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 6 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%, 16%, and 11%, respectively, of the Corporation's sales for the three-month period ended March 29, 2009.

The Corporation markets its products and services in over 100 countries. During 2008, approximately 55%, 25%, and 20% 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-month period ended March 29, 2009, follows:

· The Corporation continued to face a difficult demand environment during the first quarter of 2009 due to the impact of the global recession. Sales for the three-month period ended March 29, 2009, decreased by 28% from the corresponding 2008 level. That reduction was the result of a 24% decline in unit volume, a 5% unfavorable impact from foreign currency attributable to the effects of a stronger U.S. dollar, partially offset by 1% of favorable price. The unit volume decline was experienced across all business segments and throughout all geographic regions. The Corporation expects that continued weakness in economic conditions will result in a sales decline of approximately 20% in 2009, as compared to 2008, including a 5% unfavorable impact from foreign currency.

· Operating income as a percentage of sales for the three-month period ended March 29, 2009, decreased by 460 basis points, from the corresponding period in 2008. Of that 460 basis-point decline, a reduction in gross margin as a percentage of sales contributed approximately 290 basis points and an increase in selling, general, and administrative expenses as a percentage of sales contributed approximately 180 basis points, and were offset by a $6.4 million reduction in restructuring and exit costs that contributed a favorable 10 basis points. Gross margin as a percentage of sales declined in the three months ended March 29, 2009, as compared to the corresponding period in 2008, as a result of the unfavorable effects of lower volumes, commodity inflation (including the appreciation of the Chinese renminbi) and mix, which were only partially offset by the favorable effects of pricing. Despite a 23% reduction in selling, general, and administrative expenses in the first quarter of 2009 from the 2008 level, selling, general, and administrative expenses as a percentage of sales increased in the three-month period ended March 29, 2009, as compared to the corresponding period in 2008, due to the de-leveraging of expenses over a lower sales base. The Corporation anticipates that operating income as a percentage of sales will approximate 5% in 2009. The Corporation

expects that operating income in 2009 will be unfavorably impacted by the de-leveraging of expenses over a lower sales base and by higher commodity costs as the Corporation will be unable to benefit from declines in certain commodity prices that occurred in late 2008 until the expiration of its supply agreements at various points in 2009.

· Interest expense (net of interest income) decreased by $.6 million for the three-month period ended March 29, 2009, from the corresponding 2008 period principally as a result of lower interest rates, including the impact on the Corporation's foreign currency hedging activities. In early April 2009, the Corporation issued $350.0 million of 8.95% senior notes due 2014. The Corporation utilized the net proceeds from the issuance of the senior notes to repay outstanding short-term borrowings and, therefore, anticipates that its quarterly interest expense for the remainder of 2009 will increase from the interest expense recognized during the first quarter of 2009.

· The Corporation's effective tax rate of 45.6% for the three-month period ended March 29, 2009, was greater than the 23.5% effective tax rate recognized in the corresponding period of 2008, primarily due to the leveraging effect of the interest component on reserves for uncertain tax positions, included as a component of tax expense ratably over the year, on lower earnings before taxes in the 2009 period, as well as to the favorable effect of the resolution of certain tax audits in the 2008 period.

· Net earnings were $4.9 million, or $.08 per share on a diluted basis, for the three-month period ended March 29, 2009, as compared to net earnings of $67.4 million, or $1.08 per share on a diluted basis, for the corresponding period in 2008.

· Cash used in operating activities increased by $182.9 million for the three-month period ended March 29, 2009, as compared to the first quarter of 2008. The increase in cash used in operating activities was primarily due to lower net earnings and higher usage of cash associated with other assets and liabilities, including the impact of the Corporation's foreign currency hedging activities.

The preceding information is an overview of certain information for the three-month period ended March 29, 2009, 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-month periods ended March 29, 2009 and March 30, 2008:


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  Table of Contents

                              Analysis of Changes in Sales
                                             Three Months Ended
           (Dollars in Millions)     March 29, 2009        March 30, 2008
           Total sales             $        1,073.7      $        1,495.8
           Unit volume                          (24 )%                 (9 )%
           Price                                  1  %                  -  %
           Currency                              (5 )%                  4  %
           Change in total sales                (28 )%                 (5 )%

Total consolidated sales for the three-month period ended March 29, 2009, decreased by 28% from the corresponding 2008 level. Unit volume declined 24% for the three-month period ended March 29, 2009. The unit volume decline was experienced across all business segments and throughout all geographic regions. Pricing actions had a 1% favorable impact on sales for the three-month period ended March 29, 2009. The effects of a stronger U.S. dollar, as compared to most other currencies, particularly the euro, Canadian dollar, British pound, and Brazilian real, resulted in a 5% decrease in consolidated sales for the three-month period ended March 29, 2009, as compared to the corresponding period in 2008.

