OVERVIEW
The Corporation is a global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. As more fully described in Note 8 of Notes to Consolidated Financial Statements, the Corporation operates in three reportable business segments - Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems - with these business segments comprising approximately 73%, 15%, and 12%, respectively, of the Corporation's sales for the nine-month period ended September 28, 2008.

The Corporation markets its products and services in over 100 countries. During 2007, approximately 60%, 24%, and 16% of its sales were made to customers in the United States, in Europe (including the United Kingdom and Middle East), and in other geographic regions, respectively. The Power Tools and Accessories and Hardware and Home Improvement segments are subject to general economic conditions in the countries in which they operate as well as the strength of the retail economies. The Fastening and Assembly Systems segment is also subject to general economic conditions in the countries in which it operates as well as to automotive and industrial demand.

An overview of certain aspects of the Corporation's performance during the three- and nine-month periods ended September 28, 2008, follows:

ˇ Total consolidated sales for the three- and nine-month periods ended September 28, 2008, decreased by 4%, from the corresponding 2007 periods to $1.6 billion and $4.7 billion, respectively. Those reductions were the result of a 6% and 7% decline in unit volume for the three- and nine-month periods ended September 28, 2008, respectively, and a 1% unfavorable impact from pricing actions. Those decreases were partially offset by a 3% and 4% favorable impact from foreign currency attributable to the effects of a weaker U.S. dollar for the three- and nine-month periods ended September 28, 2008, respectively. Those unit volume declines were primarily driven by lower sales in the United States and Western Europe. The Corporation expects that continued weakness in key sectors of the U.S. economy, including lower residential housing starts, together with slowing conditions in Western Europe and the global effects of the recent economic upheaval, will contribute to a high-single-digit rate of sales decline, excluding the effects of foreign currency translation, in 2008, as compared to 2007.

ˇ Operating income as a percentage of sales for the three- and nine-month periods ended September 28, 2008, decreased by approximately 250 basis points and 290 basis points, respectively, from the corresponding periods in 2007. Of the 250 basis point decline for the three-month period ended September 28, 2008, a reduction in gross margin contributed approximately 160 basis points and the $15.6 million pre-tax restructuring charge contributed approximately 100 basis points, partially offset by approximately 10 basis points of improvement associated with a decrease in selling, general, and administrative expenses. Of the 290 basis point decline for the nine-month period ended September 28, 2008, approximately 150 basis points was attributable to a reduction in gross margin, approximately 70 basis points was attributable to an increase in selling, general, and administrative expenses, and approximately 70 basis points was attributable to a $33.9 million pre-tax

restructuring charge. Gross margin as a percentage of sales declined in the three and nine months ended September 28, 2008, as compared to the corresponding periods in 2007, as a result of the negative effects of rising commodity/component costs (together with the change in China's value added tax and appreciation of the Chinese renminbi that, in the aggregate, increased cost of goods sold by approximately $30 million and $120 million for the three- and nine-month periods, respectively), negative effects of pricing actions, de-leveraging of fixed costs, and unfavorable mix. Those negative effects on gross margin were partially offset by the favorable effects of productivity and restructuring initiatives, lower customer consideration and promotional spending, and foreign currency transaction gains. Selling, general, and administrative expenses as a percentage of sales decreased in the three-month period ended September 28, 2008, as compared to the corresponding 2007 period, due principally to the favorable effects of cost control and restructuring initiatives. Selling, general, and administrative expenses as a percentage of sales increased in the nine-month period ended September 28, 2008, as compared to the corresponding 2007 period, due principally to the de-leveraging of expenses over a lower sales base in the United States and Europe that more than offset the favorable effects of cost control and restructuring initiatives.

ˇ The Corporation expects that operating income as a percentage of sales for 2008 will be unfavorably impacted by the effects of rising commodity/component costs (together with the change in China's value added tax and appreciation of the Chinese renminbi) which, in the aggregate, are expected to approximate $145 million of incremental inflation, and an increase in selling, general, and administrative expenses as a percentage of sales associated with the de-leveraging of expenses over a lower sales base. However, the Corporation believes that those unfavorable effects will be partially offset by the favorable impacts of productivity and restructuring initiatives.

