Corporate expenses are allocatedbased on each segment's operating income. Interest expense and interestand investment income are not allocated.The shares of Aero Tech Manufacturing were sold to its managementeffective June 30, 2008. The Aero Tech operations were previouslyincluded with those of the Compression Group. The accompanyingconsolidated financial statements have been restated to reflect Aero Techas a discontinued operation.

This discussion and analysis has beenprepared on a continuing operations basis. Miningand industrial power systems applications, including prime and backuppower systems, recorded good deliveries in the quarter. Other marketsegments, most notably heavy and general construction, were lower.Rental revenues were up 1% in the quarter on a new location in Sault Ste.Marie, Ontario. First quarter rental revenues were supported by seasonalequipment contracts and strength in Manitoba and Newfoundland. Rentalactivity in Ontario has declined on lower demand from steel, auto andconstruction markets.Power generation revenues from Toromont-owned plants increased 3% in thequarter on increased operating hours.Product support revenues were 6% higher in the quarter compared to thefirst quarter of the prior year. Product support revenues in 2009benefited from higher parts pricing due to the weaker Canadian dollar andstandard price increases implemented at the beginning of the year.Product support revenues in 2008 were lower due to a labour strike inNewfoundland. Excluding these two factors, product support revenues weredown in the first quarter of 2009 on lower market activity in mostmarkets.Operating income in the quarter was $19.0 million, up $8.4 million or 80%over the prior year.

Gross margins in the quarter were up 6.1 percentagepoints from the similar period last year. The gross margin increase waslargely due to lagging costs associated with foreign currency hedges andinventories during a period of rapid devaluation of the Canadian dollar.Sales mix changes also increased gross margin, with a higher percentageof product support revenues to total Selling and administrative expensesincreased 3%. Operating income was 9.9% of revenues compared with 5.2% inthe prior year, reflecting the higher gross margins.Booking activity was down 44% in the quarter compared to the similarperiod in 2008 There were no significant order cancellations in thequarter Booking activity declined in most markets. operations have benefited from increasedparticipation in the natural gas compression market, flowing fromsignificant investment in facilities and people over the past severalyears Natural gas compression revenues in the U.S.

were up 30% on aconstant dollar basis.- Revenues from the sale of Canadian natural gas compression equipmentwere 18% lower period-over-period on continued market softness.- Process compression revenues were more than double those reported inthe similar quarter last year on project timing and increased activity.Process bookings were up 66% through March and backlog was 19% higherthan at this time last year.- Package revenues from refrigeration systems were 23% lower compared tothe first quarter of 2008, with lower activity within the industrialmarkets.Rental revenues were down 20% in the quarter compared to last year onlower rental fleet utilization in Canada and the U.S. Poor natural gasmarket fundamentals and tighter financial markets have reduced demand forrental equipment.Product support revenues were up 16% in the quarter over the similarperiod in 2008, although half of this increase is due to translation ofrevenues generated in the U.S. Net of this factor, natural gas productsupport activities increased 7% while refrigeration increased 8%.Operating income for the Compression Group increased 37% in the quarter,in line with the growth in revenue. Gross margins were 3.4 percentagepoints lower than in the similar period last year on lower gross marginsin Canada partially offset by improved gross margins in the U.S. Grossmargins in Canada were lower due to certain cost over-runs on U.S.sourced direct materials and labour inefficiencies related to recent shoprationalization moves in Calgary.

Selling and administrative expensesdecreased 3% in the quarter on focused efforts on cost containment inlight of current market conditions. Operating income was 6.6% of revenuesin the quarter, unchanged from the similar period last year. Compressionbooking activity for the quarter was down 56% compared to the similarperiod of 2008. Natural gas bookings were 75% lower than the prior yearon declines in both Canada and the U.S. Global economic conditions andweak natural gas market fundamentals have served to reduce demand forcompression equipment. Order cancellations in the quarter representedless than 2% of opening backlog. Overall, backlogs at March 31, 2009 wereup 3% from this time last year but down 11% from December 31, 2008,although backlogs benefited from the weaker Canadian dollar.