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
(Percentages of sales)                                    March 29, 2009         March 30, 2008
Gross margin                                                        31.7 %                 34.6 %
Selling, general, and administrative expenses                       28.2 %                 26.4 %
Restructuring and exit costs                                         1.1 %                  1.2 %
Operating income                                                     2.4 %                  7.0 %

The Corporation reported consolidated operating income of $25.9 million, or 2.4% of sales, for the three months ended March 29, 2009, as compared to operating income of $104.6 million, or 7.0% of sales, for the corresponding period in 2008.

Consolidated gross margin as a percentage of sales declined by 290 basis points from the 2008 level to 31.7% for the three-month period ended March 29, 2009. That decrease in gross margin resulted from the unfavorable effects of lower volumes, commodity inflation (including the appreciation of the Chinese renminbi) and mix. Those negative factors were partially offset by the favorable effects of pricing.

Consolidated selling, general, and administrative expenses as a percentage of sales increased by 180 basis points from the 2008 level to 28.2% for the three months ended March 29, 2009. That

increase in selling, general, and administrative expenses as a percentage of sales was primarily due to the de-leveraging of expenses over a lower sales base. Selling, general, and administrative expenses for the three-month period ended March 29, 2009, declined by $91.6 million from the prior year's level to $303.0 million. That decline was due to several factors, including: (i) a decline in variable selling expenses due to lower sales volumes; (ii) cost reduction initiatives that resulted in lower general and administrative expenses in all business segments; (iii) the favorable effects of foreign currency translation; (iv) restructuring savings; and (v) lower legal and environmental expense, including the reversal of a previously established reserve in the amount of $3.9 million due to a favorable ruling on certain litigation in the quarter.

During the three months ended March 29, 2009, the Corporation recognized restructuring and exit costs of $11.9 million, related to actions in its Power Tools and Accessories, Hardware and Home Improvement, and Fastening and Assembly Systems segments. As more fully described in Note 12 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 March 29, 2009 and March 30, 2008, was $15.9 million and $16.5 million, respectively. The decrease in net interest expense for the three-month period ended March 29, 2009, as compared to the prior year's level, was primarily the result of lower interest rates, including the impact on the Corporation's foreign currency hedging activities.

Other expense was $1.0 million and $- million for the three months ended March 29, 2009 and March 30, 2008, respectively.

Consolidated income tax expense of $4.1 million was recognized on the Corporation's earnings before income taxes of $9.0 million for the three-month period ended March 29, 2009. The Corporation's effective tax rate of 45.6% for the first three months of 2009 was greater than the 23.5% rate recognized in the corresponding period in 2008 primarily due to the leveraging effect of the interest component on reserves for uncertain tax positions, included as a component of tax expense ratably over the year, on lower earnings before taxes in the 2009 period, as well as to the favorable effect of the resolution of certain tax audits in the 2008 period.

The Corporation reported net earnings of $4.9 million, or $.08 per share on a diluted basis, for the three-month period ended March 29, 2009, as compared to net earnings of $67.4 million, or $1.08 per share on a diluted basis, for the corresponding period in 2008. Net earnings for the three-month period ended March 29, 2009 and March 30, 2008, included the effects of an after-tax restructuring charge of $8.4 million ($11.9 million before taxes) and $12.2 million ($18.3 million before taxes), respectively.

BUSINESS SEGMENTS
As more fully described in Note 6 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 6 of Notes to Consolidated Financial
Statements, were as follows (dollars in millions):

                                                  Three Months Ended
                                           March 29, 2009       March 30, 2008
       Sales to unaffiliated customers   $          803.4     $        1,038.2
       Segment profit                                31.0                 86.1

Sales to unaffiliated customers in the Power Tools and Accessories segment during the first quarter of 2009 decreased by 23% from the corresponding period in 2008.