ˇ Interest expense (net of interest income) decreased by $6.5 million and $16.7 million for the three- and nine-month periods ended September 28, 2008, from the corresponding 2007 periods principally as a result of lower interest rates, including the impact on the Corporation's foreign currency hedging activities. The recent global credit crisis has caused a significant increase in interest rates since mid-September 2008 and the Corporation expects that the effect of higher interest rates will continue throughout the remainder of 2008.

ˇ The Corporation's effective tax rates of 21.6% and 21.9% for the three-and nine-month periods ended September 28, 2008, respectively, were less than the 27.2% and 27.7% effective tax rates recognized in the corresponding periods of 2007, primarily due to the following factors: (i) favorability associated with finalization of closing agreements, in the third quarter of 2008, of the settlement of income tax litigation between the Corporation and the U.S. government agreed in late 2007 and more fully described in Note 11 of Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2007; and (ii) the favorable settlement of certain tax audits in 2008. In addition, the tax benefit of $9.1 million recognized on the $33.9 million pre-tax restructuring charge during the nine months ended September 28, 2008, contributed to a lower effective income tax rate in that period, as compared to the corresponding period in 2007.

ˇ Net earnings were $85.8 million, or $1.42 per share on a diluted basis, for the three-month period ended September 28, 2008, as compared to net earnings of $104.6 million, or $1.59 per share on a diluted basis, for the corresponding period in 2007. For the nine months ended September 28, 2008, net earnings were $249.9 million, or $4.09 per share on a diluted basis, as

compared to $330.7 million, or $4.95 per share on a diluted basis, for the corresponding period in 2007.

ˇ Under an ongoing share repurchase program, the Corporation repurchased approximately 3.1 million shares of its common stock during the first nine months of 2008 at a cost of $201.1 million. As a result of the Corporation's share repurchase program, shares used in computing diluted earnings per share for both the three- and nine-month periods ended September 28, 2008, declined by 8%, as compared to the corresponding 2007 periods.

The preceding information is an overview of certain information for the three- and nine-month periods ended September 28, 2008, and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in its entirety.

In the discussion and analysis of financial condition and results of operations that follows, the Corporation generally attempts to list contributing factors in order of significance to the point being addressed.

RESULTS OF OPERATIONS

Sales
The following chart sets forth an analysis of the consolidated changes in sales
for the three- and nine-month periods ended September 28, 2008 and September 30,
2007:

                          Analysis of Changes in Sales
                                                Three Months Ended                   Nine Months Ended
                                             September         September         September         September
(Dollars in Millions)                         28, 2008          30, 2007          28, 2008          30, 2007
Total sales                                $   1,570.8       $   1,633.6       $   4,708.3       $   4,910.7
Unit volume                                         (6 ) %            (1 ) %            (7 ) %            (1 ) %

Total consolidated sales for the three- and nine-month periods ended September 28, 2008, decreased by 4% from the corresponding 2007 levels. Unit volume declined 6% and 7% for the three- and nine-month periods ended September 28, 2008, respectively. Those unit volume declines were primarily driven by lower sales in the United States, due to general economic conditions in the U.S., including lower housing starts, and in Western Europe due to weakening economic conditions. Pricing actions had a 1% unfavorable impact on sales for both the three- and nine-month periods ended September 28, 2008, respectively. The effects of a weaker U.S. dollar, as compared to most other currencies, particularly the euro, Canadian dollar, Brazilian real, and Japanese yen, resulted in a 3% and 4% increase in consolidated sales over the prior year's levels for the three- and nine-month periods ended September 28, 2008, respectively.

