UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

|                                           |                             
|------------------------------------------ | ----------------------------
|FOR THE FISCAL YEAR ENDEDDecember 31, 2007 | COMMISSION FILE NUMBER1-1553

THE BLACK & DECKER
CORPORATION(Exact
name of registrant as specified in its charter)

|                                 |                                                  
|-------------------------------- | -------------------------------------------------
|Maryland(State of Incorporation) | 52-0248090(I.R.S. Employer Identification Number)

|                                                          |                
|--------------------------------------------------------- | ---------------
|Towson, Maryland(Address of
 principal executive offices) | 21286(Zip Code)

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|--------------------------------------------------- | ------------
|Registrants telephone number,
including area code: | 410-716-3900

Securities registered pursuant to
Section 12(b) of the Act:

|                                                          |                                                                  
|--------------------------------------------------------- | -----------------------------------------------------------------
|Title of each classCommon Stock,
par value $.50 per share | Name of each exchange on which registered
New York Stock Exchange

|                                                            |     
|----------------------------------------------------------- | ----
|Securities registered pursuant to
Section 12(g) of the Act: | None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesX  No

Indicate by check mark if the registrant is not required to
 file reports pursuant to Section 13 or Section 15(d) of the Act.Yes  No X

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.YesX  No

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.X

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (check one):
Large accelerated filer X    Accelerated filer     
Non-accelerated filer

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes  No X

The aggregate market value of the
voting stock held by non-affiliates of the registrant as of June 29, 2007, was $5.51
billion.

The number of shares of Common Stock
outstanding as of January 25, 2008, was 60,923,815.

The exhibit index as required by Item
601(a) of Regulation S-K is included in Item 15 of Part IV of this report.Documents
Incorporated by Reference: Portions of the registrants definitive Proxy Statement
for the 2008 Annual Meeting of Stockholders are incorporated by reference in Part III of
this report.



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PART I

ITEM 1. BUSINESS

(a)
General Development of Business

The Black & Decker Corporation
(collectively with its subsidiaries, the Corporation), incorporated in Maryland in 1910,
is a leading global manufacturer and marketer of power tools and accessories, hardware and
home improvement products, and technology-based fastening systems. With products and
services marketed in over 100 countries, the Corporation enjoys worldwide recognition of
its strong brand names and a superior reputation for quality, design, innovation, and
value.

The Corporation is one of the
worlds leading producers of power tools, power tool accessories, and residential
security hardware, and the Corporations product lines hold leading market share
positions in these industries. The Corporation is also a major global supplier of
engineered fastening and assembly systems. The Corporation is one of the leading producers
of faucets in North America. These assertions are based on total volume of sales of
products compared to the total market for those products and are supported by market
research studies sponsored by the Corporation as well as independent industry statistics
available through various trade organizations and periodicals, internally generated market
data, and other sources.

During the first quarter of 2006, the
Corporation acquired Vector Products, Inc. (Vector). The addition of Vector to the
Corporations Power Tools and Accessories segment allows the Corporation to offer
customers a broader range of products.

(b)
Financial Information About Business Segments

The Corporation operates in three
reportable business segments: Power Tools and Accessories, including consumer and
industrial power tools and accessories, lawn and garden products, electric cleaning,
automotive, lighting, and household products, and product service; Hardware and Home
Improvement, including security hardware and plumbing products; and Fastening and Assembly
Systems. For additional information about these segments, see Note 16 of Notes to
Consolidated Financial Statements included in Item 8 of Part II, and Managements
Discussion and Analysis of Financial Condition and Results of Operations included in Item
7 of Part II of this report.

(c) Narrative Description
of the Business

The following is a brief description
of each of the Corporations reportable business segments.

POWER TOOLS AND
ACCESSORIES

The Power Tools and Accessories
segment has worldwide responsibility for the manufacture and sale of consumer (home use)
and industrial corded and cordless electric power tools and equipment, lawn and garden
products, consumer portable power products, home products, accessories and attachments for
power tools, and product service. In addition, the Power Tools and Accessories segment has
responsibility for the sale of security hardware to customers in Mexico, Central America,
the Caribbean, and South America; for the sale of plumbing products to customers outside
of the United States and Canada; and for sales of household products, principally in
Europe and Brazil.

Power tools and equipment include
drills, screwdrivers, impact wrenches and drivers, hammers, wet/dry vacuums, lights,
radio/chargers, saws, grinders, band saws, plate joiners, jointers, lathes, dust
management systems, routers, planers, sanders, benchtop and stationary machinery, air
tools, building instruments, air compressors, generators, laser products, jobsite security
systems, and WORKMATE® project centers and related products. Lawn and garden products
include hedge trimmers, string trimmers, lawn mowers, edgers, pruners, shears, shrubbers,
blower/vacuums, power sprayers, pressure washers, and related accessories. Consumer
portable power products include inverters, jump-starters, vehicle battery chargers,
rechargeable spotlights, and other related products. Home products include stick, canister
and hand-held vacuums; flexible flashlights; and wet scrubbers. Power tool accessories
include drill bits, hammer bits, router bits, hacksaws and blades, circular saw blades,
jig and reciprocating saw blades, screwdriver bits and quick-change systems, bonded and
other abrasives, and worksite tool belts and bags. Product service provides replacement
parts and repair and maintenance of power tools, equipment, and lawn and garden products.

Power tools, lawn and garden
products, portable power products, home products, and accessories are marketed around the
world under the BLACK & DECKER name as well as other trademarks, and trade names,
including, without limitation, BLACK & DECKER; ORANGE AND BLACK COLOR SCHEME; POWERFUL
SOLUTIONS;

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FIRESTORM; GELMAX COMFORT GRIP; MOUSE; BULLSEYE; PIVOT DRIVER; STORMSTATION;
WORKMATE; BLACK & DECKER XT; VERSAPAK; VPX; SMART SELECT; AUTO SELECT; SMARTDRIVER;
QUANTUM PRO; CYCLONE; NAVIGATOR; DRAGSTER; SANDSTORM; PROJECTMATE; PIVOTPLUS; QUICK CLAMP;
SIGHT LINE; CROSSFIRE; CROSSHAIR; 360o; QUATTRO; DECORMATE; LASERCROSS; AUTO-WRENCH;
SHOPMASTER BY DELTA; DEWALT; YELLOW AND BLACK COLOR SCHEME; GUARANTEED TOUGH; XRP; NANO;
EHP; SITELOCK; PORTER-CABLE; GRAY AND BLACK COLOR SCHEME; TIGER SAW; PORTA-BAND;
POWERBACK; EASY AIR; JOB BOSS; DELTA; THE DELTA TRIANGLE LOGO; UNISAW; BIESEMEYER; BLACK
AND WHITE COLOR SCHEME; DAPC; EMGLO; AFS AUTOMATIC FEED SPOOL; GROOM N EDGE;
HEDGE HOG; GRASS HOG; EDGE HOG; LEAF HOG; LAWN HOG; STRIMMER; REFLEX; VAC N
MULCH; EXCELL; ALLIGATOR; TRIM N EDGE; HDL; TOUGH TRUCK; FLEX TUBE; VECTOR;
ELECTROMATE; SIMPLE START; DUSTBUSTER; SNAKELIGHT; SCUMBUSTER; STEAMBUSTER; CYCLOPRO;
SWEEP & COLLECT; CLICK & GO; B&D; BULLET; QUANTUM PRO; PIRANHA; SCORPION;
QUICK CONNECT; PILOT POINT; RAPID LOAD; ROCK CARBIDE; TOUGH CASE; MAX LIFE; RAZOR; OLDHAM;
DEWALT SERVICENET; DROP BOX EXPRESS; and GUARANTEED REPAIR COST (GRC).

The composition of the
Corporations sales by product groups for 2007, 2006, and 2005 is included in Note 16
of Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report. Within each product group shown, there existed no individual product that
accounted for greater than 10% of the Corporations consolidated sales for 2007,
2006, or 2005.

The Corporations product
service program supports its power tools and lawn and garden products. Replacement parts
and product repair services are available through a network of company-operated service
centers, which are identified and listed in product information material generally
included in product packaging. At December 31, 2007, there were approximately 120 such
service centers, of which roughly three-quarters were located in the United States. The
remainder was located around the world, primarily in Canada and Asia. These
company-operated service centers are supplemented by several hundred authorized service
centers operated by independent local owners. The Corporation also operates reconditioning
centers in which power tools, lawn and garden products, and electric cleaning and lighting
products are reconditioned and then re-sold through numerous company-operated factory
outlets and service centers and various independent distributors.

Most of the Corporations
consumer power tools, lawn and garden products, and electric cleaning, automotive,
lighting, and household products sold in the United States carry a two-year warranty,
pursuant to which the consumer can return defective products during the two years
following the purchase in exchange for a replacement product or repair at no cost to the
consumer. Most of the Corporations industrial power tools sold in the United States
carry a one-year service warranty and a three-year warranty for manufacturing defects.
Products sold outside of the United States generally have varying warranty arrangements,
depending upon local market conditions and laws and regulations.

The Corporations product
offerings in the Power Tools and Accessories segment are sold primarily to retailers,
wholesalers, distributors, and jobbers, although some discontinued or reconditioned power
tools, lawn and garden products, consumer portable power products, and electric cleaning
and lighting products are sold through company-operated service centers and factory
outlets directly to end users. Sales to two of the segments customers, The Home
Depot and Lowes Home Improvement Warehouse, accounted for greater than 10% of the
Corporations consolidated sales for 2007, 2006, and 2005. For additional information
regarding sales to The Home Depot and Lowes Home Improvement Warehouse, see Note 16
of Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report.

The principal materials used in the
manufacturing of products in the Power Tools and Accessories segment are batteries,
copper, aluminum, steel, certain electronic components, engines, and plastics. These
materials are used in various forms. For example, aluminum or steel may be used in the
form of wire, sheet, bar, and strip stock.

The materials used in the various
manufacturing processes are purchased on the open market, and the majority are available
through multiple sources and are in adequate supply. The Corporation has experienced no
significant work stoppages to date as a result of shortages of materials.

The Corporation has certain long-term
commitments for the purchase of various finished goods, component parts, and raw materials
and believes that it is unlikely that any of these agreements would be terminated
prematurely. Alternate sources of supply at competitive prices are available for most
items for which long-term commitments exist.

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Because the Corporation is a leading producer
of power tools and accessories, in a limited number of instances, the magnitude of the
Corporations purchases of certain items is of such significance that a change in the
Corporations established supply relationship may cause disruption in the marketplace
and/or a temporary price imbalance. While the Corporation believes that the termination of
any of these commitments would not have a material adverse effect on the operating results
of the Power Tools and Accessories segment over the long term, the termination of a
limited number of these commitments would have an adverse effect over the short term. In
this regard, the Corporation defines long term as a period of time in excess of 12 months
and short term as a period of time under 12 months.

Principal manufacturing and assembly
facilities of the power tools, lawn and garden products, electric cleaning and lighting
products, and accessories businesses in the United States are located in Jackson,
Tennessee; Decatur, Arkansas; Shelbyville, Kentucky; and Tampa, Florida. The principal
distribution facilities in the United States, other than those located at the
manufacturing and assembly facilities listed above, are located in Fort Mill, South
Carolina, and Rialto, California.

Principal manufacturing and assembly
facilities of the power tools, lawn and garden products, electric cleaning, lighting, and
household products, and accessories businesses outside of the United States are located in
Suzhou, China; Usti nad Labem, Czech Republic; Buchlberg,Germany; Perugia, Italy;
Spennymoor, England; Reynosa, Mexico; and Uberaba, Brazil. In addition to the principal
facilities described above, the manufacture and assembly of products for the Power Tools
and Accessories segment also occurs at the facility of its 50%-owned joint venture located
in Shen Zhen, China. The principal distribution facilities outside of the United States,
other than those located at the manufacturing facilities listed above, consist of a
central-European distribution center in Tongeren, Belgium, and facilities in Aarschot,
Belgium; Northampton, England; Dubai, United Arab Emirates; and Brockville, Canada.

For additional information with
respect to these and other properties owned or leased by the Corporation, see Item 2,
Properties.

The Corporation holds various patents
and licenses on many of its products and processes in the Power Tools and Accessories
segment. Although these patents and licenses are important, the Corporation is not
materially dependent on such patents or licenses with respect to its operations.

The Corporation holds various
trademarks that are employed in its businesses and operates under various trade names,
some of which are stated previously. The Corporation believes that these trademarks and
trade names are important to the marketing and distribution of its products.

A significant portion of the
Corporations sales in the Power Tools and Accessories segment is derived from the
do-it-yourself and home modernization markets, which generally are not seasonal in nature.
However, sales of certain consumer and industrial power tools tend to be higher during the
period immediately preceding the Christmas gift-giving season, while the sales of most
lawn and garden products are at their peak during the late winter and early spring period.
Most of the Corporations other product lines within this segment generally are not
seasonal in nature, but are influenced by other general economic trends.

The Corporation is one of the
worlds leaders in the manufacturing and marketing of portable power tools, electric
lawn and garden products, and accessories. Worldwide, the markets in which the Corporation
sells these products are highly competitive on the basis of price, quality, and after-sale
service. A number of competing domestic and foreign companies are strong, well-established
manufacturers that compete on a global basis. Some of these companies manufacture products
that are competitive with a number of the Corporations product lines. Other
competitors restrict their operations to fewer categories, and some offer only a narrow
range of competitive products. Competition from certain of these manufacturers has been
intense in recent years and is expected to continue.

HARDWARE AND HOME
IMPROVEMENT

The Hardware and Home Improvement
segment has worldwide responsibility for the manufacture and sale of security hardware
products (except for the sale of security hardware in Mexico, Central America, the
Caribbean, and South America). It also has responsibility for the manufacture of plumbing
products and for the sale of plumbing products to customers in the United States and
Canada. Security hardware products consist of residential and light commercial door
locksets, electronic keyless entry systems, exit devices, keying systems, tubular and
mortise door locksets, general hardware, decorative hardware, lamps, and brass ornaments.
General hardware includes door hinges, cabinet hinges, door stops, kick plates, and house
numbers. Decorative hardware includes cabinet hardware, switchplates, door pulls, and push
plates. Plumbing products consist of a variety of conventional and decorative lavatory,
kitchen, and tub and shower faucets, bath and kitchen accessories, and replacement parts.

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Security hardware products are
marketed under a variety of trademarks and trade names, including, without limitation,
KWIKSET SECURITY; KWIKSET MAXIMUM SECURITY; KWIKSET ULTRAMAX; SIGNATURES; KWIKSET; BEAUTY
OF STRENGTH; BLACK & DECKER; TYLO; POLO; AVALON; ASHFIELD; ARLINGTON; SMARTSCAN;
SMARTKEY; SMARTCODE; POWERBOLT; ABBEY; AMHERST; KWIK INSTALL; GEO; SAFELOCK BY BLACK &
DECKER; BALDWIN; THE ESTATE COLLECTION; THE IMAGES COLLECTION; ARCHETYPES; BEDFORD; BEL
AIR; BROOKLANE; COMMONWEALTH; SONOMA; WELLINGTON; CHELSEA; SHERIDAN; DELTA; CIRCA; LAUREL;
HANCOCK; HAWTHORNE; GIBSON; FARMINGTON; CAMERON; LIFETIME FINISH; TIMELESS CRAFTSMANSHIP;
ROMAN; REGAL; COPA; CORTEZ; DAKOTA; DORIAN; SHELBURNE; LOGAN; SPRINGFIELD; HAMILTON;
BLAKELY; MANCHESTER; CANTERBURY; MADISON; STONEGATE; EDINBURGH; KENSINGTON; BRISTOL;
TREMONT; PEYTON; PASADENA; RICHLAND; WEISER; WEISER LOCK; COLLECTIONS BY WEISER LOCK;
WELCOME HOME SERIES; ELEMENTS SERIES; BASICS BY WEISER LOCK; BRILLIANCE LIFETIME
ANTI-TARNISH FINISH; POWERBOLT; POWERBOLT KEYLESS ACCESS SYSTEM; WEISERBOLT; and
ENTRYSETS. Plumbing products are marketed under a variety of trademarks and trade names,
including, without limitation, PRICE PFISTER; CLASSIC SERIES BY PRICE PFISTER; PRICE
PFISTER PROFESSIONAL SERIES; AMHERST; AVALON; ASHFIELD; PASADENA; BACH; SOLO BEDFORD;
CARMEL; CATALINA; CONTEMPRA; GEORGETOWN; HANOVER; KENZO; MARIELLE; PARISA; PORTLAND;
SAVANNAH; SEDONA; TREVISO; SOLO; SOLO MINUET; MODERN COLLECTION and ASHFIELD VIRTUE.

