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 six-month period ended June 28, 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- and six-month periods ended June 28, 2009, follows:

· The Corporation continued to face a difficult demand environment during 2009 due to the impact of the global recession. Sales for the three- and six-month periods ended June 28, 2009, decreased by 27% and 28%, respectively, from the corresponding 2008 periods to $1.2 billion and $2.3 billion, respectively. Those reductions were the result of a 23% and 24% decline in unit volume for the three- and six-month periods ended June 28, 2009, respectively, and 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 24% in 2009, as compared to 2008, including a 3% unfavorable impact from foreign currency.

· Operating income as a percentage of sales for the three- and six-month periods ended June 28, 2009, decreased by approximately 250 basis points and 340 basis points, respectively, from the corresponding periods in 2008. Of the 250 basis point decline for the three-month period ended June 28, 2009, a reduction in gross margin as a percentage of sales contributed approximately 150 basis points and an increase in selling, general, and administrative expenses as a percentage of sales contributed approximately 100 basis points. Of the 340 basis point decline for the six-month period ended June 28, 2009, a reduction in gross margin as a percentage of sales contributed approximately 210 basis points and an increase in selling, general, and administrative expenses as a percentage of sales contributed approximately 140 basis points, and were partially 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 second quarter and first half of 2009, as compared to the corresponding periods in 2008, as a result of the unfavorable effects of lower volumes, including the de-

leveraging of fixed costs, and mix, which were partially offset by lower inventory write-downs, the favorable effects of pricing, and restructuring. Despite a 25% and 24% reduction in selling, general, and administrative expenses in the second quarter and first half of 2009 from the 2008 levels, selling, general, and administrative expenses as a percentage of sales increased in the three- and six-month periods ended June 28, 2009, as compared to the corresponding periods 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 which will be partially offset by the benefits of restructuring, cost reduction and productivity initiatives and by favorable pricing.

· Interest expense (net of interest income) increased by $8.1 million and $7.5 million for the three- and six-month periods ended June 28, 2009, over the corresponding 2008 periods primarily as a result of the early April 2009 issuance of $350.0 million of 8.95% senior notes due 2014 and the effects of lower interest rate spreads earned on the Corporation's foreign currency hedging activities. 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 approximate interest expense recognized during the second quarter of 2009.

· The Corporation's effective tax rate was 27.7% and 21.1% for the three-month periods ended June 28, 2009, and June 29, 2008, respectively, and 30.3% and 22.1% for the first six months of 2009 and 2008, respectively. The Corporation's effective tax rate for the three- and six-month periods ended June 28, 2009, was higher than the effective tax rate recognized in the corresponding periods of 2008, due primarily to the following factors: (i) the favorable resolution of certain tax audits in the 2008 period; and (ii) 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 income taxes in the 2009 period.

· Net earnings were $38.3 million, or $.63 per share on a diluted basis, for the three-month period ended June 28, 2009, as compared to net earnings of $96.7 million, or $1.56 per share on a diluted basis, for the corresponding period in 2008. For the first half of 2009, net earnings were $43.2 million, or $.71 per share on a diluted basis, as compared to $164.1 million, or $2.64 per share on a diluted basis, for the corresponding period in 2008.

The preceding information is an overview of certain information for the three- and six-month periods ended June 28, 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- and six-month periods ended June 28, 2009 and June 29, 2008:

                          Analysis of Changes in Sales
                            Three Months Ended               Six Months Ended
                          June 28,        June 29,        June 28,        June 29,
(Dollars in Millions)         2009            2008            2009            2008
Total sales              $ 1,191.4       $ 1,641.7       $ 2,265.1       $ 3,137.5
Unit volume                    (23 )%           (7 )%          (24 )%           (8 )%
Price                            1  %           (1 )%            1  %           (1 )%
Currency                        (5 )%            5  %           (5 )%            5  %
Change in total sales          (27 )%           (3 )%          (28 )%           (4 )%