Earnings
A summary of the Corporation's consolidated gross margin, selling, general, and
administrative expenses, restructuring and exit costs, and operating income-all
expressed as a percentage of sales follows:

                                                    Three Months Ended                         Nine Months Ended
                                             September 28,         September 30,       September 28,         September 30,
(Percentage of sales)                                 2008                  2007                2008                  2007
Gross margin                                          32.4 %                34.0 %              33.2 %                34.7 %
Selling, general, and administra-
   tive expenses                                      23.8 %                23.9 %              24.8 %                24.1 %
Restructuring and exit costs                           1.0 %                   - %                .7 %                   - %
Operating income                                       7.6 %                10.1 %               7.7 %                10.6 %

The Corporation reported consolidated operating income of $119.9 million, or 7.6% of sales, for the three months ended September 28, 2008, as compared to operating income of $164.5 million, or 10.1% of sales, for the corresponding period in 2007. Operating income for the nine months ended September 28, 2008, was $362.2 million, or 7.7% of sales, as compared to operating income of $520.7 million, or 10.6% of sales, for the corresponding period in 2007.

Consolidated gross margin as a percentage of sales declined by 160 basis points and 150 basis points from the 2007 levels to 32.4% and 33.2% for the three- and nine-month periods ended September 28, 2008, respectively. That decrease in gross margin was driven by the negative effects of rising commodity/component costs - together with the change in China's value added tax and appreciation of the Chinese renminbi - which, in the aggregate, increased cost of goods sold over the prior year's levels by approximately $30 million and $120 million for the three and nine months ended September 28, 2008, respectively. In addition, the comparison of gross margin as a percentage of sales for the three and nine months ended September 28, 2008, to the 2007 levels was unfavorably impacted by the negative effects of pricing actions, de-leveraging of fixed costs, and unfavorable mix. Those negative factors were partially offset by the favorable effects of productivity and restructuring initiatives, lower customer consideration and promotional spending, and foreign currency transaction gains.

Consolidated selling, general, and administrative expenses as a percentage of sales decreased by 10 basis points from the 2007 level to 23.8% for the three months ended September 28, 2008, and increased by 70 basis points over the 2007 level to 24.8% for the nine months ended September 28, 2008. Selling, general, and administrative expenses declined by $18.0 million and $16.2 million from the prior year's levels to $373.4 million and $1,167.5 million for the three- and nine-month periods ended September 28, 2008, respectively, as the favorable effects of cost control and restructuring initiatives, coupled with the effect of lower sales on certain volume-sensitive expenses, such as transportation and distribution, offset the unfavorable effects of foreign currency translation.

During the three and nine months ended September 28, 2008, the Corporation recognized restructuring and exit costs of $15.6 million and $33.9 million, respectively, related to actions in its Power Tools and Accessories and Hardware and Home Improvement segments and, for the nine-month period, Fastening and Assembly Systems segment. As more fully described in Note 13 of Notes to Consolidated Financial Statements, these restructuring charges primarily reflect actions to reduce the Corporation's selling, general, and administrative expenses and to improve its manufacturing cost base.

Consolidated net interest expense (interest expense less interest income) for the three months ended September 28, 2008, and September 30, 2007, was $13.4 million and $19.9 million, respectively. Net interest expense for the nine months ended September 28, 2008, and September 30, 2007, was $44.7 million and $61.4 million, respectively. The decrease in net interest expense, as compared to the prior year's levels, for both the three- and nine-month periods ended September 28, 2008, was principally the result of lower interest rates, including the impact on the Corporation's foreign currency hedging activities.

Other (income) expense was $(3.0) million and $.9 million for the three months ended September 28, 2008, and September 30, 2007, respectively. Other (income) expense for the nine months ended September 28, 2008, and September 30, 2007, was $(2.6) million and $2.2 million, respectively. Other (income) expense for the three- and nine-month periods ended September 28, 2008, benefited from a gain on the sale of a non-operating asset.

Consolidated income tax expense of $23.7 million and $70.2 million was recognized on the Corporation's earnings before income taxes of $109.5 million and $320.1 million for the three- and nine-month periods ended September 28, 2008, respectively. The Corporation's effective tax rate was 21.6% and 21.9% for the three and nine months ended September 28, 2008, respectively. The decline in those effective tax rates from the 27.2% and 27.7% effective tax rates recognized for the three and nine months ended September 30, 2007, respectively, was primarily due to the following factors: (i) favorability associated with finalization of closing agreements, in the third quarter of 2008, of the settlement of income tax litigation between the Corporation and the U.S. government agreed in late 2007 and more fully described in Note 11 of Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2007; and (ii) the favorable settlement of certain tax audits in 2008. In addition, the tax benefit of $9.1 million recognized on the $33.9 million pre-tax restructuring charge during the nine months ended September 28, 2008, contributed to a lower effective income tax rate in that period, as compared to the corresponding period in 2007.