The composition of the
Corporations sales by product groups for 2007, 2006, and 2005 is included in Note 16
of Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report. Within each product group shown, there existed no individual product that
accounted for greater than 10% of the Corporations consolidated sales for 2007,
2006, or 2005.

Most of the Corporations
security hardware products sold in the United States carry a warranty, pursuant to which
the consumer can return defective product during the warranty term in exchange for a
replacement product at no cost to the consumer. Warranty terms vary by product and carry a
lifetime warranty with respect to mechanical operations and range from a 5-year to a
lifetime warranty with respect to finish. Products sold outside of the United States for
residential use generally have similar warranty arrangements. Such arrangements vary,
however, depending upon local market conditions and laws and regulations. Most of the
Corporations plumbing products sold in the United States carry a lifetime warranty
with respect to function and finish, pursuant to which the consumer can return defective
product in exchange for a replacement product or repair at no cost to the consumer.

The Corporations product
offerings in the Hardware and Home Improvement segment are sold primarily to retailers,
wholesalers, distributors, and jobbers. Certain security hardware products are sold to
commercial, institutional, and industrial customers. Sales to two of the segments
customers, The Home Depot and Lowes Home Improvement Warehouse, accounted for
greater than 10% of the Corporations consolidated sales for 2007, 2006, and 2005.
For additional information regarding sales to The Home Depot and Lowes Home
Improvement Warehouse, see Note 16 of Notes to Consolidated Financial Statements included
in Item 8 of Part II of this report.

The principal materials used in the
manufacturing of products in the Hardware and Home Improvement segment are zamak, brass,
zinc, steel, copper, and ceramics. The materials used in the various manufacturing
processes are purchased on the open market, and the majority are available through
multiple sources and are in adequate supply. The Corporation has experienced no
significant work stoppages to date as a result of shortages of materials.

The Corporation has certain long-term
commitments for the purchase of various finished goods, component parts, and raw materials
and believes that it is unlikely that any of these agreements would be terminated
prematurely. Alternate sources of supply at competitive prices are available for most
items for which long-term commitments exist. Because the Corporation is a leading producer
of residential security hardware and faucets, in a limited number of instances, the
magnitude of the Corporations purchases of certain items is of such significance
that a change in the Corporations established supply relationship may cause
disruption in the marketplace and/or a temporary price imbalance. While the Corporation
believes that the termination of any of these commitments would not have a material
adverse effect on the operating results of the Hardware and Home Improvement segment over
the long term, the termination of a limited number of these commitments would have an
adverse effect over the short term. In this regard, the Corporation defines long term as a
period of time in excess of 12 months and short term as a period of time under 12 months.

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From time to time, the Corporation
enters into commodity hedges on certain raw materials used in the manufacturing process to
reduce the risk of market price fluctuations. As of December 31, 2007, the amount of
commodity hedges outstanding was not material.

Principal manufacturing and assembly
facilities of the Hardware and Home Improvement segment in the United States are located
in Denison, Texas; and Reading, Pennsylvania.

Principal manufacturing and assembly
facilities of the Hardware and Home Improvement segment outside of the United States are
located in Mexicali and Nogales, Mexico; and Xiamen, China. The principal distribution
facilities in the United States, other than those located at the manufacturing and
assembly facilities listed above, are located in Mira Loma, California; and Charlotte,
North Carolina.

For additional information with
respect to these and other properties owned or leased by the Corporation, see Item 2,
Properties.

The Corporation holds various patents
and licenses on many of its products and processes in the Hardware and Home Improvement
segment. Although these patents and licenses are important, the Corporation is not
materially dependent on such patents or licenses with respect to its operations.

The Corporation holds various
trademarks that are employed in its businesses and operates under various trade names,
some of which are stated above. The Corporation believes that these trademarks and trade
names are important to the marketing and distribution of its products.

A significant portion of the
Corporations sales in the Hardware and Home Improvement segment is derived from the
do-it-yourself and home modernization markets, which generally are not seasonal in nature,
but are influenced by trends in the residential and commercial construction markets and
other general economic trends.

The Corporation is one of the
worlds leading producers of residential security hardware and is one of the leading
producers of faucets in North America. Worldwide, the markets in which the Corporation
sells these products are highly competitive on the basis of price, quality, and after-sale
service. A number of competing domestic and foreign companies are strong, well-established
manufacturers that compete on a global basis. Some of these companies manufacture products
that are competitive with a number of the Corporations product lines. Other
competitors restrict their operations to fewer categories, and some offer only a narrow
range of competitive products. Competition from certain of these manufacturers has been
intense in recent years and is expected to continue.

FASTENING AND ASSEMBLY
SYSTEMS

The Corporations Fastening and
Assembly Systems segment has worldwide responsibility for the development, manufacture and
sale of an extensive line of metal and plastic fasteners and engineered fastening systems
for commercial applications, including blind riveting, stud welding, specialty screws,
prevailing torque nuts and assemblies, insert systems, metal and plastic fasteners, and
self-piercing riveting systems. The Fastening and Assembly Systems segment focuses on
engineering solutions for end users fastening requirements. The fastening and
assembly systems products are marketed under a variety of trademarks and trade names,
including, without limitation, EMHART TEKNOLOGIES; EMHART FASTENING TEKNOLOGIES; EMHART;
AUTOSET; DODGE; DRIL-KWICK; F-SERIES; GRIPCO; GRIPCO ASSEMBLIES; HELI-COIL; JACK NUT;
KALEI; MASTERFIX; NPR; NUT-FAST; PARKER-KALON; PLASTIFAST; PLASTI-KWICK; POINT & SET;
PRIMER FREE; POP; POP-LOK; POPMATIC; POPNUT; POPSET; POP-SERT; POWERLINK; PROSET;
SMARTSET; SWS; TUCKER; ULTRA-GRIP; ULTRASERT; WARREN; WELDFAST; and WELL-NUT.

The composition of the
Corporations sales by product groups for 2007, 2006, and 2005 is included in Note 16
of Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report. Within each product group shown, there existed no individual product that
accounted for greater than 10% of the Corporations consolidated sales for 2007,
2006, or 2005.

The principal markets for these
products include the automotive, transportation, electronics, aerospace, machine tool, and
appliance industries. Substantial sales are made to automotive manufacturers worldwide.

Products are marketed directly to
customers and also through distributors and representatives. These products face
competition from many manufacturers in several countries. Product quality, performance,
reliability, price, delivery, and technical and application engineering services are the
primary competitive factors. There is little seasonal variation in sales.

The Corporation owns a number of
United States and foreign patents, trademarks, and license rights relating to the
fastening and assembly systems business. While the Corporation considers

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those patents,
trademarks, and license rights to be valuable, it is not materially dependent upon such
patents or license rights with respect to its operations.

Principal manufacturing facilities of
the Fastening and Assembly Systems segment in the United States are located in Danbury,
Connecticut; Montpelier, Indiana; Campbellsville and Hopkinsville, Kentucky; and
Chesterfield, Michigan. Principal manufacturing and assembly facilities outside of the
United States are located in Birmingham, England; Giessen, Germany; and Toyohashi, Japan.
For additional information with respect to these and other properties owned or leased by
the Corporation, see Item 2, Properties.

The raw materials used in the
fastening and assembly systems business consist primarily of ferrous and nonferrous metals
in the form of wire, bar stock, and strip and sheet metals; and plastics. These materials are
readily available from a number of suppliers.

OTHER INFORMATION

The Corporations product
development program for the Power Tools and Accessories segment is coordinated from the
Corporations headquarters in Towson, Maryland. Additionally, product development
activities are performed at facilities within the United States in Fort Lauderdale,
Florida; Hampstead, Maryland; and Jackson, Tennessee; and at facilities in Spennymoor,
England; Brockville, Canada; Perugia, Italy; Suzhou, China; Buchlberg and Idstein,
Germany; Mooroolbark, Australia; Uberaba, Brazil; and Reynosa, Mexico.

Product development activities for
the Hardware and Home Improvement segment are performed at facilities within the United
States in Lake Forest, California, and Reading, Pennsylvania; and at a facility in Xiamen,
China.

Product development activities for
the Fastening and Assembly Systems segment are performed at facilities within the United
States in Danbury and Shelton, Connecticut; Montpelier, Indiana; Campbellsville, Kentucky;
Chesterfield and Farmington Hills, Michigan; and at facilities in Birmingham, England;
Maastricht, Netherlands; Giessen, Germany; and Toyohashi, Japan.

Costs associated with development of
new products and changes to existing products are charged to operations as incurred. See
Note 1 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this
report for amounts of expenditures for product development activities.

As of December 31, 2007, the
Corporation employed approximately 25,000 persons inits operations worldwide.
Approximately 375 employees in the United States are covered by collective bargaining
agreements. During 2007, one collective bargaining agreement in the United States was
negotiated without material disruption to operations. One agreement is scheduled for
negotiation during 2008. Also, the Corporation has government-mandated collective
bargaining arrangements or union contracts with employees in other countries. The
Corporations operations have not been affected significantly by work stoppages and,
in the opinion of management, employee relations are good. As more fully described under
the caption Restructuring and Integration Actions in Managements
Discussion and Analysis of Financial Condition and Results of Operations, the Corporation
is committed to continuous productivity improvement and continues to evaluate
opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess
capacity. As a consequence, the Corporation may, from time to time, transfer production
from one manufacturing facility to another, outsource certain production, or close certain
manufacturing facilities. Such production transfers, outsourcing, and/or facility closures
may result in a deterioration of employee relations at the impacted locations or elsewhere
in the Corporation.

The Corporations operations are
subject to foreign, federal, state, and local environmental laws and regulations. Many
foreign, federal, state, and local governments also have enacted laws and regulations that
govern the labeling and packaging of products and limit the sale of products containing
certain materials deemed to be environmentally sensitive. These laws and regulations not
only limit the acceptable methods for the discharge of pollutants and the disposal of
products and components that contain certain substances, but also require that products be
designed in a manner to permit easy recycling or proper disposal of environmentally
sensitive components such as nickel cadmium batteries. The Corporation seeks to comply
fully with these laws and regulations. Although compliance involves continuing costs, the
ongoing costs of compliance with existing environmental laws and regulations have not had,
nor are they expected to have, a material adverse effect upon the Corporations
capital expenditures or financial position.

Pursuant to authority granted under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA),
the United States Environmental Protection Agency (EPA) has issued a National Priority
List (NPL) of sites at which action is to be taken to mitigate the risk

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of release of
hazardous substances into the environment. The Corporation is engaged in continuing
activities with regard to various sites on the NPL and other sites covered under analogous
state environmental laws. As of December 31, 2007, the Corporation had been identified as
a potentially responsible party (PRP) in connection with approximately 25 sites being
investigated by federal or state agencies under CERCLA or analogous state environmental
laws. The Corporation also is engaged in site investigations and remedial activities to
address environmental contamination from past operations at current and former
manufacturing facilities in the United States and abroad.

To minimize the Corporations
potential liability with respect to these sites, management has undertaken, when
appropriate, active participation in steering committees established at the sites and has
agreed to remediation through consent orders with the appropriate government agencies. Due
to uncertainty as to the Corporations involvement in some of the sites, uncertainty
over the remedial measures to be adopted, and the fact that imposition of joint and
several liability with the right of contribution is possible under CERCLA and other laws
and regulations, the liability of the Corporation with respect to any site at which
remedial measures have not been completed cannot be established with certainty. On the
basis of periodic reviews conducted with respect to these sites, however, the Corporation
has established appropriate liability accruals. The Corporations estimate of the
costs associated with environmental exposures is accrued if, in managements
judgment, the likelihood of a loss is probable and the amount of the loss can be
reasonably estimated. As of December 31, 2007, the Corporations aggregate probable
exposure with respect to environmental liabilities, for which accruals have been
established in the consolidated financial statements, was $107.3 million. In the opinion
of management, the amount accrued for probable exposure for aggregate environmental
liabilities is adequate and, accordingly, the ultimate resolution of these matters is not
expected to have a material adverse effect on the Corporations consolidated
financial statements. As of December 31, 2007, the Corporation had no known probable but
inestimable exposures relating to environmental matters that are expected to have a
material adverse effect on the Corporation. There can be no assurance, however, that
unanticipated events will not require the Corporation to increase the amount it has
accrued for any environmental matter or accrue for an environmental matter that has not
been previously accrued because it was not considered probable. While it is possible that
the increase or establishment of an accrual could have a material adverse effect on the
financial results for any particular fiscal quarter or year, in the opinion of management
there exists no known potential exposures that would have a material adverse effect on the
financial condition or on the financial results of the Corporation beyond any such fiscal
quarter or year.

(d)
Financial Information About Geographic Areas

Reference is made to Note 16 of Notes
to Consolidated Financial Statements, entitled Business Segments and Geographic
Information, included in Item 8 of Part II of this report.

(e) Available Information

The Corporation files annual,
quarterly, and current reports, proxy statements, and other documents with the Securities
and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (the Exchange
Act). The public may read and copy any materials that the Corporation files with the SEC
at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports,
proxy and information statements, and other information regarding issuers, including the
Corporation, that file electronically with the SEC. The public can obtain any documents
that the Corporation files with the SEC at http://www.sec.gov.

The Corporation also makes available
free of charge on or through its Internet website (http://www.bdk.com) the
Corporations Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished
pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after the
Corporation electronically files such material with, or furnishes it to, the SEC.

Black & Decker's Corporate Governance Policies
and Procedures Statement is available free of charge on or through its Internet
website (http://www.bdk.com) or in print by calling (800) 992-3042 or (410)
716-2914. The Statement contains charters of the standing committees of the Board of
Directors, the Code of Ethics and Standards of Conduct, and the Code of Ethics for Senior
Financial Officers.

In May 2007, the Corporation
submitted to the New York Stock Exchange the CEO certification required by Section
303A.12(a) of the New York Stock Exchange Listed Company Manual.

7

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(f) Executive Officers
and Other Senior Officers of the Corporation The current Executive Officers and Other
Senior Officers of the Corporation, their ages, current offices or positions, and their
business experience during the past five years are set forth below.

 NOLAN D.
ARCHIBALD  64    Chairman,
President, and    Chief Executive Officer,
   January 1990  present.

  BRUCE W. BROOKS  43   Group
Vice President of the Corporation and    President  Consumer Products Group,   Power Tools and Accessories,
   March 2007  present;   Vice
President of the Corporation and President 
   Construction Tools, Industrial
Products Group,    Power
Tools and Accessories,   May 2005  March 2007;   Vice
President and General Manager 
   Construction Tools, Industrial Products Group,   Power
Tools and Accessories,   October 2004  May 2005;   Vice
President Marketing  DEWALT Professional   Products, Power Tools and Accessories
Group,    July
2003  October 2004;    Vice
President Marketing    Black & Decker Consumer Products,   Power Tools and
Accessories Group,    July 2000  July 2003.

  JAMES T. CAUDILL  40   Group Vice
President of the Corporation and    President 
Hardware and Home Improvement,   July 2006
  present;   Vice
President of the Corporation and President 
   Hardware and Home Improvement,   May
2005  July 2006;   Vice
President and General Manager    Accessories, Industrial Products Group,    Power Tools
and Accessories Group,   October
2004  May 2005;   Vice
President  Accessories,    DEWALT Professional Products,   Power Tools and
Accessories Group,   November
2001  October 2004.

 CHARLES E. FENTON  59   Senior Vice President and General Counsel,
   December 1996
 present.

