million).

• The decrease in Asia was primarily due to lower sales volumes mainly in Korea and Japan ($176 million) and the unfavorable impact of foreign currency translation ($80 million).

Automotive Experience - Segment Income

                           Segment Income                       Segment Income
                            Three Months                          Six Months
                          Ended March 31,                      Ended March 31,
. . .