Total consolidated sales for the three- and six-month periods ended June 28, 2009, decreased by 27% and 28%, respectively, from the corresponding 2008 periods. Unit volume declined 23% and 24% for the three- and six-month periods ended June 28, 2009, respectively. 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- and six-month periods ended June 28, 2009, respectively. 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- and six-month periods ended June 28, 2009, as compared to the corresponding periods 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                     Six Months Ended
                                           June 28,            June 29,          June 28,           June 29,
(Percentage of sales)                          2009                2008              2009               2008
Gross margin                                   31.2 %              32.7 %            31.5 %             33.6 %
Selling, general, and administrative
   expenses                                    25.3 %              24.3 %            26.7 %             25.3 %
Restructuring and exit costs                      - %                 - %              .5 %               .6 %
Operating income                                5.9 %               8.4 %             4.3 %              7.7 %

The Corporation reported consolidated operating income of $70.9 million, or 5.9% of sales, for the three months ended June 28, 2009, as compared to operating income of $137.7 million, or 8.4% of sales, for the corresponding period in 2008. Operating income for the six months ended June 28, 2009, was $96.8 million, or 4.3% of sales, as compared to operating income of $242.3 million, or 7.7% of sales, for the corresponding period in 2008.

Consolidated gross margin as a percentage of sales declined by 150 basis points from the 2008 level to 31.2% for the three-month period ended June 28, 2009 as a result of lower volumes, including the de-leveraging of fixed costs, and unfavorable mix which were partially offset by the favorable comparison to prior year inventory write-downs and to the favorable effects of pricing, restructuring benefits and commodity deflation. Consolidated gross margin as a percentage of sales declined by 210 basis points from the 2008 level to 31.5% for the six-month period ended June 28, 2009 as a result of lower volumes, the de-leveraging of fixed costs, commodity inflation, and unfavorable mix which were partially offset by the favorable effects of pricing, productivity gains, a favorable comparison to prior year inventory write-downs, and restructuring benefits.

Consolidated selling, general, and administrative expenses as a percentage of sales increased by 100 basis points and 140 basis points over the 2008 levels to 25.3% and 26.7% for the three- and six-month periods ended June 28, 2009, respectively. Those increases in selling, general, and administrative expenses as a percentage of sales were primarily due to the de-leveraging of expenses over a lower sales base. Selling, general, and administrative expenses for the three- and six-month periods ended June 28, 2009, declined by $98.2 million and $189.8 million, respectively, from the prior year's levels to $301.3 million and $604.3 million, respectively. Those declines were due to several factors, including: (i) cost reduction initiatives and restructuring savings; (ii) the favorable effects of foreign currency translation; and (iii) declines in variable selling expenses due to lower sales volumes.

In the first quarter of 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 14 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 June 28, 2009, and June 29, 2008, was $22.9 million and $14.8 million, respectively. Consolidated net interest expense (interest expense less interest income) for the six months ended June 28, 2009, and June 29, 2008, was $38.8 million and $31.3 million, respectively. The increase in net interest expense for both the three- and six-month periods ended June 28, 2009, was primarily the result of the early April 2009 issuance of $350.0 million of 8.95% senior notes due 2014 and the effects of lower interest rate spreads earned on the Corporation's foreign currency hedging activities.

Other (income) expense was $(5.0) million and $.4 million for the three months ended June 28, 2009, and June 29, 2008, respectively and was $(4.0) million and $.4 million for the six months ended June 28, 2009, and June 29, 2008, respectively. Other (income) expense for the three- and six-month periods ended June 28, 2009 includes a $6.0 million insurance settlement related to an environmental matter.