The Corporation reported net earnings of $85.8 million, or $1.42 per share on a diluted basis, for the three-month period ended September 28, 2008, as compared to net earnings of $104.6 million, or $1.59 per share on a diluted basis, for the corresponding period in 2007. The Corporation reported net earnings of $249.9 million, or $4.09 per share on a diluted basis, for the nine-month period ended September 28, 2008, as compared to net earnings of $330.7 million, or $4.95 per share on a diluted basis, for the corresponding period in 2007. Net earnings for the three- and nine-month periods ended September 28, 2008, included the effects of an after-tax restructuring charge of $12.6 million ($15.6 million before taxes) and $24.8 million ($33.9 million before taxes), respectively. In addition to the matters previously noted, diluted earnings per share for the three- and nine-month periods ended September 28, 2008, benefited from lower weighted average shares outstanding. Shares used in computing diluted earnings per share for the three- and nine-month

periods, ended September 28, 2008, declined by approximately 8%, as compared to the corresponding 2007 periods, as a result of the Corporation's share repurchase program.

BUSINESS SEGMENTS
As more fully described in Note 8 of Notes to Consolidated Financial Statements, the Corporation operates in three reportable business segments: Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems.

Power Tools and Accessories
Segment sales and segment profit for the Power Tools and Accessories segment,
determined on the basis described in Note 8 of Notes to Consolidated Financial
Statements, were as follows (dollars in millions):

                                               Three Months Ended               Nine Months Ended
                                             September       September       September       September
                                              28, 2008        30, 2007        28, 2008        30, 2007
Sales to unaffiliated customers            $   1,115.9     $   1,189.9     $   3,324.1     $   3,641.2
Segment profit                                    84.1           122.7           262.4           427.7

Sales to unaffiliated customers in the Power Tools and Accessories segment during the third quarter of 2008 decreased by 6% from the corresponding period in 2007.

During the third quarter of 2008, sales in North America decreased at a high-single-digit rate from the prior year's level primarily as a result of continued weak demand in the United States as a result of depressed housing and decelerating commercial construction. Sales for the industrial power tools and accessories business in the United States decreased at a high-single-digit rate as a result of lower demand across all channels and most key product categories, but that decline was mitigated by sales associated with listing gains at a major retailer. Sales for the consumer power tools and accessories business in the United States decreased at a double-digit rate from the 2007 level as a result of declines caused by lost listings in the pressure-washer category, weak demand, and the effects of a transition from the FirestormŽ to the Porter-CableŽ brand of power tools and accessories at a large customer. The negative effects of the Firestorm transition were partially offset by initial shipments of the Porter-Cable line in the third quarter of 2008. In Canada, sales increased at a double-digit rate in both the industrial and consumer power tools and accessories businesses, driven by promotional activity.

Sales in Europe decreased at a double-digit rate during the third quarter of 2008 from the prior year's level primarily as a result of deteriorating economic conditions in Western Europe, which were only partially offset by continued growth in the Middle East and Eastern Europe. The weakness experienced in Western Europe was across virtually all countries but was particularly acute in the United Kingdom and Iberia. During the third quarter of 2008, sales decreased at a double-digit rate in both the industrial and consumer power tools and accessories businesses in Europe.

Sales in other geographic areas increased at a double-digit rate during the third quarter of 2008 over the prior year's level. That increase primarily resulted from a double-digit rate of increase in Latin America. Sales in the Asia/Pacific region approximated the prior year's level as sales growth in Asia was offset by weaknesses in Australia and New Zealand.