 LES H. IRELAND  43   Vice
President of the Corporation and    President  Europe/Middle East/Africa,   Power Tools
and Accessories,    January 2005  present;   Vice
President of the Corporation and    Managing Director  Commercial Operations,    Europe,
Black & Decker Consumer Group,   Power Tools and Accessories Group,    November 2001 
January 2005.

  MICHAEL D. MANGAN  51
   Senior
Vice President and Chief Financial Officer,   January 2000  present.

 PAUL
F. MCBRIDE  52   Senior Vice President  Human Resources
   and
Corporate Initiatives,   March 2004  present;
   Executive
Vice President of the Corporation    and President  Power Tools and    Accessories Group,
   April 1999  March 2004.

  CHRISTINA M. MCMULLEN  52   Vice President and Controller, 
 April 2000  present.

  JAMES R. RASKIN  47   Vice
President of the Corporation and    Vice President  Business Development,  
July 2006  present;   Vice President  Business Development,  
May 2002  July 2006.

  STEPHEN F. REEVES  48
   Vice
President of the Corporation and   Vice President  Global Finance,
   Power Tools
and Accessories,   March
2004  present;   Vice
President of the Corporation and    Vice President  Finance, Power Tools   and
Accessories Group,    April 2000  March 2004.

  MARK M. ROTHLEITNER  49   Vice
President  Investor Relations and Treasurer,   January 2000  present.

8

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  ROBERT I. ROWAN  47   Vice President
of the Corporation and President     Construction & Woodworking, Industrial   Products Group, Power Tools and Accessories,
   January 2008  present;   Vice President of the Corporation and President    
Construction, Industrial Product Group,    Power Tools and Accessories,   March 2007  January 2008;   Vice President
of the Corporation and President     Power Tools and Accessories, Consumer   Products
Group, Power Tools and Accessories,   February
2006  March 2007;    Vice President and General Manager,   Consumer Power Tools and
Accessories,   Power Tools and Accessories,   July 2003  February 2006;
   Vice President
 Outdoor Products,   Consumer Products
Group, Power Tools   and Accessories Group,   September 2001  July 2003.

  EDWARD J. SCANLON  53  
Vice President of the Corporation and    President  Commercial Operations     North America, Power Tools
and Accessories,   January 2008  present;
   Vice
President of the Corporation and    President  Commercial Operations, North and   South America, Power
Tools and Accessories,   March 2004  January 2008;
   Vice
President of the Corporation and 
   President  Commercial Operations,
   North America, Power Tools and    Accessories Group,
   May 1999  March 2004.

  JOHN W. SCHIECH  49
   Group
Vice President of the Corporation   and President  Industrial Products Group,
   Power Tools
and Accessories,
   March 2004  present;
   Vice
President of the Corporation and President    DEWALT Professional Products, Power
Tools   and
Accessories Group,   January 2001  March 2004.

 NATALIE A.
SHIELDS  51   Vice
President and Corporate Secretary,    April 2006  present;   International
Tax and Trade Counsel,   June 1993  April 2006.

 BEN S. SIHOTA
 49   Vice
President of the Corporation and President     Asia Pacific, Power
Tools and Accessories,    February 2006  present;    President
 Asia, Power Tools and Accessories,    September 2000  February 2006.

 MICHAEL A. TYLL
 51   Group
Vice President of the Corporation and    President  Fastening and Assembly Systems,   April
2006  present;   President  Automotive Division,   Fastening and Assembly Systems,   January 2001  April 2006.

(g) Forward-Looking
Statements

The Private Securities Litigation
Reform Act of 1995 (the Reform Act) provides a safe harbor for forward-looking statements
made by or on behalf of the Corporation. The Corporation and its representatives may, from
time to time, make written or verbal forward-looking statements, including statements
contained in the Corporations filings with the Securities and Exchange Commission
and in its reports to stockholders. Generally, the inclusion of the words
believe, expect, intend,
estimate, anticipate, will, and similar
expressions identify statements that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and that are intended to come within the safe harbor
protection provided by those sections. All statements addressing operating performance,
events, or developments that the Corporation expects or anticipates will occur in the
future, including statements relating to sales growth, earnings or earnings per share
growth, and market share, as well as statements expressing optimism or pessimism about
future operating results, are forward-looking statements within the meaning of the Reform
Act. The forward-looking statements are and will be based upon managements
then-current views and assumptions regarding future events and operating performance, and
are applicable only as of the dates of such statements. The Corporation undertakes no
obligation to update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.

By their nature, all forward-looking
statements involve risks and uncertainties, including without limitations the risks
described under the caption Risk Factors that could materially harm the
Corporations business, financial condition, and results of operations. You are
cautioned not to place undue reliance on the Corporations forward-looking
statements.

9

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# ITEM 1A. RISK FACTORS

Many of the factors that affect our
business and operations involve risk and uncertainty. The factors described below are some
of the risks that could materially harm our business, financial condition, and results of
operations.

 Our business depends on the
strength of the economies in various parts of the world, particularly in the United States
and Europe.We conduct business in various parts of the world, primarily in the
United States and Europe and, to a lesser extent, in Mexico, Central America, the
Caribbean, South America, Canada, Asia and Australia. As a result of this worldwide
exposure, our net revenue and profitability could be harmed as a result of economic
conditions in our major markets, including, but not limited to, recession, inflation and
deflation, general weakness in retail, automotive and construction markets, and changes in
consumer purchasing power.

 Changes in customer
preferences, the inability to maintain mutually beneficial relationships with large
customers, and the inability to penetrate new channels of distribution could adversely
affect our business. We have a number of major customers, including two large customers
that, in the aggregate, constituted approximately 33% of our consolidated sales in 2007.
The loss of either of these large customers, a material negative change in our
relationship with these large customers or other major customers, or changes in consumer
preferences or loyalties could have an adverse effect on our business. Our major customers
are volume purchasers, a few of which are much larger than us and have strong bargaining
power with suppliers. This limits our ability to recover cost increases through higher
selling prices. Changes in purchasing patterns by major customers could negatively impact
manufacturing volumes and inventory levels. Further, our inability to continue to
penetrate new channels of distribution may have a negative impact on our future results.

 The inability to obtain raw
materials, component parts, and/or finished goods in a timely and cost-effective manner
from suppliers would adversely affect our ability to manufacture and market our products.
We purchase raw materials and component parts from suppliers to be used in the
manufacturing of our products. In addition, we purchase certain finished goods from
suppliers. In a limited number of circumstances, the magnitude of our purchases of certain
items is of such significance that a change in our established supply relationships may
cause disruption in the marketplace, a temporary price imbalance, or both. Changes in our
relationships with suppliers or increases in the costs of purchased raw materials,
component parts or finished goods could result in manufacturing interruptions, delays,
inefficiencies or our inability to market products. An increase in value-added taxes by
various foreign jurisdictions, or a reduction in value-added tax rebates currently
available to us or to our suppliers, could also increase the costs of our manufactured
products as well as purchased products and components and could adversely affect our
results of operations. In addition, our profit margins would decrease if prices of
purchased raw materials, component parts, or finished goods increase and we are unable to
pass on those increases to our customers.

 We face significant global
competition.The markets in which we sell products are highly competitive on the
basis of price, quality, and after-sale service. A number of competing domestic and
foreign companies are strong, well-established manufacturers that compete globally with
us. Some of our major customers sell their own private label brands that
compete directly with our products. Price reductions taken by us in response to customer
and competitive pressures, as well as price reductions and promotional actions taken to
drive demand that may not result in anticipated sales levels, could also negatively impact
our business. Competition has been intense in recent years and is expected to continue. If
we are unable to maintain a competitive advantage, loss of market share, revenue, or
profitability may result.

 Low demand for new products
and the inability to develop and introduce new products at favorable margins could
adversely impact our performance and prospects for future growth. Our competitive
advantage is due in part to our ability to develop and introduce new products in a timely
manner at favorable margins. The uncertainties associated with developing and introducing
new products, such as market demand and costs of development and production, may impede
the successful development and introduction of new products on a consistent basis.
Introduction of new technology may result in higher costs to us than that of the
technology replaced. That increase in costs, which may continue indefinitely or until and
if increased demand and greater availability in the sources of the new technology drive
down its cost, could adversely affect our results of operations. Market acceptance of the
new products introduced in 2007 and scheduled for introduction in 2008 may not meet sales
expectations due to various factors, such as our failure to accurately predict market
demand and evolving industry standards, to resolve technical challenges in a timely and
cost-effective manner, and to achieve manufacturing efficiencies. Our investments in
productive capacity and commitments to fund advertising and product promotions in
connection with these new products could be excessive if those expectations are not met.

10

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 Price increases could impact
the demand for our products from customers and end-users. We may periodically increase the
prices of our products. An adverse reaction by our customers or end-users to price
increases could negatively impact our anticipated sales, profitability, manufacturing
volumes, and/or inventory levels.

 The inability to generate
sufficient cash flows to support operations and other activities could prevent future
growth and success.Our inability to generate sufficient cash flows to support capital
expansion, business acquisition plans, share repurchases and general operating activities
could negatively affect our operations and prevent our expansion into existing and new
markets. Our ability to generate cash flows is dependent in part upon obtaining necessary
financing at favorable interest rates. Interest rate fluctuations and other capital market
conditions may prevent us from doing so.

 Our success depends on our
ability to improve productivity and streamline operations to control or reduce costs. We
are committed to continuous productivity improvement and continue to evaluate
opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess
capacity. We have also undertaken restructuring and integration actions as described in
Note 18 of Notes to Consolidated Financial Statements and in Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
ultimate savings realized from restructuring and integration actions may be mitigated by
many factors, including economic weakness, competitive pressures, and decisions to
increase costs in areas such as promotion or research and development above levels that
were otherwise assumed. Our failure to achieve projected levels of efficiencies and cost
reduction measures and to avoid delays in or unanticipated inefficiencies resulting from
manufacturing and administrative reorganization actions in progress or contemplated would
adversely affect our results of operations.

 The inability to identify new
acquisition opportunities or to successfully integrate the operations of acquired
businesses could negatively impact our prospect for future growth and profitability. We
expend significant resources on identifying opportunities to acquire new lines of business
and companies that could contribute to our success and expansion into existing and new
markets. Our inability to successfully identify acquisition opportunities, integrate the
operations of acquired businesses, or realize the anticipated cost savings, synergies and
other benefits related to the acquisition of those businesses could have a material
adverse effect on our business, financial condition and future growth. Acquisitions may
also have a material adverse effect on our operating results due to large write-offs,
contingent liabilities, substantial depreciation, or other adverse tax or audit
consequences.

 Failures of our infrastructure
could have a material adverse effect on our business.We are heavily dependent on
our infrastructure. Significant problems with our infrastructure, such as manufacturing
failures, telephone or information technology (IT) system failure, computer viruses or
other third-party tampering with IT systems, could halt or delay manufacturing and hinder
our ability to ship in a timely manner or otherwise routinely conduct business. Any of
these events could result in the loss of customers, a decrease in revenue, or the
incurrence of significant costs to eliminate the problem or failure.

 Our products could be subject
to product liability claims and litigation. We manufacture products that create exposure
to product liability claims and litigation. If our products are not properly manufactured
or designed, personal injuries or property damage could result, which could subject us to
claims for damages. The costs associated with defending product liability claims and
payment of damages could be substantial. Our reputation could also be adversely affected
by such claims, whether or not successful.

 Our products could be
recalled. The Consumer Product Safety Commission or other applicable regulatory bodies may
require the recall, repair or replacement of our products if those products are found not
to be in compliance with applicable standards or regulations. A recall could increase
costs and adversely impact our reputation.

 We may have additional tax
liabilities. We are subject to income taxes in the United States and numerous foreign
jurisdictions. Significant judgment is required in determining our worldwide provision for
income taxes. In the ordinary course of our business, there are many transactions and
calculations where the ultimate tax determination is uncertain. We are regularly under
audit by tax authorities. Although we believe our tax estimates are reasonable, the final
outcome of tax audits and any related litigation could be materially different than that
which is reflected in historical income tax provisions and accruals. Based on the status
of a given tax audit or related litigation, a material effect on our income tax provision
or net income may result in the period or periods from initial recognition in our reported
financial results to the final closure of that tax audit or settlement of related
litigation when the ultimate tax and related cash flow is known with certainty.

 We are subject to current
environmental and other laws and regulations. We are subject to environmental laws in each
jurisdiction in which we conduct business. Some of our products incorporate substances
that are regulated in some jurisdictions in which we conduct manufacturing operations. We

11

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could be subject to liability if we do
not comply with these regulations. In addition, we
are currently and may, in the future, be held responsible for remedial investigations and
clean-up costs resulting from the discharge of hazardous substances into the environment,
including sites that have never been owned or operated by us but at which we have been
identified as a potentially responsible party under federal and state environmental laws
and regulations. Changes in environmental and other laws and regulations in both domestic
and foreign jurisdictions could adversely affect our operations due to increased costs of
compliance and potential liability for non-compliance.

 If our goodwill or
indefinite-lived intangible assets become impaired, we may be required to record a
significant charge to earnings. Under United States generally accepted accounting
principles, goodwill and indefinite-lived intangible assets are not amortized but are
reviewed for impairment on an annual basis or more frequently whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. We may be
required to record a significant charge to earnings in our financial statements during the
period in which any impairment of our goodwill or indefinite-lived intangible assets is
determined, resulting in an impact on our results of operations.

 Changes in accounting may affect
our reported earnings. For many aspects of our business, United States generally accepted
accounting principles, including pronouncements, implementation guidelines, and
interpretations, are highly complex and require subjective judgments. Changes in these
accounting principles, including their interpretation and application, could significantly
change our reported earnings, adding significant volatility to our reported results
without a comparable underlying change in our cash flows.

 We are exposed to adverse
changes in currency exchange rates, raw material commodity prices or interest rates, both
in absolute terms and relative to competitors risk profiles. We have a number of
manufacturing sites throughout the world and sell our products in more than 100 countries.
As a result, we are exposed to movements in the exchange rates of various currencies
against the United States dollar and against the currencies of countries in which we have
manufacturing facilities. We believe our most significant foreign currency exposures are
the euro, pound sterling and Chinese renminbi. A decrease in the value of the euro and
pound sterling relative to the U.S. dollar could adversely affect our results of
operations. An increase in the value of the Chinese renminbi relative to the U.S. dollar
could adversely affect our results of operations. We utilize materials in the
manufacturing of our products that include certain components and raw materials that are
subject to commodity price volatility. We believe our most significant commodity-related
exposures are to nickel, steel, resins, copper, aluminum, and zinc. An increase in the market
prices of these items could adversely affect our results of operations. We have
outstanding variable-rate and fixed-rate borrowings. To meet our cash requirements, we may
incur additional borrowings in the future under our existing or future borrowing
facilities. An increase in interest rates could adversely affect our results of
operations.

 We operate a global business that
exposes us to additional risks. Our sales outside of the United States accounted for
approximately 40% of our consolidated net revenue in 2007. We continue to expand into
foreign markets. The future growth and profitability of our foreign operations are subject
to a variety of risks and uncertainties, such as tariffs, nationalization, exchange
controls, interest rate fluctuations, civil unrest, governmental changes, limitations on
foreign investment in local business and other political, economic and regulatory risks
inherent in conducting business internationally. Over the past several years, such factors
have become increasingly important as a result of our higher percentage of manufacturing
in China, Mexico and the Czech Republic and purchases of products and components from
foreign countries.

 Catastrophic events may
disrupt our business. Unforeseen events, including war, terrorism and other international
conflicts, public health issues, and natural disasters such as earthquakes, hurricanes or
other adverse weather and climate conditions, whether occurring in the United States or
abroad, could disrupt our operations, disrupt the operations of our suppliers or
customers, or result in political or economic instability. These events could reduce
demand for our products and make it difficult or impossible for us to manufacture our
products, deliver products to customers, or to receive products from suppliers.

The foregoing list is not exhaustive.
There can be no assurance that we have correctly identified and appropriately assessed all
factors affecting our business or that the publicly available and other information with
respect to these matters is complete and correct. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial also may adversely
impact our business. Should any risks or uncertainties develop into actual events, these
developments could have material adverse effects on our business, financial condition, and
results of operations.