During the first quarter of 2009, sales in North America decreased 23% from the prior year's level primarily due to continued weak demand in the United States as a result of depressed housing and decelerating commercial construction. Sales of industrial power tools and accessories in the United States decreased approximately 30% as a result of lower sales in the independent channel and at retail, including the effects of inventory corrections. These decreases were partially offset by increased sales at a major retailer due to new product listings. Sales of consumer power tools and accessories in the United States decreased at a mid-single-digit rate from the 2008 level. That decrease was the result of the timing of significant shipments of lawn and garden products that occurred in December ahead of the spring 2009 season, which was partially offset by increased sales of the recently introduced Porter-Cable Tradesman line. In Canada, sales decreased at a double-digit rate as a result of a 25% decline in sales of industrial power tools and accessories and a mid-single-digit rate of decline in sales of consumer power tools and accessories.

Sales in Europe decreased nearly 30% during the first quarter of 2009 from the prior year's level as the impact of the global recession accelerated in Europe. Sales declined across all markets and in all key product lines. The sales decline was particularly severe in Eastern Europe, due to currency volatility and investment flight, and in the Nordic and Iberian regions. During the first quarter of 2009, European sales of industrial power tools and accessories declined by 33% and sales of consumer power tools and accessories declined by 23% from the prior year's levels.

Sales in other geographic areas decreased at a mid-single-digit rate during the first quarter of 2009 from the prior year's level. This decrease primarily resulted from a double-digit rate of decline in Asia, with declines experienced in most countries. Sales in Latin America approximated the prior year's level.

Segment profit as a percentage of sales for the Power Tools and Accessories segment declined from 8.3% for the first quarter of 2008 to 3.9% for the first quarter of 2009. As percentages of sales, the decrease in segment profit resulted from a nearly equal decrease in gross margin and

increase in selling, general and administrative expenses. The decrease in gross margin as a percentage of sales was principally due to the unfavorable effects of commodity inflation (including the appreciation of the Chinese renminbi), lower volumes, including the de-leveraging of fixed costs, and unfavorable mix, which more than offset favorable price. The increase in selling, general, and administrative expenses as a percentage of sales resulted from the de-leveraging of expenses over lower sales which more than offset lower variable selling expenses and the favorable effects of restructuring and cost reduction initiatives.

Hardware and Home Improvement
Segment sales and segment profit for the Hardware and Home Improvement segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):

                                                   Three Months Ended
                                           March 29, 2009        March 30, 2008
       Sales to unaffiliated customers   $          171.0      $          211.1
       Segment profit                                 6.9                  15.6

Sales to unaffiliated customers in the Hardware and Home Improvement segment decreased by 19% during the three-month period ended March 29, 2009, from the corresponding period in 2008. Lockset sales decreased 21% during the first quarter of 2009, from the corresponding period in 2008, due to the effects of U.S. housing conditions as well as a reduction in sales of higher-priced products. Sales of plumbing products during the three-month period ended March 29, 2009, decreased at a double-digit rate, as compared to the prior year's level as sales in the both the new construction and retail channels declined at double-digit rates.

Segment profit as a percentage of sales for the Hardware and Home Improvement segment decreased from 7.4% for the three months ended March 30, 2008, to 4.0% for the three months ended March 29, 2009. As percentages of sales, the decrease in segment profit resulted from a decrease in gross margin and an increase in selling, general and administrative expenses. The decrease in gross margin was primarily due to the unfavorable effects of lower volumes, commodity inflation, and product transition costs, which were only partially offset by the favorable effects of pricing and restructuring actions. The increase in selling, general, and administrative expenses as a percentage of sales resulted from the de-leveraging of expenses over lower sales which more than offset the effects of reduced selling expenses due to lower sales volumes and lower general and administrative costs that resulted from restructuring and cost reduction initiatives.