Segment profit as a percentage of sales for the Power Tools and Accessories segment declined from 10.3% for the third quarter of 2007 to 7.5% for the third quarter of 2008. Gross margin as a percentage of sales for the 2008 period decreased from the corresponding period in 2007 due to the unfavorable effects of commodity/component cost inflation (together with the change in China's value added tax and appreciation of the Chinese renminbi), pricing actions, mix, and fixed cost leverage. Selling, general, and administrative expenses as a percentage of sales were lower for the 2008 period, as compared to the corresponding period in 2007, principally due to the effects of cost reduction initiatives, including restructuring actions.

Sales to unaffiliated customers in the Power Tools and Accessories segment during the nine months ended September 28, 2008, decreased by 9% from the corresponding period in 2007.

During the nine months ended September 28, 2008, sales in North America decreased at a double-digit rate from the level experienced in the corresponding period in 2007. Sales of the Corporation's industrial power tools and accessories business in the United States decreased at a double-digit rate, with declines experienced across all key product categories and channels. Sales of the consumer power tools and accessories business in the United States decreased by approximately 24% from the 2007 level. Over half of that decline was caused by lost listings in the pressure-washer category and the effects of a transition from the Firestorm to the Porter-Cable brand of power tools and accessories at a large customer. In Canada, sales increased at a mid-single-digit rate primarily as a result of higher sales of the industrial power tools and accessories business due, in part, to promotional activities and listing gains.

Sales in Europe decreased at a high-single-digit rate during the nine months ended September 28, 2008, from the level experienced in the corresponding 2007 period as a result of lower sales in Western Europe, which were only partially offset by higher sales in Eastern Europe and the Middle East. Sales of both the Corporation's industrial and consumer power tools and accessories businesses in Europe decreased at a high-single-digit rate.

Sales in other geographic areas increased at a double-digit rate during the nine months ended September 28, 2008, over the level experienced in the corresponding period in 2007. That increase resulted from a double-digit rate of increase in Latin America and a low-single-digit rate of increase in the Asia/Pacific region.

Segment profit as a percentage of sales for the Power Tools and Accessories segment was 7.9% for the nine-month period ended September 28, 2008, as compared to 11.7% for the corresponding period in 2007. Gross margin as a percentage of sales for the 2008 period decreased from the corresponding period in 2007 as the unfavorable effects of commodity/component cost inflation (together with the change in China's value added tax and appreciation of the Chinese renminbi), pricing actions, fixed cost leverage, unfavorable mix and higher provisions for warranty were only partially offset by the favorable effects of productivity initiatives and foreign currency transaction gains. Selling, general, and administrative expenses as a percentage of sales was higher for the 2008 period, as compared to the corresponding period in 2007, due to de-leveraging of those expenses over lower sales volumes.

Hardware and Home Improvement
Segment sales and segment profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 8 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):


                                                 Three Months Ended                  Nine Months Ended
                                           September 28,         September     September 28,        September
                                                    2008          30, 2007              2008         30, 2007
Sales to unaffiliated customers            $       232.4      $      267.9     $       686.1     $      770.8
Segment profit                                      26.4              33.1              64.8             92.0

Sales to unaffiliated customers in the Hardware and Home Improvement segment decreased by 13% during the three-month period ended September 28, 2008, from the corresponding period in 2007. Sales of security hardware products decreased at a double-digit rate during the third quarter of 2008, from the corresponding period in 2007, due to lower U.S. sales in the new construction channel in 2008 as well as to the effect of sales associated with the introduction of the SmartSeries product line in 2007. Sales of plumbing products during the three-month period ended September 28, 2008, approximated the prior year's level as sales in the new construction channel declined at a double-digit rate but that decline was substantially offset by a slight increase in sales in the larger retail channel, as retailers increased inventories, in part, to support recent listings of the segment's plumbing products.

Segment profit as a percentage of sales for the Hardware and Home Improvement segment decreased from 12.3% for the three months ended September 30, 2007, to 11.3% for the three months ended September 28, 2008. That decrease was primarily attributable to an increase in selling, general, and administrative expenses as a percentage of sales, principally due to the de-leveraging of those expenses over lower sales. Gross margin as a percentage of sales increased during the . . .