12

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ITEM 1B. UNRESOLVED STAFF
COMMENTS

Not applicable.

# ITEM 2. PROPERTIES

The Corporation operates 46
manufacturing facilities around the world, including 30 located outside of the United
States in 10 foreign countries. The major properties associated with each business segment
are listed in Narrative Description of the Business in Item 1(c) of Part I
of this report.

The following are the
Corporations major leased facilities:

In the United States: Lake Forest,
Mira Loma, and Rialto, California; Charlotte, North Carolina; Tampa, Florida;
Chesterfield, Michigan; and Towson, Maryland.

Outside of the United States:
Spennymoor, England; Tongeren and Aarschot, Belgium; Reynosa and Mexicali, Mexico;
Brockville, Canada; Usti nad Labem, Czech Republic; and Xiamen and Suzhou, China.

Additional property both owned and
leased by the Corporation in Towson, Maryland, is used for administrative offices.
Subsidiaries of the Corporation lease certain locations primarily for smaller
manufacturing and/or assembly operations, service operations, sales and administrative
offices, and for warehousing and distribution centers. The Corporation also owns a
manufacturing plant located on leased land in Suzhou, China.

As more fully described in Item 7 of
Part II of this report under the caption Restructuring and Integration
Actions, the Corporation is committed to continuous productivity improvement and
continues to evaluate opportunities to reduce fixed costs, simplify or improve processes,
and eliminate excess capacity. The Corporation will continue to evaluate its worldwide
manufacturing cost structure to identify opportunities to improve capacity utilization and
lower product costs and will take appropriate action as deemed necessary.

Management believes that its owned
and leased facilities are suitable and adequate to meet the Corporations anticipated
needs.

# ITEM 3. LEGAL PROCEEDINGS

The Corporation is involved in
various lawsuits in the ordinary course of business. These lawsuits primarily involve
claims for damages arising out of the use of the Corporations products and
allegations of patent and trademark infringement. The Corporation also is involved in
litigation and administrative proceedings involving employment matters and commercial
disputes. Some of these lawsuits include claims for punitive as well as compensatory
damages.

The Corporation, using current
product sales data and historical trends, actuarially calculates the estimate of its
exposure for product liability. The Corporation is insured for product liability claims
for amounts in excess of established deductibles and accrues for the estimated liability
as described above up to the limits of the deductibles. All other claims and lawsuits are
handled on a case-by-case basis. The Corporations estimate of costs associated with
product liability claims, environmental matters, and other legal proceedings is accrued
if, in managements judgment, the likelihood of a loss is probable and the amount of
the loss can be reasonably estimated. These accrued liabilities are not discounted.

As previously noted under Item 1(c)
of Part I of this report, the Corporation also is party to litigation and administrative
proceedings with respect to claims involving the discharge of hazardous substances into
the environment. Some of these assert claims for damages and liability for remedial
investigations and clean-up costs with respect to sites that have never been owned or
operated by the Corporation but at which the Corporation has been identified as a PRP.
Others involve current and former manufacturing facilities.

The EPA and the Santa Ana Regional
Water Quality Control Board (the Water Quality Board) have each initiated administrative
proceedings against the Corporation and certain of the Corporations current or
former affiliates alleging that the Corporation and numerous other defendants are
responsible to investigate and remediate alleged groundwater contamination in and adjacent
to a 160-acre property located in Rialto, California. The cities of Colton and Rialto, as
well as the West Valley Water District and the Fontana Water Company, a private company,
also have initiated lawsuits against the Corporation and certain of the Corporations
former or current affiliates in the Federal District Court for California, Central
District alleging similar claims that the Corporation is liable under CERCLA, the Resource
Conservation and Recovery Act, and state law for the discharge or release of hazardous
substances into the environment and the contamination caused by those alleged releases.
All defendants have crossclaims against one another in the federal litigation. The
administrative proceedings and the lawsuits generally allege that West Coast Loading
Corporation (WCLC), a defunct company that operated in Rialto between 1952 and 1957, and
an as yet undefined number of other defendants are responsible for the release of
perchlorate and solvents into the groundwater basin that supplies drinking water to the
referenced three municipal water suppliers and one private water company in

13

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California and
that the Corporation and certain of the Corporations current or former affiliates
are liable as a successor of WCLC. The federal lawsuit filed by the West
Valley Water District and the Fontana Water Company was voluntarily dismissed in October
2007. Judgment has been entered in favor of all defendants, including the Corporation and
certain of the Corporations current and former affiliates, in the federal lawsuit
brought by the City of Colton as to Coltons federal claims. The remaining state
claims and the crossclaims in that lawsuit have been dismissed by the court on
jurisdictional grounds. The City of Colton and several co-defendants have appealed the
dismissal of these claims. The City of Colton also has re-filed its claims in California
state court and filed a new federal action arising out of CERCLA, the Resource
Conservation and Recovery Act, and state law. Certain defendants have crossclaimed against
other defendants in the new federal action and have asserted claims against The United
States Department of Defense, EPA, and the City of Rialto. Certain defendants have
cross-claims against other defendants in the new state court action and have asserted
claims against the State of California. The Corporation believes that neither the facts
nor the law support an allegation that the Corporation is responsible for the
contamination and is vigorously contesting these claims.

The EPA has provided an affiliate of
the Corporation a Notice of Potential Liability related to environmental
contamination found at the Centredale Manor Restoration Project Superfund site, located in
North Providence, Rhode Island. The EPA has discovered dioxin, polychlorinated biphenyls,
and pesticide contamination at this site. The EPA alleged that an affiliate of the
Corporation is liable for site cleanup costs under CERCLA as a successor to the liability
of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the
EPAs costs related to this site. The EPA, which considers the Corporation to be the
primary potentially responsible party (PRP) at the site, is expected to release a draft
Feasibility Study Report, which will identify and evaluate remedial alternatives for the
site, in 2008. At December 31, 2007, the estimated remediation costs related to this site
(including the EPAs past costs as well as costs of additional investigation,
remediation, and related costs, less escrowed funds contributed by PRPs who have reached
settlement agreements with the EPA), which the Corporation considers to be probable and
can be reasonably estimable, range from approximately $49 million to approximately $100
million, with no amount within that range representing a more likely outcome. During 2007,
the Corporation increased its reserve for this environmental remediation matter by $31.7
million to $48.7 million, reflecting the probability that the Corporation will be
identified as the principal financially viable PRP upon issuance of the EPA draft
Feasibility Study Report in 2008. The Corporation has not yet determined the extent to
which it will contest the EPAs claims with respect to this site. Further, to the
extent that the Corporation agrees to perform or finance remedial activities at this site,
it will seek participation or contribution from additional potentially responsible parties
and insurance carriers. As the specific nature of the environmental remediation activities
that may be mandated by the EPA at this site have not yet been determined, the ultimate
remedial costs associated with the site may vary from the amount accrued by the
Corporation at December 31, 2007.

Total future costs for environmental
remediation activities will depend upon, among other things, the identification of any
additional sites, the determination of the extent of contamination at each site, the
timing and nature of required remedial actions, the technology available, the nature and
terms of cost sharing arrangements with other PRPs, the existing legal requirements and
nature and extent of future environmental laws, and the determination of the
Corporations liability at each site. The recognition of additional losses, if and
when they may occur, cannot be reasonably predicted.

In the opinion of management, amounts
accrued for exposures relating to product liability claims, environmental matters, and
other legal proceedings are adequate and, accordingly, the ultimate resolution of these
matters is not expected to have a material adverse effect on the Corporations
consolidated financial statements. As of December 31, 2007, the Corporation had no known
probable but inestimable exposures relating to product liability claims, environmental
matters, or other legal proceedings that are expected to have a material adverse effect on
the Corporation. There can be no assurance, however, that unanticipated events will not
require the Corporation to increase the amount it has accrued for any matter or accrue for
a matter that has not been previously accrued because it was not considered probable.
While it is possible that the increase or establishment of an accrual could have a
material adverse effect on the financial results for any particular fiscal quarter or
year, in the opinion of management there exists no known potential exposures that would
have a material adverse effect on the financial condition or on the financial results of
the Corporation beyond any such fiscal quarter or year.

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

14

---



PART II

# ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

# (a) Market Information

The Corporations Common Stock
is listed on the New York Stock Exchange.

The following table sets forth, for the
periods indicated, the high and low sale prices of the Common Stock as reported in the
consolidated reporting system for the New York Stock Exchange Composite Transactions:

|2007               
|-------------------
|                   
|January to March   
|April to June      
|July to September  
|October to December
|                   

# (b) Holders of the
Corporations Capital Stock

As of January 25, 2008, there were
10,891 holders of record of the Corporations Common Stock.

# (c) Dividends

The Corporation has paid consecutive
quarterly dividends on its Common Stock since 1937. Future dividends will depend upon the
Corporations earnings, financial condition, and other factors. The Credit Facility,
as more fully described in Note 7 of Notes to Consolidated Financial Statements included
in Item 8 of Part II of this report, does not restrict the Corporations ability to
pay regular dividends in the ordinary course of business on the Common Stock.

Quarterly dividends per common share
for the most recent two years are as follows:

|2007               
|-------------------
|                   
|January to March   
|April to June      
|July to September  
|October to December
|                   
|                   
|                   

# Common Stock:

150,000,000 shares authorized, $.50
par value, 62,923,723 and 66,734,843 outstanding as of December 31, 2007 and 2006,
respectively.

# Preferred Stock:

5,000,000 shares authorized, without
par value, no shares outstanding as of December 31, 2007 and 2006.

# (d) Annual Meeting of
Stockholders

The 2008 Annual Meeting of
Stockholders of the Corporation is scheduled to be held on April 17, 2008, at 9:00 a.m. at
the Sheraton Baltimore North Hotel, 903 Dulaney Valley Road, Towson, Maryland 21204.

15

---



# (e) Performance Graph

|(1) | Assumes $100 invested at the close of business on December 31, 2002 in Black
          & Decker common stock, Standard & Poors (S&P) 500 Index, and
          the Peer Group.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The cumulative total return assumes reinvestment of dividends.
|--- | --------------------------------------------------------------

|(3) | The Peer Group consists of the companies in the following indices within the
          Standard & Poors Super Composite 1,500: Household Appliances,
          Housewares & Specialties, Industrial Machinery, and Building Products. A
          list of the companies in the Peer Group will be furnished upon request addressed
          to the Corporate Secretary at 701 East Joppa Road, Towson, Maryland 21286.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Total return is weighted according to market capitalization of each company at
          the beginning of each year.
|--- | --------------------------------------------------------------------------------------------------------------------

# (f) Issuer Purchases of Equity Securities

|PERIOD (a)                                  | TOTAL NUMBER
OF SHARESPURCHASED | AVERAGEPRICE
PAIDPER SHARE | TOTAL NUMBEROF SHARESPURCHASED
ASPART OF PUBLICLYANNOUNCED PLANS | MAXIMUM NUMBEROF SHARESTHAT MAY
YETBE PURCHASEDUNDER THE PLANS(c)
|------------------------------------------- | ------------------------------- | -------------------------- | ---------------------------------------------------------------- | -----------------------------------------------------------------
|                                           
|October 1, 2007 through October 28, 2007    |                                 |                            |                                                                  | 1,18                                                             
|October 29, 2007 through November 25, 2007  |                                 |                            |                                                                  |                                                                 
|November 26, 2007 through December 31, 2007 |                                 |                            |                                                                  | 25                                                               
|                                           
|Total                                       |                                 |                            |                                                                  | 1,44                                                             
|                                           

|(a)(b) (c) |  | The periods represent the Corporations monthly fiscal calendar.Shares acquired from associates to satisfy withholding tax requirements upon
the vesting of restricted stock.The maximum number of shares that may yet be purchased under the plans represent the remaining shares
          that are available pursuant to the Corporation's publicly announced repurchase plans.  On February 8, 2007, the Corporation
announced it had authorization from its Board of Directors to repurchase 3,000,000 shares.  In addition, the maximum number of shares that may yet be
purchased under the plans noted above includes 4,000,000 shares authorized by the Board of Directors on October 17, 2007. On February 14, 2008, the Corporation
announced it had authorization from its Board of Directors to repurchase an additional 2,000,000 shares. There is no expiration
          date or current intent to terminate the repurchase plans.
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---



# ITEM 6. SELECTED
FINANCIAL DATA

# FIVE-YEAR SUMMARY (b)

|2007 (a)                                         
|-------------------------------------------------
|                                                 
|Sales                                            
|Net earnings from continuing operations          
|(Loss) earnings from discontinued operations (e) 
|Net earnings                                     
|Basic earnings per share:                        
|Continuing operations                            
|Discontinued operations                          
|Net earnings per common share - basic            
|Diluted earnings per share:                      
|Continuing operations                            
|Discontinued operations                          
|Net earnings per common share - assuming dilution
|Total assets                                     
|Long-term debt                                   
|Redeemable preferred stock of subsidiary         
|Cash dividends per common share                  
|                                                 

|(a) | Earnings from continuing operations for 2007 include a favorable $153.4 million tax settlement.  In addition,
earnings from continuing operations for 2007 include a charge for an environmental remediation matter of $31.7 million before taxes ($20.6 million
after taxes) and a restructuring charge of $19.0 million before taxes ($12.8 million after taxes).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The Corporation adopted Statement of Financial
Accounting Standard (SFAS) No.
123R, Share-Based Payment, effective January 1, 2006, using the
          modified retrospective method of adoption whereby the Corporation restated all
          prior periods presented based on amounts previously recognized under SFAS
          No. 123 for purposes of pro forma disclosures. Amounts in this five-year
          summary for 2005, 2004, and 2003 reflect such restated amounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Earnings from continuing operations for 2005
          include a favorable $55.0 million ($35.8 million after taxes) settlement of environmental and product liability coverage
          litigation with an insurer.  In addition, earnings from continuing operations for 2005 includes $51.2 million of incremental
          tax expense resulting from the repatriation of $888.3 million of foreign earnings under the American Jobs Creation Act of 2004 (AJCA).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Earnings from continuing operations for 2003 include a restructuring
          charge of $20.6 million before taxes ($14.9
          million after taxes). That
          pre-tax charge was net of reversals of $13.2 million, representing reversals of previously provided restructuring
          reserves, together with the excess of proceeds received on the sale of long-lived assets - written down as part of
          restructuring actions - over their adjusted carrying value. In addition, earnings from continuing operations for 2003
          include a restructuring charge of $11.0 million before taxes ($7.2 million after
          taxes) associated with the closure of a manufacturing facility in the Hardware
          and Home Improvement segment as a result of the acquisition of the Baldwin and
          Weiser businesses.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | (Loss) earnings from discontinued operations represent the earnings, net of
          applicable income taxes, of the Corporations discontinued European
          security hardware business. Loss from discontinued operations for the year ended
          December 31, 2005, includes a loss on sale of discontinued operations of $.1
          million. Earnings from discontinued operations for the year ended December 31,
          2004, include a gain on sale of discontinued operations of $12.7 million.
          That gain was net of a $24.4 million goodwill impairment charge associated with
          the DOM security hardware business. The earnings of the discontinued operations
          do not reflect any expense for interest allocated by or management fees charged
          by the Corporation. For additional information about the discontinued European
          security hardware business, see Note 19 of Notes to Consolidated Financial
          Statements included in Item 8 of Part II of this report.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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 16 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 74%, 15%, and 11%, respectively, of the Corporations sales in 2007. As
more fully disclosed in Note 2 of Notes to Consolidated Financial Statements, on March 1,
2006, the Corporation acquired Vector. Vector, a designer and marketer of consumer
portable power products, is included in the Power Tools and Accessories segment.

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 year ended December 31, 2007, follows:

 Sales for 2007 were $6,563.2
million, which represented a 2% increase over 2006 sales of $6,447.3 million. While the
effects of a weaker U.S. dollar as compared to most other currencies caused a 3% increase
in consolidated sales during 2007, that increase was partially offset by a 1% decline in
unit volume. That unit volume decline was driven by lower sales in the United States and
was partially offset by higher sales outside of the United States. Sales to U.S. customers
in 2007 declined by 5% from the 2006 level due, in part, to sharply lower housing starts.
The Corporation expects that continued weakness in key sectors of the U.S. economy,
including lower residential construction, will contribute to a low-single-digit rate of
sales decline in 2008 as compared to 2007.