Fastening and Assembly Systems
Segment sales and segment profit for the Fastening and Assembly Systems segment,
determined on the basis described in Note 6 of Notes to Consolidated Financial
Statements, were as follows (in millions of dollars):

                                                   Three Months Ended
                                           March 29, 2009        March 30, 2008
       Sales to unaffiliated customers   $          124.1      $          187.2
       Segment profit                                 2.4                  29.5

Sales to unaffiliated customers in the Fastening and Assembly Systems segment decreased by 34% for the three-month period ended March 29, 2009, as compared to the corresponding period in 2008. That decline primarily resulted from weakness in both the automotive industry and the industrial channel related to the global economic slowdown. The September 2008 acquisition of Spiralock resulted in a 2% increase in the segment's sales during the first quarter of 2009. Sales in North America decreased 43% during the first quarter of 2009 from the corresponding period in 2008, reflecting significant weakness in the U.S. automotive and industrial businesses. Sales in Europe during the first quarter of 2009 decreased 28%, as compared to the prior year's level as a result of a similar decline in the automotive and industrial business. Sales in Asia during the first three months of 2009 decreased 34% from the corresponding period in 2008.

Segment profit as a percentage of sales for the Fastening and Assembly Systems segment decreased from 15.8% in the first quarter of 2008 to 1.9% in the first quarter of 2009 due to the effects of de-leveraging of costs over lower sales volumes. As percentages of sales, the decrease in segment profit resulted from a nearly equal decrease in gross margin and increase in selling, general, and administrative expenses.

Other Segment-Related Matters
As indicated in the first table of Note 6 of Notes to Consolidated Financial Statements, segment profit (expense) associated with Corporate, Adjustments, and Eliminations was $(4.6) million for the three-month period ended March 29, 2009, as compared to $(16.3) million, for the corresponding period in 2008. The decrease in Corporate expenses during the three months ended March 29, 2009, was primarily due to the effects of lower legal and environmental expense, lower expenses associated with intercompany eliminations, the effects of cost reduction initiatives, and income directly related to reportable business segments booked in consolidation, including a $3.9 million reversal of previously established legal reserves due to a favorable ruling on certain litigation in the quarter.

Expense recognized by the Corporation, on a consolidated basis, relating to its pension and other postretirement benefit plans decreased by $.2 million for the three-month period ended March 29, 2009, as compared to the 2008 level. The Corporate adjustment to businesses' postretirement benefit expense booked in consolidation, as identified in the final table included in Note 6 of Notes to Consolidated Financial Statements was $3.0 million for the three-month period ended March 29, 2009, as compared to $.9 million, for the corresponding period in 2008. The increase in the Corporate adjustment in 2009, as compared to the 2008 period, resulted from an increase in pension and other postretirement benefit expense (excluding the service costs allocated to the reportable business segments). As more fully described in Note 6 of Notes to Consolidated Financial

Statements, in determining segment profit, expenses relating to pension and other postretirement benefits are based solely upon estimated service costs. The Corporation anticipates that its pension and other postretirement benefit costs in 2009 will approximate the 2008 level.

Income (expense) directly related to reportable business segments booked in consolidation and, thus, excluded from segment profit for the reportable business segments was $5.9 million for the three-month period ended March 29, 2009, as compared to $(2.2) million for the corresponding period in 2008. The segment-related income excluded from segment profit for the three-month period ended March 29, 2009, primarily related to the Hardware and Home Improvement and Power Tools and Accessories segments. The segment-related expense excluded from segment profit for the three-month period ended March 30, 2008, primarily related to the Power Tools and Accessories segment.

RESTRUCTURING ACTIVITY
The Corporation is committed to continuous productivity improvements and continues to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. The Corporation's restructuring activities are more fully discussed in Item 7 under the caption "Restructuring Actions" and Item 8 in Note 18 of Notes to Consolidated Financial Statements included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2008, and in Note 12 of Notes to Consolidated Financial Statements.

The Corporation realized restructuring benefits of approximately $15 million during the three-month period ended March 29, 2009, net of restructuring-related expenses. Of those restructuring savings, approximately 70% were realized through a reduction of selling, general, and administrative expenses, with the remainder benefiting gross margin.

The Corporation expects that pre-tax savings associated with the fourth quarter 2007, 2008 and first quarter 2009 restructuring actions will benefit its 2009 results by approximately $75 million, net of restructuring-related expenses. The Corporation expects that, of those incremental pre-tax savings, approximately 70% will benefit selling, general, and administrative expenses and the remaining 30% will benefit cost of goods sold.

Ultimate savings realized from restructuring actions may be mitigated by such factors as economic weakness and competitive pressures, as well as decisions to increase costs in areas, such as promotion or research and development, above levels that were otherwise assumed.