Consolidated income tax expense of $14.7 million and $18.8 million was recognized on the Corporation's earnings before income taxes of $53.0 million and $62.0 million for the three- and six-month periods ended June 28, 2009, respectively. The Corporation's effective tax rate was 27.7% and 21.1% for the three-month periods ended June 28, 2009, and June 29, 2008, respectively, and 30.3% and 22.1% for the first six months of 2009 and 2008, respectively. The

Corporation's effective tax rate for the three- and six-month periods ended June 28, 2009, was higher than the effective tax rate recognized in the corresponding period of 2008, due primarily to the following factors: (i) the favorable resolution of certain tax audits in the 2008 period; and (ii) 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 income taxes in the 2009 period.

The Corporation reported net earnings of $38.3 million, or $.63 per share on a diluted basis, for the three-month period ended June 28, 2009, as compared to net earnings of $96.7 million, or $1.56 per share on a diluted basis, for the corresponding period in 2008. The Corporation reported net earnings of $43.2 million, or $.71 per share on a diluted basis, for the six-month period ended June 28, 2009, as compared to net earnings of $164.1 million, or $2.64 per share on a diluted basis, for the corresponding period in 2008. Net earnings for the six-month periods ended June 28, 2009 and June 29, 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                                Six Months Ended
                                          June 28, 2009             June 29, 2008           June 28, 2009           June 29, 2008
Sales to unaffiliated customers         $         888.8           $       1,127.2         $       1,692.2         $       2,165.4
Segment profit                                     57.7                      89.4                    88.7                   175.5

Sales to unaffiliated customers in the Power Tools and Accessories segment during the second quarter of 2009 decreased by 21% from the corresponding period in 2008.

During the second quarter of 2009, sales in North America decreased 19% from the prior year's level primarily due to continued weak demand in the United States as a result of depressed housing and contracting commercial construction. Sales of industrial power tools and accessories in the United States decreased nearly 30% as a result of a continued decline in construction activity. Sales were down in all key channels. Sales of consumer power tools and accessories in the United States increased at a high-single-digit rate over the 2008 level. That increase was attributable to sales of the recently introduced Porter-Cable tradesman line and to sales of lawn and garden products. These increases were partially offset by lower sales in the automotive and electric and the home product categories. In Canada, sales decreased approximately 34% primarily as a result of double-digit rates of decline in sales of both industrial and consumer power tools and accessories.

Sales in Europe decreased approximately 30% during the second quarter of 2009 from the prior year's level. Sales declined across all major markets. The sales decline was particularly severe in Eastern Europe. The United Kingdom as well as the Scandinavian and Iberian regions also experienced above-average rates of sales decline as compared to the rest of the European business. During the second quarter of 2009, European sales of industrial power tools and accessories declined by 35% and sales of consumer power tools and accessories declined by 24% from the prior year's levels.

Sales in other geographic areas decreased at a double-digit rate during the second quarter of 2009 from the prior year's level. This decrease primarily resulted from a double-digit rate of decline in Latin America as the economic downturn in the United States adversely affected sales in Central America and Mexico. Sales in Asia decreased at a high-single-digit rate.

Segment profit as a percentage of sales for the Power Tools and Accessories segment declined from 7.9% for the second quarter of 2008 to 6.5% for the second quarter of 2009. As percentages of sales, the decline in segment profit resulted from a 60 basis point decrease in gross margin and an 80 basis point increase in selling, general and administrative expenses. The decrease in gross margin as a percentage of sales was principally due to the impact of lower volumes, including the de-leveraging of fixed costs, and unfavorable mix which were partially offset by a favorable comparison to inventory write-downs in the prior year and to the favorable effects of pricing. 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 favorable effects of restructuring and cost reduction initiatives and lower variable selling expenses.

Sales to unaffiliated customers in the Power Tools and Accessories segment during the six months ended June 28, 2009 decreased by 22% from the corresponding period in 2008.

During the six months ended June 28, 2009, sales in North America decreased 21% 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 29% as a result of lower sales in the independent channel and at retail. Sales of consumer power tools and accessories in the United States increased at a low-single-digit rate over the 2008 level. In Canada, sales decreased 27% primarily as a result of double-digit rates of decline in sales of both industrial and consumer power tools and accessories.