 Operating income as a percentage of
sales for 2007 decreased by approximately 260 basis points from the 2006 level to 8.9%. Of
that decline, approximately 90 basis points was attributable to a reduction in gross
margin, approximately 140 basis points was attributable an increase in selling, general,
and administrative expenses, and approximately 30 basis points was attributable to a $19.0
million pre-tax restructuring charge. Gross margin as a percentage of sales declined in
2007 as the effects of rising commodity 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 by approximately $180 million over the 2006 level,
were only partially offset by the favorable effects of productivity initiatives. Gross
margin as a percentage of sales in 2007 was also negatively affected by a $21.3 million
pre-tax charge associated with the recall of certain DEWALT XRPa cordless drills.
Selling, general, and administrative expenses as a percentage of sales increased in 2007
over the 2006 level due principally to, in the U.S., the de-leveraging of expenses over a
lower sales base and to higher Corporate expenses, which included a $31.7 million pre-tax
charge in 2007 for an environmental matter. The Corporation anticipates that operating
income as a percentage of sales will approximate 9% in 2008. The Corporation expects that
operating income in 2008 will be unfavorably impacted by the unfavorable effects of rising
commodity 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 $120 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 such
unfavorability will be offset by the favorable effect of productivity and restructuring
initiatives and from the lack of certain unfavorable items experienced in 2007 
namely, the pre-tax charges previously described relating to an environmental matter, the
DEWALT XRP recall, and restructuring and exit costs.

 Interest expense (net of
interest income) rose by $8.5 million in 2007 over the 2006 level, due principally to
lower interest income associated with reduced levels of cash and cash equivalents. 
Net earnings were $518.1 million, or $7.85 per diluted share, for the year ended December
31, 2007, as compared to $486.1 million, or $6.55 per diluted share, in 2006. Net earnings
for the year ended December 31, 2007, included the effects of the following three items:
(i) a $153.4 million tax benefit resulting from a settlement agreement reached on an
income tax litigation matter; (ii) an after-tax charge of $20.6 million ($31.7 million
before taxes) associated with an environmental remediation matter; and (iii) an after-tax
restructuring charge of $12.8 million ($19.0 million before taxes).

18

---



 Cash flow from operating
activities increased by $103.2 million over the 2006 level to $725.9 million for the year
ended December 31, 2007. The increase in cash provided by operating activities in 2007 was
primarily due to cash provided by working capital in 2007, including the effect of lower
income tax payments, as compared to cash used for working capital in 2006.  Under an
ongoing share repurchase program, the Corporation repurchased approximately 5.4 million
shares of its common stock during 2007 at a cost of $456.1 million. As a result of those
repurchases, shares used in computing annual diluted earnings per share for 2007 declined
by 11% as compared to 2006.

The preceding information is an
overview of certain aspects of the Corporations performance during the year ended
December 31, 2007, 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. Also, the Corporation has attempted to differentiate between sales of its
existing businesses and sales of acquired businesses. That differentiation
includes sales of businesses where year-to-year comparability exists in the category of
existing or legacy businesses. For example, in 2006, the
sales of Vector are included in sales of acquired businesses.

Results of Operations

SALES

The following chart provides an
analysis of the consolidated changes in sales for the years ended December 31, 2007, 2006,
and 2005.

|                          
|--------------------------
|(DOLLARS IN MILLIONS)     
|                          
|Total sales               
|                          
|Unit volume - existing (a)
|Unit volume - acquired (b)
|Price                     
|Currency                  
|                          
|Change in total sales     
|                          
|                          

|(a) | Represents change in unit volume for businesses where year-to-year comparability
          exists; however, includes unit volume in 2005 of the European FLEX power tools
          business sold in November 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Represents change in unit volume for businesses that were acquired and were not
          included in prior period results.
|--- | ---------------------------------------------------------------------------------------------------------------------------

Total  consolidated  sales for the year ended December 31, 2007, were $6,563.2  million,  which  represented a 2% increase over 2006
sales of $6,447.3  million.  As compared to the 2006 level,  unit volume declined by 1% in 2007. That unit volume decline was driven
by lower sales in the United States and was partially offset by higher sales outside of the United States.  Sales to U.S.  customers
in 2007  declined by 5% from the 2006 level due, in part, to sharply lower  housing  starts.  The effect of pricing  actions did not
have a material  effect on sales in 2007.  While the  Corporation  implemented  price  increases  in late 2006,  the impact of those
pricing increases in 2007 was mitigated by pricing and promotional  actions  undertaken to stimulate demand. The effects of a weaker
U.S. dollar as compared to most other currencies,  particularly the euro and pound sterling,  caused the Corporation's  consolidated
sales for 2007 to increase by 3% over the 2006 levels.

Total  consolidated  sales for the year ended December 31, 2006, were $6,447.3  million,  which  represented a 1% decrease from 2005
sales of $6,523.7 million.  Excluding the incremental  effects of the Vector  acquisition,  unit volume declined by 2% from the 2005
level.  That 2%  decline  was  driven by lower  sales in the  United  States  due,  in part,  to weak  demand in the face of slowing
residential  construction and actions taken by certain major customers late in 2006 to reduce inventory  levels.  Vector, a consumer
portable power business  acquired on March 1, 2006,  contributed 2% to 2006  consolidated  sales.  Pricing actions had a 1% negative
impact on sales in 2006, as compared to 2005.  The effects of foreign  currency did not have a material  effect on sales in 2006, as
compared to 2005.

EARNINGS

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

|                                             
|---------------------------------------------
|(PERCENTAGE OF SALES)                        
|                                             
|Gross margin                                 
|Selling, general, and administrative expenses
|Restructuring and exit costs                 
|Operating income                             
|                                             
|                                             

The Corporation reported consolidated
operating income of $582.2 million on sales of $6,563.2 million in 2007, as compared to
operating income of $740.4 million on sales of $6,447.3 million in 2006 and to operating
income of $794.9 million on sales of $6,523.7 million in 2005.

Consolidated gross margin as a
percentage of sales declined by approximately 90 basis points from the 2006 level to 33.9%
in 2007. That decrease in gross margin was primarily a result of rising commodity costs
which, coupled with the effects of the change

19

---



in Chinas value added tax and
appreciation of the Chinese renminbi, added approximately $180 million of incremental
costs over 2006. In addition, gross margin in 2007 was burdened by a $21.3 million pre-tax
charge associated with the recall of certain DEWALT XRP cordless drills. However, those
negative effects were partially offset by the favorable effects of productivity and
restructuring initiatives, pricing actions, product mix, and currency.

Consolidated gross margin as a
percentage of sales declined by approximately 70 basis points from the 2005 level to 34.8%
in 2006. That decrease in gross margin was primarily a result of significant commodity
inflation, coupled with the negative effects both of pricing actions and of lower sales
and production volumes over which to leverage fixed costs, which offset the positive
effects that resulted from restructuring and productivity initiatives as well as favorable
product mix.

Consolidated selling, general, and
administrative expenses as a percentage of sales were approximately 24.7% in 2007 and
23.3% in both 2006 and 2005. Consolidated selling, general, and administrative expenses in
2007 increased by $124.7 million over the 2006 level. The effect of foreign currency
translation accounted for approximately one-third of that increase and the remainder was
primarily attributable to additional selling, general, and administrative expenses to
support increased sales in certain markets outside of the United States and to higher
environmental expenses.

Consolidated selling, general, and
administrative expenses in 2006 decreased by $21.1 million from the 2005 level. That
decrease was due, in part, to declines in certain sales-related expenses as a result of
lower sales volume as well as in certain employee-related expenses, including
performance-based incentive compensation, which offset incremental expenses of the
acquired Vector business and the unfavorable effect of foreign currency translation.

In 2007, the Corporation recognized
$19.0 million of pre-tax restructuring and exit costs related to actions in its Power
Tools and Accessories and Hardware and Home Improvement segments. The 2007 restructuring
charge reflects actions to reduce the Corporations manufacturing cost base as well
as selling, general, and administrative expenses in those segments.

Consolidated net interest expense
(interest expense less interest income) was $82.3 million in 2007, as compared to $73.8
million in 2006 and $45.4 million in 2005. The increase in net interest expense in 2007,
as compared to 2006, was primarily the result of lower interest income associated with
reduced levels of cash and cash equivalents. The higher net interest expense in 2006, as
compared to 2005, was primarily the result of higher prevailing U.S. interest rates,
including the impact on the Corporations foreign currency hedging activities, and
higher short-term borrowing levels.

Other expense (income) was $2.3
million in 2007, as compared to $2.2 million in 2006 and $(51.6) million in 2005. As more
fully described in Note 20 of Notes to Consolidated Financial Statements, the Corporation
received a payment of $55.0 million in 2005 relating to the settlement of environmental
and product liability coverage litigation with an insurer.

Consolidated income tax expense
(benefit) of $(20.5) million, $178.3 million, and $268.9 million was recognized on the
Corporations earnings from continuing operations before income taxes of $497.6
million, $664.4 million, and $801.1 million, for 2007, 2006, and 2005, respectively.
Income tax expense (benefit) in 2007 reflects: (i) the effect of a $153.4 million tax
benefit associated a settlement reached on an income tax litigation matter; (ii) an $11.1
million tax benefit associated with the $31.7 million pre-tax charge for an environmental
remediation matter; and (iii) a $6.2 million tax benefit associated with a $19.0 million
pre-tax restructuring charge. Income tax expense in 2005 reflects incremental tax expense
of $51.2 million associated with the repatriation of foreign earnings under the American
Jobs Creation Act of 2004 (AJCA) and $19.2 million of tax expense associated with $55.0
million of income recognized upon settlement of environmental and product liability
coverage litigation with an insurer. The previously described items had a significant
impact on the Corporations effective income tax rates in 2007 and 2005. A further
analysis of taxes on earnings is included in Note 11 of Notes to Consolidated Financial
Statements.

As more fully described in Note 19 of
Notes to Consolidated Financial Statements, the Corporation reported a net loss of $.1
million from discontinued operations in 2005, or $ per share on a diluted basis.

The Corporation reported net earnings
of $518.1 million, $486.1 million, and $532.1 million, or $7.85, $6.55, and $6.54 per
share on a diluted basis, for the years ended December 31, 2007, 2006, and 2005,
respectively. Net earnings for the year ended December 31, 2007, included the effects of:
(i) a $153.4 million tax benefit resulting from a settlement agreement reached on an
income tax litigation matter; (ii) an after-tax charge of $20.6 million ($31.7 million
before taxes) associated with an environmental remediation matter; and (iii) an after-tax
restructuring charge of $12.8 million ($19.0 million before taxes).

20

---



In addition to the matters previously
noted, diluted earnings per share for 2007 and 2006 benefited from lower weighted-average
shares outstanding, principally as a result of the Corporations purchases of its
common stock under a previously announced share repurchase program. The 66.0 million
weighted-average shares outstanding used in the computation of diluted earnings per share
for 2007 represented an 11% decline from the 74.2 million average shares outstanding used
in the 2006 computation. The 74.2 million average shares outstanding used in the
computation of diluted earnings per share for 2006 represented a 9% decline from the 81.4
million average shares outstanding used in the 2005 computation.

Business Segments

As more fully described in Note 16 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 profit for the
Power Tools and Accessories segment, determined on the basis described in Note 16 of Notes
to Consolidated Financial Statements, were as follows (in millions of dollars):

|2007                           
|-------------------------------
|                               
|Sales to unaffiliated customers
|Segment profit                 
|                               

Sales to unaffiliated customers in
the Power Tools and Accessories segment during 2007 decreased 1% from the 2006 level. That
decline, which primarily resulted from lower sales in the United States and Canada, was
partially offset by higher sales outside of North America.

Sales in North America decreased at a
mid-single-digit rate during 2007, as compared to the 2006 level. Sales of the
Corporations industrial power tools and accessories business in the United States
decreased at a mid-single-digit rate  due, in part to sharply lower housing starts
 as a high-single-digit rate of decline in sales to the independent channel was
coupled with sales to major retailers that approximated the 2006 level. Sales of
industrial power tools and accessories in the United States declined in 2007 across most
product categories. Sales of the consumer power tools and accessories business in the
United States decreased at a high-single-digit rate due primarily to lower sales of power
tools and accessories, automotive and electronic products, and pressure washers. In
Canada, sales decreased at a high-single-digit rate from the 2006 level, with
high-single-digit rates of decline in sales of both industrial and consumer power tools
and accessories.

Sales of the European power tools and
accessories business during 2007 increased at a mid-single-digit rate over the level
experienced in 2006. While sales grew in 2007 across most markets, excluding the United
Kingdom, a double-digit rate of growth was experienced in the Eastern European, Nordic,
and Middle East/Africa regions. Sales of the Corporations industrial power tools and
accessories business in Europe increased at a double-digit rate while sales of the
consumer power tools and accessories business increased at a low-single-digit rate during
2007 due to the introduction of consumer portable power products.

Sales in other geographic areas
increased at a double-digit rate in 2007 over the 2006 level. That increase resulted from
a double-digit rate of increase in Latin America and a high-single-digit rate of increase
in Asia.

Segment profit as a percentage of
sales for the Power Tools and Accessories segment was 10.0% for 2007, as compared to 12.0%
for 2006. Gross margin as a percentage of sales for 2007 declined in comparison to the
2006 level primarily as a result of the negative effects of commodity inflation (including the
change in Chinas value-added tax and appreciation of the Chinese renminbi), pricing
actions, and the recall of certain DEWALT XRP drills. Those negative effects on gross
margin in 2007 were partially offset by the favorable effects of productivity and
restructuring initiatives, product mix, and currency. Selling, general, and administrative
expenses as a percentage of sales for 2007 increased over the 2006 level due primarily to,
in North America, the de-leveraging of expenses over a lower sales base.

Sales to unaffiliated customers in
the Power Tools and Accessories segment during 2006 decreased 2% from the 2005 level.
Sales of the acquired Vector business resulted in a 2% increase in sales during 2006. That
increase was offset by a four-percentage-point decline in sales of the legacy Power Tools
and Accessories businesses that was primarily attributable to lower sales in the United
States, partially offset by higher sales outside of the United States.

Sales in North America decreased at a
mid-single-digit rate during 2006 as compared to the prior years level. Sales of the
Corporations industrial power tools and accessories business in the United States
decreased at a mid-single-digit rate primarily as a result of lower sales of equipment
(due largely to lower sales of generators and compressors), construction tools, and
woodworking tools. The U.S. industrial power tools and accessories business

21

---



was adversely
impacted by weak demand in the face of slowing residential construction and actions taken
by certain major customers late in 2006 to reduce inventory levels. Sales of the consumer
power tools and accessories business in the United States decreased at a low-single-digit
rate primarily as a result of lower consumer power tool and pressure washer sales, which
were partially offset by the sales of the acquired Vector business. Excluding the sales of
the acquired Vector business, sales of the consumer power tools and accessories business
declined at a double-digit rate from the 2005 level with sales down across most channels
and product lines. Actions taken by major retailers to reduce inventory levels also
negatively impacted the U.S. consumer power tools and accessories business in 2006. In
Canada, sales decreased at a low-single-digit rate, as a double-digit-rate of decline in
sales of consumer power tools and accessories was partially offset by a mid-single-digit
rate of increase in sales of industrial power tools and accessories.

Sales of the European power tools and
accessories business during 2006 increased at a low-single-digit rate over the level
experienced in 2005. A mid-single-digit rate of increase in organic sales was partially
offset by the sales decline that resulted from the divestiture of the FLEX business in
late 2005. While sales grew in 2006 across most markets, marked growth was experienced in
the Middle East/Africa and Eastern European regions. Sales of the European industrial
power tools and accessories business increased at a low-single-digit rate in 2006. That
increase was the result of a double-digit rate of increase in legacy sales of the
industrial power tools and accessories business in Europe which was partially offset by
the effects of the FLEX divestiture. Sales of the Corporations consumer power tools
and accessories business in Europe increased at a low-single-digit rate during 2006.

Sales in other geographic areas
increased at a double-digit rate in 2006 over the 2005 level. That increase resulted from
a double-digit rate of increase in Latin America and a mid-single-digit rate of increase
in Asia.

Segment profit as a percentage of
sales for the Power Tools and Accessories segment was 12.0% for 2006, as compared to 13.2%
for 2005. The incremental effect of the Vector acquisition on segment profit as a
percentage of sales for 2006 was not material. Gross margin as a percentage of sales for
2006 declined in comparison to 2005 primarily due to negative pricing actions, lower sales
and production volume over which to absorb fixed costs, and commodity inflation. Those
negative factors were mitigated by the benefits of restructuring and productivity
initiatives as well as favorable mix. Selling, general, and administrative expenses as a
percentage of sales for 2006 increased, as compared to 2005, due principally to the
de-leveraging of fixed and semi-fixed costs over a lower sales base.

HARDWARE AND HOME
IMPROVEMENT

Segment sales and profit for the
Hardware and Home Improvement segment, determined on the basis described in Note 16 of
Notes to Consolidated Financial Statements, were as follows (in millions of dollars):

|2007                           
|-------------------------------
|                               
|Sales to unaffiliated customers
|Segment profit                 
|                               

Sales to unaffiliated customers in
the Hardware and Home Improvement segment during 2007 decreased 1% from the 2006 level.
Sales of security hardware in the United States declined at a mid-single-digit rate due,
in part, to the negative effects of the U.S. housing slowdown, which were only partially
offset by the introduction of the Smart Series of products at retail and by the effect of
price increases instituted in late 2006. Sales of plumbing products in the United States
rose at a high-single-digit rate in 2007, driven by growth in the retail channel due, in
part, to increased listings, new product introductions, and price increases instituted in
late 2006. Sales of the Hardware and Home Improvement segment outside of the United States
rose at a double-digit rate in 2007 over the 2006 level, driven by increased shelf space
for the Weiser lock business at two large Canadian retailers.

Segment profit as a percentage of
sales in the Hardware and Home Improvement segment decreased from 13.6% in 2006 to 11.3%
in 2007. Gross margin as a percentage of sales declined in 2007, as compared to 2006, as
the negative effects of commodity inflation and lower volumes were only partially offset
by the favorable effects of pricing actions instituted in late 2006, productivity
initiatives, and product mix. Selling, general, and administrative expenses as a
percentage of sales increased in 2007, as compared to 2006, as a result of higher
promotion, research and development, and distribution expenses as well as the
de-leveraging of fixed and semi-fixed costs over a lower sales base.

Sales to unaffiliated customers in
the Hardware and Home Improvement segment during 2006 decreased 2% from the 2005 level,
due primarily to a mid-single-digit rate of decline in sales of plumbing products. Despite
a double-digit rate of decline in U.S. housing starts in 2006, sales of security hardware
products approximated the 2005 level. Sales of Kwikset products grew at a low-single-digit
rate, as higher retail sales and the effects of a price increase during the fourth quarter
of 2006 offset weakness

22

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in the wholesale channel. That growth in Kwikset sales offset a
low-single-digit rate of decline in sales of Weiser and Baldwin products.

Segment profit as a percentage of
sales in the Hardware and Home improvement segment decreased from 14.2% in 2005 to 13.6%
in 2006. The decline in segment profit as a percentage of sales in 2006 was attributable
to a decline in gross margin, as the favorable effects of restructuring/integration and
productivity initiatives, coupled with price increases instituted by the segment, were
insufficient to offset the negative effects of significant commodity inflation,
particularly with respect to copper and zinc, and lower sales and production volumes.
Selling, general, and administrative expenses as a percentage of sales decreased in 2006,
as compared to 2005, as a result of cost reduction initiatives.

FASTENING AND ASSEMBLY
SYSTEMS

Segment sales and profit for the
Fastening and Assembly Systems segment, determined on the basis described in Note 16 of
Notes to Consolidated Financial Statements, were as follows (in millions of dollars):

|2007                           
|-------------------------------
|                               
|Sales to unaffiliated customers
|Segment profit                 
|                               

Sales to unaffiliated customers in
the Fastening and Assembly Systems segment increased 4% in 2007 over the 2006 level. Sales
of the North American businesses declined at a low-single-digit rate, reflecting weakness
in both the industrial and automotive businesses. Sales in the European industrial
business rose at a high-single-digit rate while sales in the European automotive business
rose at a mid-single-digit rate. In Asia, sales grew at a high-single-digit rate,
reflecting sales growth across all markets.

Segment profit as a percentage of
sales for the Fastening and Assembly Systems segment increased from 14.4% in 2006 to 15.4%
in 2007. The increase in segment profit as a percentage of sales was principally
attributable to the leveraging of fixed costs over a higher sales base.

Sales to unaffiliated customers in
the Fastening and Assembly Systems segment increased 1% in 2006 over the 2005 level. Sales
of the North American businesses declined at a mid-single-digit rate, reflecting both weak
industrial sales and weak automotive sales in the face of production cuts by automotive
customers. Sales in the European industrial business rose at a low-single-digit rate while
sales in the European automotive business approximated the prior year level. In Asia,
sales grew at a double-digit rate, reflecting strong sales in both Japan and China.

Segment profit as a percentage of
sales for the Fastening and Assembly Systems segment increased slightly from 14.3% in 2005
to 14.4% in 2006. The segment reduced selling, general, and administrative expenses as a
percentage of sales, despite higher research and development expenditures, due to spending
controls in 2006. However, that favorability was offset by a decline in gross margin,
primarily as a result of commodity inflation and the unfavorable effects of foreign
currency.

OTHER SEGMENT-RELATED
MATTERS

As indicated in the first table of
Note 16 of Notes to Consolidated Financial Statements, segment profit (loss), associated
with Corporate, Adjustments, and Eliminations (Corporate) was $(107.7) million, $(66.8)
million, and $(82.6) million for the years ended December 31, 2007, 2006, and 2005,
respectively. Corporate expenses for 2007 increased over the prior years level due
to the unfavorable effects of higher legal and environmental expenses (due to the $31.7
million charge taken for an environmental remediation matter), a foreign currency loss by
a Corporate subsidiary (that offset a foreign currency gain by that subsidiary in 2006),
and higher expenses associated with intercompany eliminations, principally related to
foreign currency effects. Those unfavorable effects were partially offset by the favorable
effects of income booked by Corporate for the reportable business segments, including the
reversal of certain performance-based incentive expenses included in segment profit of the
reportable business segments.

Corporate expenses for 2006 declined
from the prior years level as the positive effects of certain lower employee-related
expenses not allocated directly to the reportable business segments (including
performance-based incentives) and a foreign currency gain by a Corporate subsidiary, as
well as higher Corporate expense allocations charged directly to the Corporations
business segments, were partially offset by the negative effects of higher pension and
environmental expenses.

Expense recognized by the Corporation
in 2007, on a consolidated basis, relating to its pension and other postretirement
benefits plans decreased by approximately $2 million from the 2006 level. Expense
recognized by the Corporation in 2006, on a consolidated basis, relating to its pension
and other postretirement benefits plans increased by approximately $13 million over the
2005 level. The Corporate adjustment to businesses postretirement benefit expense
booked in consolidation, as identified in the second table included in Note 16 of Notes to
Consolidated Financial Statements, was expense in 2007, 2006, and 2005 of $19.9 million,
$25.2 million, and $13.8 million, respectively. The $5.3 million

23

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decrease in that
Corporate adjustment in 2007, as compared to 2006, resulted from the lower level of
pension and other postretirement benefit expenses (excluding service costs allocated to
the reportable business segments). The $11.4 million increase in that Corporate adjustment
in 2006, as compared to 2005, resulted from the higher level of pension and other
postretirement benefit expenses (excluding service costs allocated to the reportable
business segments). As more fully described in Note 16 of Notes to Consolidated Financial
Statements, the only element of pension and other postretirement benefits expense included
in the determination of segment profit of the Corporations reportable business
segments is service costs.

Income (expenses) directly related to
reportable business segments booked in consolidation, and, thus, excluded from segment
profit for the reportable business segments, were $8.3 million, $(.2) million, and $3.3
million for the years ended December 31, 2007, 2006 and 2005, respectively. The $8.3
million of segment-related income excluded from segment profit in 2007 principally related
to the Power Tools and Accessories segment as well as to the reversal of certain
performance-based incentive expenses included in the allocation of Corporate expenses to
each of the reportable business segments. The $.2 million of segment-related expense
excluded from segment profit in 2006 consisted of an increase in reserves for certain
matters associated with the Power Tools and Accessories segment that was substantially
offset by the reversal of certain performance-based incentive expenses included in the
allocation of Corporate expenses to each of the reportable business segments. The $3.3
million of segment-related income excluded from segment profit in 2005 principally related
to a reduction in reserves for certain legal matters associated with the Power Tools and
Accessories and Hardware and Home Improvement segments.

As indicated in Note 16 of Notes to
Consolidated Financial Statements, the determination of segment profit excludes
restructuring and exit costs. Of the $19.0 million pre-tax restructuring charge recognized
in 2007, $9.0 million and $10.0 million related to the Power Tools and Accessories and
Hardware and Home Improvement segments, respectively.

DISCONTINUED OPERATIONS

As more fully discussed in Note 19 of
Notes to Consolidated Financial Statements, the European security hardware business,
consisting of the NEMEF, Corbin, and DOM businesses, has been reflected as discontinued
operations in the Consolidated Financial Statements. As such, the operating results,
assets and liabilities, and cash flows of the discontinued European security hardware
business have been reported separately from the Corporations continuing operations.
In November 2005, the Corporation completed the sale of the DOM security hardware business
for an aggregate price of $17.2 million, net of cash transferred. The net loss of the
discontinued European security hardware business was $.1 million for the year ended
December 31, 2005.

Restructuring and Integration
Actions

The Corporation is committed to
continuous productivity improvement and continues to evaluate opportunities to reduce
fixed costs, simplify or improve processes, and eliminate excess capacity. A tabular
summary of restructuring activity during the three years ended December 31, 2007, is
included in Note 18 of Notes to Consolidated Financial Statements.

In 2007, the Corporation recognized
$19.0 million of pre-tax restructuring and exit costs related to actions taken in its
Power Tools and Accessories and Hardware and Home Improvement segments. The 2007
restructuring charge reflects actions to reduce the Corporations manufacturing cost
base as well as selling, general, and administrative expenses. The restructuring actions
to reduce the Corporations manufacturing cost base in the Power Tools and
Accessories segment includes the closure of a manufacturing facility, with production from
that facility to be either transferred to other facilities or outsourced from third-party
suppliers. Actions to reduce the Corporations manufacturing cost base in the
Hardware and Home Improvement segment primarily relate to optimization of its North
American finishing operations, including the transfer of most finishing operations to a
single facility. The principal component of the 2007 restructuring charge related to the
elimination of manufacturing and selling, general, and administrative positions. A
severance benefits accrual of $14.8 million was recognized associated with the elimination
of approximately 650 positions. The Corporation estimates that, as a result of increases
in manufacturing employee headcount in other facilities, approximately 100 replacement
positions will be filled, yielding a net total of approximately 550 positions eliminated
as a result of the 2007 restructuring actions. The restructuring and exit costs also
include a $7.4 million write-down to fair value of certain long-lived assets of the
Hardware and Home Improvement segment that have been idled and will be either sold or
scrapped. The $19.0 million restructuring charge taken in 2007 was net of a $3.4 million
gain, representing the excess of proceeds received on the sale of the manufacturing
facility to be closed under the restructuring plan over its carrying value.

24

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During 2005, the Corporation
substantially completed the execution of the restructuring plan that was formulated in the
fourth quarter of 2001 and the closure of a manufacturing facility in its Hardware and
Home Improvement segment.

In addition to the recognition of
restructuring and exit costs, the Corporation also recognized related expenses,
incremental to the cost of the underlying restructuring actions, that do not qualify as
restructuring or exit costs under accounting principles generally accepted in the United
States (restructuring-related expenses). Those restructuring-related expenses included
items  directly related to the underlying restructuring actions  that
benefited on-going operations, such as costs associated with the transfer of equipment.
Operating results included approximately $5 million of restructuring-related expenses for
the year ended December 31, 2007, as compared to approximately $10 million and $15 million
of restructuring-related expenses for 2006 and 2005, respectively.

The Corporation realized benefits of
approximately $25 million and $35 million in 2006 and 2005, respectively, net of
restructuring-related expenses. Those benefits resulted in a reduction in cost of goods
sold of approximately $21 million and $33 million in 2006 and 2005, respectively, and a
reduction in selling, general, and administrative expenses of approximately $4 million and
$2 million in 2006 and 2005, respectively. The Corporation expects that pre-tax savings
associated with the 2007 restructuring actions will benefit 2008 results by $7 million,
net of restructuring-related expenses.

In addition to the previously
discussed restructuring actions, the Corporation also identified opportunities to
integrate businesses it acquired, including the Porter-Cable and Delta Tools Group. Prior
to the date of the acquisition of the Porter-Cable and Delta Tools Group and during 2004,
the Corporation identified opportunities to restructure, as well as to integrate, these
businesses into its Power Tools and Accessories segment. Subsequent to the acquisition,
the Corporation approved restructuring/integration actions relating to the acquired
business in the amount of $15.2 million. These actions principally reflected severance
costs associated with administrative and manufacturing actions related to the acquired
businesses, including the closure of three manufacturing facilities, and lease and other
contractual obligations for which no future benefit would be realized. Certain of these
restructuring/integration actions commenced in 2004 and the remainder commenced in 2005;
all actions were substantially completed in 2006. The Corporation realized integration
benefits associated with these actions of approximately $15 million and $25 million in
2007 and 2006, respectively, net of restructuring-related expenses. Principally all of those
incremental pre-tax savings benefited gross margin.

Ultimate savings realized from
restructuring/integration 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.

Hedging Activities

The Corporation has a number of
manufacturing sites throughout the world and sells its products in more than 100
countries. As a result, it is exposed to movements in the exchange rates of various
currencies against the United States dollar and against the currencies of countries in
which it manufactures. The major foreign currencies in which foreign currency risks exist
are the euro, pound sterling, Canadian dollar, Japanese yen, Chinese renminbi, Australian
dollar, Mexican peso, Czech koruna, and Brazilian real. Through its foreign currency
activities, the Corporation seeks to reduce the risk that cash flows resulting from the
sales of products manufactured in a currency different from that of the selling subsidiary
will be affected by changes in exchange rates.

From time to time, currencies may
strengthen or weaken in countries in which the Corporation sells or manufactures its
product. While the Corporation will take actions to mitigate the impact of any future
currency movements, there is no assurance that such movements will not adversely affect
the Corporation.

Assets and liabilities of
subsidiaries located outside of the United States are translated at rates of exchange at
the balance sheet date as more fully explained in Note 1 of Notes to Consolidated
Financial Statements. The resulting translation adjustments are included in the
accumulated other comprehensive income (loss) component of stockholders equity.
During 2007 and 2006, translation adjustments, recorded in the accumulated other
comprehensive income (loss) component of stockholders equity, increased
stockholders equity by $83.2 million and $70.3 million, respectively.

The materials used in the
manufacturing of the Corporations products, which include certain components and raw
materials, are subject to price volatility. These component parts and raw materials are
principally subject to market risk associated with changes in the price of nickel, steel, resins,
copper, aluminum, and zinc. The materials used in the various manufacturing processes are
purchased on the open market, and the majority is available through multiple sources.
Rising commodity costs

25

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(including the impact of the change in Chinas value added tax
and the appreciation of the Chinese renminbi, which increase the costs of finished
products and components manufactured in or purchased from third parties in China)
decreased operating income in 2007 by approximately $180 million from the 2006 level and
are expected to decrease operating income by approximately $120 million in 2008 from the
2007 level. While future movements in prices of raw materials and component parts are
uncertain, the Corporation uses a variety of methods, including established supply
arrangements, purchase of component parts and raw materials for future delivery, and
supplier price commitments, to address this risk. In addition, the Corporation utilizes
derivatives to manage its risk to changes in the prices of certain commodities. As of
December 31, 2007, the amount outstanding under commodity hedges was not material.