Sales in Europe decreased 30% during the six months ended June 28, 2009, from the level experienced in the corresponding 2008 period due to the impact of the global recession. Sales declined across all markets and in all key product lines. The sales decline was particularly severe in Eastern Europe, Scandinavia, the United Kingdom, and the Central European and Iberian regions. During the six months ended June 28, 2009, European sales of industrial power tools and accessories declined by 34% and sales of consumer power tools and accessories declined by 24% from the prior year's levels.

Sales in other geographic areas decreased at a high-single-digit rate during the six months ended June 28, 2009, from the level experienced in the corresponding period in 2008. This decrease primarily resulted from a high-single-digit rate of decline in Latin America, with double-digit

rates of declines experienced in Central America and Mexico. Sales in Asia decreased at a double-digit rate.

Segment profit as a percentage of sales for the Power Tools and Accessories segment was 5.2% for the six-month period ended June 28, 2009, as compared to 8.1% for the corresponding period in 2008. 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 and a favorable comparison to inventory write-downs in the prior year. 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 favorable effects of restructuring and cost reduction initiatives and lower variable selling expenses.

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                       Six Months Ended
                                    June 28, 2009        June 29, 2008           June 28, 2009     June 29, 2008
Sales to unaffiliated customers         $   190.8            $   240.3         $         361.8         $   451.4
Segment profit                               22.1                 22.2                    29.0              37.8

Sales to unaffiliated customers in the Hardware and Home Improvement segment decreased by 21% during the three-month period ended June 28, 2009, from the corresponding period in 2008. Lockset sales decreased at a double-digit rate during the second quarter of 2009, from the corresponding period in 2008, due to the effects of U.S. housing conditions as well as to a reduction in sales of higher-priced products. Sales of plumbing products during the three-month period ended June 28, 2009, decreased 32%, 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 increased from 9.2% for the three months ended June 29, 2008, to 11.6% for the three months ended June 28, 2009. As percentages of sales, the increase in segment profit primarily resulted from an increase in gross margin. The increase in gross margin was due to the favorable effects of commodity deflation, productivity gains and restructuring benefits, which were partially offset by the unfavorable effects of lower volumes and fixed cost absorption. Selling, general, and administrative expenses as a percentage of sales were virtually flat as cost reductions were consistent with the sales decline.

Sales to unaffiliated customers in the Hardware and Home Improvement segment decreased by 20% during the six-month period ended June 28, 2009, from the corresponding period in 2008. Lockset sales decreased at a double-digit rate during the first half of 2009 from the corresponding period in 2008 due to the effects of U.S. housing conditions as well as to a reduction in sales of higher-priced products. Sales of plumbing products during the six-month period ended

June 28, 2009, decreased 24%, 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 8.4% for the six months ended June 29, 2008, to 8.0% for the six months ended June 28, 2009. As percentages of sales, the decrease in segment profit primarily resulted from an increase in selling, general and administrative expenses which was partially offset by an increase in gross margin. 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 benefit of reduced selling, general and administrative expenses resulting from restructuring and cost reduction initiatives. The increase in gross margin was primarily due to commodity deflation as well as favorable mix and price which were partially offset by lower volumes and unfavorable fixed cost absorption.

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                          Six Months Ended
                                         June 28, 2009        June 29, 2008           June 28, 2009     June 29, 2008
Sales to unaffiliated customers         $        124.8            $   183.8         $         248.9         $   371.0
Segment profit                                     7.3                 29.8                     9.7              59.3

Sales to unaffiliated customers in the Fastening and Assembly Systems segment for the three-month period ended June 28, 2009, decreased by 32%, 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 second quarter. Sales in North America decreased 42% during the second quarter from the corresponding period in 2008, reflecting significant weakness in both the U.S. automotive and industrial businesses. Sales in Europe during the second quarter of 2009 decreased 28% as compared to the prior year's level, as a result of double-digit rates of decline in sales of both the automotive and industrial businesses. Sales in Asia during . . .