As more fully described in Note 9 of
Notes to Consolidated Financial Statements, the Corporation seeks to issue debt
opportunistically, whether at fixed or variable rates, at the lowest possible costs. Based
upon its assessment of the future interest rate environment and its desired
variable-rate-debt to total-debt ratio, the Corporation may elect to manage its interest
rate risk associated with changes in the fair value of its indebtedness, or the cash flows
of its indebtedness, through the use of interest rate swap agreements.

In order to meet its goal of fixing
or limiting interest costs, the Corporation maintains a portfolio of interest rate hedge
instruments. The variable-rate-debt to total-debt ratio, after taking interest rate hedges
into account, was 44% at December 31, 2007, as compared to 42% at December 31, 2006, and
64% at December 31, 2005. At December 31, 2007, average debt maturity was 6.2 years, as
compared to 6.7 years at December 31, 2006, and 4.9 years at December 31, 2005. At both
December 31, 2007 and 2006, average long-term debt maturity was 8.0 years, as compared to
7.3 years at December 31, 2005.

INTEREST RATE SENSITIVITY

The following table provides
information as of December 31, 2007, about the Corporations derivative financial
instruments and other financial instruments that are sensitive to changes in interest
rates, including interest rate swaps and debt obligations. For debt obligations, the table
presents principal cash flows and related average interest rates by contractual maturity
dates. For interest rate swaps, the table presents notional principal amounts and
weighted-average interest rates by contractual maturity dates. Notional amounts are used
to calculate the contractual payments to be exchanged under the interest rate swaps.
Weighted-average variable rates are generally based on the London Interbank Offered Rate
(LIBOR) as of the reset dates. The cash flows of these instruments are denominated in a
variety of currencies. Unless otherwise indicated, the information is presented in U.S.
dollar equivalents, which is the Corporations reporting currency, as of December 31,
2007.

Principal Payments and
Interest Rate Detail by Contractual Maturity Dates

|(U.S. DOLLARS IN MILLIONS)                                                 | 2008 |  | 2009 |       | 2010 |   | 2011 |   | 2012 |   | THEREAFTER |   | TOTAL |   | FAIR VALUE
(ASSETS)/
LIABILITIES
|-------------------------------------------------------------------------- | ---- |  | ---- | ----- | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | --------------------------------
|                                                                          
|LIABILITIES                                                                |      |  |      |       |      |   |      |   |      |   |            |   |       |   |                                 
|Short-term borrowingsVariable rate (U.S. dollar and  other currencies) (a) |      |  | $    | 329.7 |      | $ |     |   | $    |  |            | $ |      |   | $                               
|Average interest rate                                                      |      |  |      | 5.45  | %    |   |      |   |      |   |            |   |       |   |                                 
|Long-term debt                                                             |      | 
|Fixed rate (U.S. dollars)                                                  |      |  | $    | .2    |      | $ | .1   |   | $    |  |            | $ | 400.0 |   | $                               
|Average interest rate                                                      |      |  |      | 7.00  | %    |   | 7.00 | % |      |   |            |   | 7.13  | % |                                 
|INTEREST RATE DERIVATIVES                                                  |      | 
|Fixed to Variable Rate Interest                                            |      | 
|Rate Swaps (U.S. dollars)                                                  |      |  | $    |      |      | $ |     |   | $    |  |            | $ | 150.0 |   | $                               
|Average pay rate (b)                                                       |      | 
|Average receive rate                                                       |      |  |      |       |      |   |      |   |      |   |            |   | 5.34  | % |                                 
|                                                                          

|(a) (b) | Short-term borrowings of $329.7 million include $324.1 million and $5.6 million that are denominated in U.S. dollars and other currencies,
respectively.The average pay rate for swaps in the notional principal amount of $175.0 million is based upon 3-month forward LIBOR (with swaps in the notional
principal amounts of $150.0 million maturing in 2011 and $25.0 million maturing thereafter). The average pay rate for the remaining swap
          is based upon 6-month forward LIBOR.
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

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FOREIGN CURRENCY EXCHANGE
RATE SENSITIVITY

As discussed previously, the
Corporation is exposed to market risks arising from changes in foreign exchange rates. As
of December 31, 2007, the Corporation has hedged a portion of its 2008 estimated foreign
currency transactions using forward exchange contracts. The Corporation estimated the
effect on 2008 gross profits, based upon a recent estimate of foreign exchange exposures,
of a uniform 10% strengthening in the value of the United States dollar. The Corporation
estimated that this would have the effects of reducing gross profits for 2008 by
approximately $24 million. The Corporation also estimated the effects on 2008 gross
profits, based upon a recent estimate of foreign exchange exposures, of a uniform 10%
weakening in the value of the United States dollar. A uniform 10% weakening in the value
of the United States dollar would have the effect of increasing gross profits.

In addition to their direct effects,
changes in exchange rates also affect sales volumes and foreign currency sales prices as
competitors products become more or less attractive. The sensitivity analysis of the
effects of changes in foreign currency exchange rates previously described does not
reflect a potential change in sales levels or local currency prices nor does it reflect
higher exchange rates, as compared to those experienced during 2007, inherent in the
foreign exchange hedging portfolio at December 31, 2007.

Critical Accounting
Policies

The Corporations accounting
policies are more fully described in Note 1 of Notes to Consolidated Financial Statements.
As disclosed in Note 1 of Notes to Consolidated Financial Statements, the preparation of
financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and accompanying notes.
Future events and their effects cannot be determined with absolute certainty. Therefore,
the determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be material to the
financial statements.

The Corporation believes that, of its
significant accounting policies, the following may involve a higher degree of judgment,
estimation, or complexity than other accounting policies.

As more fully described in Note 1 of
Notes to Consolidated Financial Statements, the Corporation performs goodwill impairment
tests on at least an annual basis and more frequently in certain circumstances. The
Corporation cannot predict the occurrence of certain events that might adversely affect
the reported value of goodwill that totaled $1,212.9 million at December 31, 2007. Such
events may include, but are not limited to, strategic decisions made in response to
economic and competitive conditions, the impact of the economic environment on the
Corporations customer base, or a material negative change in its relationships with
significant customers.

Pension and other postretirement
benefits costs and obligations are dependent on assumptions used in calculating such
amounts. These assumptions include discount rates, expected return on plan assets, rates
of salary increase, health care cost trend rates, mortality rates, and other factors.
These assumptions are updated on an annual basis prior to the beginning of each year. The
Corporation considers current market conditions, including interest rates, in making these
assumptions. The Corporation develops the discount rates by considering the yields
available on high-quality fixed income investments with maturities corresponding to the
related benefit obligation. The Corporations discount rate for United States defined
benefit pension plans was 6.50% and 6.00% at December 31, 2007 and 2006, respectively. As
discussed further in Note 12 of Notes to Consolidated Financial Statements, the
Corporation develops the expected return on plan assets by considering various factors,
which include its targeted asset allocation percentages, historic returns, and expected
future returns. The Corporations expected long-term rate of return assumption for
United States defined benefit plans for 2007 and 2008 is 8.75%.

The Corporation believes that the
assumptions used are appropriate; however, differences in actual experience or changes in
the assumptions may materially affect the Corporations financial position or results
of operations. In accordance with accounting principles generally accepted in the United
States, actual results that differ from the actuarial assumptions are accumulated and, if
in excess of a specified corridor, amortized over future periods and, therefore, generally
affect recognized expense and the recorded obligation in future periods. The expected
return on plan assets is determined using the expected rate of return and a calculated
value of assets referred to as the market-related value of assets. The Corporations
aggregate fair value of plan assets exceeded the market-related value of assets by
approximately $120 million as of the 2007 measurement date. Differences between assumed
and actual returns are amortized to the market-related value on a straight-line basis over
a five-year period. Also, gains and losses resulting

27

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from changes in assumptions and from
differences between assumptions and actual experience (except those differences being
amortized to the market-related value of assets) are amortized over the expected remaining
service period of active plan participants or, for retired participants, the average
remaining life expectancy, to the extent that such amounts exceed ten percent of the
greater of the market-related value of plan assets or the projected benefit obligation at
the beginning of the year. The Corporation expects that its pension and other
postretirement benefit costs in 2008 will decrease by approximately $24 million from the
2007 level.

In September 2006, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106, and
132(R). SFAS No 158 requires two major changes to accounting for defined benefit and
other postretirement plans, with two different effective dates. The first requirement of
SFAS No. 158, which the Corporation adopted as of December 31, 2006, requires the
recognition of the overfunded or underfunded status of a defined benefit postretirement
plan as an asset or a liability in the balance sheet, with changes in the funded status
recorded through comprehensive income in the year in which those changes occur. The second
requirement of SFAS No. 158, which is effective for the Corporation as of December 31,
2008, requires that the funded status be measured as of an entitys year-end balance
sheet date rather than as of an earlier date as currently permitted. The Corporation
currently uses a measurement date of September 30 for the majority of its defined benefit
pension and postretirement plans.

As more fully described in Item 3 of
this report, the Corporation is subject to various legal proceedings and claims, including
those with respect to environmental matters, the outcomes of which are subject to
significant uncertainty. The Corporation evaluates, among other factors, the degree of
probability of an unfavorable outcome, the ability to make a reasonable estimate of the
amount of loss, and in certain instances, the ability of other parties to share costs.
Also, in accordance with accounting principles generally accepted in the United States,
when a range of probable loss exists, the Corporation accrues at the low end of the range
when no other more likely amount exists. Unanticipated events or changes in these factors
may require the Corporation to increase the amount it has accrued for any matter or accrue
for a matter that has not been previously accrued because it was not probable.

Further, as indicated in Note 21 of
Notes to Consolidated Financial Statements, insurance recoveries for environmental and
certain general liability claims have not been recognized until realized. Any insurance
recoveries, if realized in future periods, could have a favorable impact on the
Corporations financial condition or results of operations in the periods realized.

Note 21 of Notes to Consolidation
Financial Statements further discusses significant environmental matters which may affect
the Corporation.

As more fully disclosed in Notes 1
and 11 of Notes to Consolidated Financial Statements, the Corporation adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007. The Corporation
considers many factors when evaluating and estimating income tax uncertainties. These
factors include an evaluation of the technical merits of the tax position as well as the
amounts and probabilities of the outcomes that could be realized upon ultimate settlement.
The actual resolution of those uncertainties will inevitably differ from those estimates,
and such differences may be material to the financial statements.

Impact of New Accounting
Standards

As more fully disclosed in Notes 1
and 11 of Notes to Consolidated Financial Statements, the Corporation adopted FIN 48 on
January 1, 2007. Also, as more fully described in Note 1 of Notes to Consolidated
Financial Statements, the Corporation has not yet adopted the provisions of SFAS No. 157,
Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities.

Financial Condition

Operating activities provided cash of
$725.9 million for the year ended December 31, 2007, as compared to $622.7 million for the
year ended December 31, 2006. The increase in cash provided by operating activities in
2007 was primarily due to cash provided by working capital in 2007, including the effect
of lower income tax payments in 2007, as compared to cash used for working capital in
2006. The 2007 operating cash flow effects of trade accounts receivables (associated with
the timing of sales and improved days sales outstanding), trade accounts payable
(associated with the timing of payments and higher inventory levels), and other current
liabilities each improved over 2006. The favorable operating cash flow effect of other
cur-

28

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rent liabilities in 2007 as compared to 2006 was, in part, due to the 2006 payment of
taxes associated with repatriating foreign earnings under the AJCA of 2004 as well as to
the lower level of payments made during 2007, as compared to 2006, associated with prior
year-end accruals, including accruals for customer incentives, employee incentives, and
advertising and promotion. These favorable operating cash flow effects in 2007 were
partially offset by an increase in inventory, in part due to higher commodity costs.

As part of its capital management,
the Corporation reviews certain working capital metrics. For example, the Corporation
evaluates its trade receivables and inventory levels through the computation of days sales
outstanding and inventory turnover ratio, respectively. The number of days sales
outstanding as of December 31, 2007, decreased moderately from the level as of December
31, 2006. Average inventory turns as of December 31, 2007, approximated inventory turns as
of December 31, 2006.

Investing activities used cash of
$149.8 million for the year ended December 31, 2007, as compared to $241.0 million for the
year ended December 31, 2006. Cash used by investing activities in 2006 included the
purchase of Vector for $158.5 million, net of cash acquired, which was partially offset by
$16.1 million of cash received associated with the final adjustment to the purchase price
of the Porter-Cable and Delta Tools Group. Outflows from hedging activities 
associated with the Corporations net investment hedging activities  increased
by $32.6 million in 2007, as compared to 2006, due to the effects of the weaker U.S.
dollar. Capital expenditures increased by $11.8 million over the 2006 level to $116.4
million in 2007. The Corporation anticipates that its capital spending in 2008 will
approximate $115 million.

Financing activities used cash of
$568.2 million for the year ended December 31, 2007, as compared to $1,124.9 million for
the year ended December 31, 2006. Cash used by financing activities in 2007 included the
purchase by the Corporation of 5,477,243 shares of its common stock at an aggregate cost
of $461.4 million, the repayment of the 6.55% notes due July 1, 2007 of $150.0 million,
and dividend payments of $108.6 million. In 2007, the Corporation increased its dividend
payment, on a per share basis, from $1.52 in 2006 to $1.68 in 2007. However, the effect of
the increase in the Corporations dividend payment was offset by the lower level of
common stock outstanding. Future dividends will depend on the Corporations earnings,
financial condition, and other factors. Sources of cash from financing activities in 2007
included proceeds from short-term borrowings of $68.8 million and proceeds received upon
the issuance of common stock, including certain related income tax benefits, under
stock-based compensation plans of $83.3 million.

Cash used by financing activities in
2006 included the purchase by the Corporation of 11,753,700 shares of its common stock at
an aggregate cost of $896.0 million, a net decrease in short-term borrowings of $309.3
million, the repayment of the 7.0% notes due February 1, 2006 of $154.6 million, and
dividend payments of $109.1 million. Sources of cash from financing activities in 2006
included the issuance of $300.0 million of 5.75% Senior Notes due in 2016 and $48.2
million of proceeds received upon the issuance of common stock, including certain related
income tax benefits, under stock-based compensation plans.

The Corporation carried out its share
repurchase program based upon the belief that its shares were undervalued and to manage
share growth resulting from option exercises. Subsequent to December 31, 2007, the
Corporation repurchased 2,000,400 shares of its common stock at an aggregate cost of
$133.6 million. In February 2008, the Board of Directors provided the Corporation with
authorization to repurchase an additional 2,000,000 shares of its common stock. After
those share repurchases and that authorization, the Corporation has remaining
authorization from its Board of Directors to repurchase an additional 4,894,908 shares of its common stock.

As more fully described in Note 11 of
Notes to Consolidated Financial Statements, during 2003, the Corporation received notices
of proposed adjustments from the U.S. Internal Revenue Service (IRS) in connection with
audits of the tax years 1998 through 2000. The principal adjustment proposed by the IRS,
and disputed by the Corporation, consisted of the disallowance of a capital loss deduction
taken in the Corporations tax returns and interest on the deficiency. This matter
was the subject of litigation between the Corporation and the U.S. government. In December
2007, the Corporation and the U.S. government reached a settlement agreement with respect
to that litigation. That settlement agreement resolved the litigation relating to the
audits of the tax years 1998 through 2000 and also resolved the treatment of this tax
position in subsequent years. The Corporation expects that the IRS closing agreements will
be finalized in 2008. The Corporation expects to make cash payments of approximately $50
million during 2008 relating to this settlement.

29

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The ongoing costs of compliance with
existing environmental laws and regulations have not had, and are not expected to have, a
material adverse effect on the Corporations capital expenditures or financial
position.

The Corporation will continue to have
cash requirements to support seasonal working capital needs and capital expenditures, to
pay interest, and to service debt. For amounts available at December 31, 2007, under the
Corporations revolving credit facilities and under short-term borrowing facilities,
see Note 8 of Notes to Consolidated Financial Statements. In order to meet its cash
requirements, the Corporation intends to use its existing cash, cash equivalents, and
internally generated funds, and to borrow under its existing unsecured revolving credit
facility or under short-term borrowing facilities, and to consider additional term
financing. The Corporation believes that cash provided from these sources will be adequate
to meet its cash requirements over the next 12 months.

The following table provides a
summary of the Corporations contractual obligations by due date (in millions of
dollars). The Corporations short-term borrowings, long-term debt, and lease
commitments are more fully described in Notes 7, 8, and 17 of Notes to Consolidated
Financial Statements.

|                                           | PAYMENTS DUE BY PERIOD
|------------------------------------------ | ----------------------
|LESS THAN 1 YEAR                           | 1 TO 3 YEARS          
|                                          
|Short-term borrowings (a) (b) (c)          |                       
|Long-term debt (c)                         |                       
|Operating leases                           |                       
|Purchase obligations (d)                   |                       
|                                          
|Total contractual cash obligations (e) (f) |                       
|                                          

|(a) | As more fully described in Note 7 of Notes to Consolidated Financial Statements,
          the Corporation has a $1.0 billion commercial paper program as well as a
          supporting $1.0 billion credit facility that matures in December 2012. There was
          $324.1 million outstanding under the commercial paper program at December 31,
          2007. The Corporations average borrowing outstanding under these
          facilities during 2007 was $361.0 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | As described in Note 7 of Notes to Consolidated Financial Statements, the Corporation has uncommitted
          lines of credit of approximately $375 million at December 31, 2007. These uncommitted lines
          of credit do not have termination dates and are reviewed periodically.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Payments due by period include contractually required interst payments.
|--- | -----------------------------------------------------------------------

|(d) | The Corporation enters into contractual arrangements that result in its
          obligation to make future payments, including purchase obligations. The
          Corporation enters into these arrangements in the ordinary course of business in
          order to ensure adequate levels of inventories, machinery and equipment, or
          services. Purchase obligations primarily consist of inventory purchase
          commitments, including raw materials, components, and sourced products,
          sponsorship arrangements, and arrangements for other services.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | The Corporation anticipates that funding of its pension and postretirement
          benefit plans in 2008 will approximate $37 million. That amount principally
          represents contributions either required by regulations or laws or, with respect
          to unfunded plans, necessary to fund current benefits. The Corporation has not
          presented estimated pension and postretirement funding in the table above as the
          funding can vary from year to year based upon changes in the fair value of the
          plan assets and actuarial assumptions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | As more fully disclosed in Notes 1 and 11 of Notes to the Consolidated Financial Statements, the Corporation adopted FIN 48,
Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, on January 1, 2007.  At December 31, 2007, the Corporation
has recognized $398.7 million of liabilities for unrecognized tax benefits of which $81.3 million related to interest.  The final outcome of
these tax uncertainties is dependent upon
various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretation
of those tax laws, or expiration of statutes of limitation.  However, based on the number of jurisdictions, the uncertainties associated with
litigation, and the status of examinations, including the protocols of finalizing audits by the relevant tax authorities, which could include formal legal
proceedings, there is a high degree of uncertainty regarding the future cash outflows associated with these tax uncertainties.  As of December 31, 2007,
the Corporation classified $75.4 million of its liabilities for unrecognized tax benefits as a current liability.  While the Corporation cannot reasonably
predict the timing of the cash flows, if any, associated with its liabilities for unrecognized tax benefits, it believes that such cash flows would principally
occur within the next five years.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

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ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required under this Item
is contained in Item 7 of this report under the caption Hedging Activities
and in Item 8 of this report in Notes 1 and 9 of Notes to Consolidated Financial
Statements, and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial
statements of the Corporation and its subsidiaries are included herein as indicated below:

Consolidated Financial
Statements

Consolidated Statement of Earnings 
years ended December 31, 2007, 2006, and 2005.

|Consolidated |  | Balance Sheet  December 31, 2007 and 2006.
|------------ |  | -------------------------------------------

|Consolidated |  | Statement
of Stockholders Equity  years ended December 31, 2007, 2006, and 2005.
|------------ |  | ----------------------------------------------------------------------------------

|Consolidated |  | Statement of Cash Flows  years ended December 31, 2007, 2006, and 2005.
|------------ |  | ------------------------------------------------------------------------

Notes to Consolidated
Financial Statements.

Report of Independent Registered
Public Accounting Firm on Consolidated Financial Statements.

31

---



CONSOLIDATED STATEMENT
OF EARNINGSTHE BLACK & DECKER CORPORATION AND SUBSIDIARIES (DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)

|                                                        |  |  |  
|------------------------------------------------------- |  |  | -
|YEAR ENDED DECEMBER 31,                                 |  |  |  
|                                                       
|SALES                                                   |  |  | $
|Cost of goods sold                                      |  |  |  
|Selling, general, and administrative expenses           |  |  |  
|Restructuring and exit costs                            |  |  |  
|                                                       
|OPERATING INCOME                                        |  |  |  
|Interest expense (net of interest income of             |  | 
|$19.8 for 2007, $29.6 for 2006, and $36.5 for 2005)     |  |  |  
|Other expense (income)                                  |  |  |  
|                                                       
|EARNINGS FROM CONTINUING OPERATIONS                     |  | 
|BEFORE INCOME TAXES                                     |  |  |  
|Income taxes (benefit)                                  |  |  |  
|                                                       
|NET EARNINGS FROM CONTINUING OPERATIONS                 |  |  |  
|Loss from discontinued operations (net of income taxes) |  |  |  
|                                                       
|NET EARNINGS                                            |  |  | $
|                                                       
|                                                        |  |  |  
|BASIC EARNINGS PER COMMON SHARE                         |  | 
|Continuing operations                                   |  |  | $
|Discontinued operations                                 |  |  |  
|                                                       
|NET EARNINGS PER COMMON SHARE  BASIC                   |  |  | $
|                                                       
|DILUTED EARNINGS PER COMMON SHARE                       |  | 
|Continuing operations                                   |  |  | $
|Discontinued operations                                 |  |  |  
|                                                       
|NET EARNINGS PER COMMON SHARE                          |  | 
|ASSUMING DILUTION                                       |  |  | $
|                                                       

See Notes to Consolidated
Financial Statements.

32

---



CONSOLIDATED BALANCE
SHEETTHE BLACK & DECKER CORPORATION AND SUBSIDIARIES (MILLIONS OF DOLLARS)

|                                                                        |  | 
|----------------------------------------------------------------------- |  | 
|DECEMBER 31,                                                            |  | 
|                                                                       
|ASSETS                                                                  |  | 
|Cash and cash equivalents                                               |  | 
|Trade receivables, less allowances of $44.2 for 2007 and $44.5 for 2006 |  | 
|Inventories                                                             |  | 
|Other current assets                                                    |  | 
|                                                                       
|TOTAL CURRENT ASSETS                                                    |  | 
|                                                                       
|PROPERTY, PLANT, AND EQUIPMENT                                          |  | 
|GOODWILL                                                                |  | 
|OTHER ASSETS                                                            |  | 
|                                                                       
|                                                                        |  | 
|                                                                       
|LIABILITIES AND STOCKHOLDERS' EQUITY                                    |  | 
|Short-term borrowings                                                   |  | 
|Current maturities of long-term debt                                    |  | 
|Trade accounts payable                                                  |  | 
|Other current liabilities                                               |  | 
|                                                                       
|TOTAL CURRENT LIABILITIES                                               |  | 
|                                                                       
|LONG-TERM DEBT                                                          |  | 
|POSTRETIREMENT BENEFITS                                                 |  | 
|OTHER LONG-TERM LIABILITIES                                             |  | 
|STOCKHOLDERS' EQUITY                                                    |  | 
|Common stock (outstanding: December 31, 2007  62,923,723 shares;       |  | 
|December 31, 2006  66,734,843 shares)                                  |  | 
|Capital in excess of par value                                          |  | 
|Retained earnings                                                       |  | 
|Accumulated other comprehensive income (loss)                           |  | 
|                                                                       
|TOTAL STOCKHOLDERS' EQUITY                                              |  | 
|                                                                       
|                                                                        |  | 
|                                                                       

See Notes to Consolidated
Financial Statements.

33

---



CONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITYTHE BLACK & DECKER CORPORATION AND SUBSIDIARIES(DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)

|                                      
|--------------------------------------
|                                      
|BALANCE AT DECEMBER 31, 2004          
|Comprehensive income (loss):          
|Net earnings                          
|Net gain on derivative instruments    
|(net of tax)                          
|Minimum pension liability             
|adjustment (net of tax)               
|Foreign currency translation          
|adjustments, less effect              
|of hedging activities                 
|(net of tax)                          
|Write-off of accumulated foreign      
|currency translation                  
|adjustments due to                    
|sale of businesses                    
|                                      
|Comprehensive income                  
|                                      
|Cash dividends on common stock        
|($1.12 per share)                     
|Common stock issued under             
|stock-based plans (net of forfeitures)
|Purchase and retirement               
|of common stock                       
|                                      
|BALANCE AT DECEMBER 31, 2005          
|Comprehensive income (loss):          
|Net earnings                          
|Net loss on derivative instruments    
|(net of tax)                          
|Minimum pension liability             
|adjustment (net of tax)               
|Foreign currency translation          
|adjustments, less effect              
|of hedging activities                 
|(net of tax)                          
|                                      
|Comprehensive income                  
|                                      
|Adoption of FASB Statement No. 158    
|(net of tax)                          
|Cash dividends on common stock        
|($1.52 per share)                     
|Common stock issued under             
|stock-based plans (net of forfeitures)
|Purchase and retirement               
|of common stock                       
|                                      
|BALANCE AT DECEMBER 31, 2006          
|Comprehensive income (loss):          
|Net earnings                          
|Net loss on derivative instruments    
|(net of tax)                          
|Minimum pension liability             
|adjustment (net of tax)               
|Foreign currency translation          
|adjustments, less effect              
|of hedging activities                 
|(net of tax)                          
|Amortization of actuarial             
|losses and prior service cost         
|(net of tax)                          
|                                      
|Comprehensive income                  
|                                      
|Cumulative effect of adopting         
|FASB Interpretation No. 48            
|Cash dividends on common stock        
|($1.68 per share)                     
|Common stock issued under             
|stock-based plans (net of forfeitures)
|Purchase and retirement               
|of common stock                       
|                                      
|BALANCE AT DECEMBER 31, 2007          
|                                      

See Notes to Consolidated
Financial Statements.

34 & 35

---



CONSOLIDATED STATEMENT OF CASH FLOWS
THE BLACK & DECKER CORPORATION AND SUBSIDIARIES (MILLIONS OF DOLLARS)

|                                                                                   |  |  |  
|---------------------------------------------------------------------------------- |  |  | -
|YEAR ENDED DECEMBER 31,                                                            |  |  |  
|                                                                                  
|OPERATING ACTIVITIES                                                               |  | 
|Net earnings                                                                       |  |  | $
|Adjustments to reconcile net earnings to cash flow                                 |  | 
|from operating activities of continuing operations:                                |  | 
|Loss from discontinued operations                                                  |  |  |  
|Non-cash charges and credits:                                                      |  | 
|Depreciation and amortization                                                      |  |  |  
|Stock-based compensation                                                           |  |  |  
|Amortization of actuarial losses and prior service costs                           |  |  |  
|Tax settlement                                                                     |  |  |  
|Restructuring and exit costs                                                       |  |  |  
|Other                                                                              |  |  |  
|Changes in selected working capital items                                          |  | 
|(net of effects of businesses acquired or divested):                               |  | 
|Trade receivables                                                                  |  |  |  
|Inventories                                                                        |  |  |  
|Trade accounts payable                                                             |  |  |  
|Other current liabilities                                                          |  |  |  
|Restructuring spending                                                             |  |  |  
|Other assets and liabilities                                                       |  |  |  
|                                                                                  
|CASH FLOW FROM OPERATING ACTIVITIES                                                |  | 
|OF CONTINUING OPERATIONS                                                           |  |  |  
|                                                                                  
|CASH FLOW FROM OPERATING ACTIVITIES                                                |  | 
|OF DISCONTINUED OPERATIONS                                                         |  |  |  
|                                                                                  
|CASH FLOW FROM OPERATING ACTIVITIES                                                |  |  |  
|                                                                                  
|INVESTING ACTIVITIES                                                               |  | 
|Capital expenditures                                                               |  |  |  
|Proceeds from disposal of assets                                                   |  |  |  
|Purchase of business, net of cash acquired                                         |  |  |  
|Reduction in purchase price of previously acquired business                        |  |  |  
|Proceeds from sale of business, net of cash transferred                            |  |  |  
|Proceeds from sale of discontinued operations, net of cash transferred             |  |  |  
|Cash inflow from hedging activities                                                |  |  |  
|Cash outflow from hedging activities                                               |  |  |  
|Other investing activities, net                                                    |  |  |  
|                                                                                  
|CASH FLOW FROM INVESTING ACTIVITIES                                                |  |  |  
|                                                                                  
|FINANCING ACTIVITIES                                                               |  | 
|Net increase (decrease) in short-term borrowings                                   |  |  |  
|Proceeds from issuance of long-term debt (net of debt issue cost of $2.4 for 2006) |  |  |  
|Payments on long-term debt                                                         |  |  |  
|Repayment of preferred stock of subsidiary                                         |  |  |  
|Purchase of common stock                                                           |  |  |  
|Issuance of common stock                                                           |  |  |  
|Cash dividends                                                                     |  |  |  
|                                                                                  
|CASH FLOW FROM FINANCING ACTIVITIES                                                |  |  |  
|Effect of exchange rate changes on cash                                            |  |  |  
|                                                                                  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   |  |  |  
|Cash and cash equivalents at beginning of year                                     |  |  |  
|                                                                                  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                           |  |  | $
|                                                                                  

See Notes to Consolidated Financial
Statements.

36

---



# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSTHE BLACK & DECKER
CORPORATION AND SUBSIDIARIES

NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Principles of  Consolidation:The Consolidated  Financial  Statements  include the accounts of the Corporation and its  subsidiaries.
Intercompany transactions have been eliminated.

Reclassifications:  Certain prior years' amounts in the  Consolidated  Financial  Statements have been  reclassified to conform to the
presentation used in 2007.

Use of Estimates:The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual
results inevitably will differ from those estimates, and such differences may be material
to the financial statements.

Revenue Recognition:Revenue
from sales of products is recognized when title passes, which occurs either upon shipment
or upon delivery based upon contractual terms. The Corporation recognizes customer program
costs, including customer incentives such as volume or trade discounts, cooperative
advertising and other sales related discounts, as a reduction to sales.

Foreign Currency Translation:The financial statements of subsidiaries located outside of the United States, except
those subsidiaries operating in highly inflationary economies, generally are measured
using the local currency as the functional currency. Assets and liabilities of these
subsidiaries are translated at the rates of exchange at the balance sheet date. The
resultant translation adjustments are included in accumulated other comprehensive income
(loss), a separate component of stockholders equity. Income and expense items are
translated at average monthly rates of exchange. Gains and losses from foreign currency
transactions of these subsidiaries are included in net earnings. For subsidiaries
operating in highly inflationary economies, gains and losses from balance sheet
translation adjustments are included in net earnings.

Cash and Cash Equivalents:Cash and cash equivalents include cash on hand, demand deposits, and short-term
investments with maturities of three months or less from the date of acquisition.

Concentration of Credit:The
Corporation sells products and services to customers in diversified industries and
geographic regions and, therefore, has no significant concentrations of credit risk other
than with two major customers. As of December 31, 2007, approximately 25% of the
Corporations trade receivables were due from two large home improvement retailers.

The Corporation continuously
evaluates the credit-worthiness of its customers and generally does not require
collateral.

Inventories:Inventories are
stated at the lower of cost or market. The cost of United States inventories is based
primarily on the last-in, first-out (LIFO) method; all other inventories are based on the
first-in, first-out (FIFO) method.

Property and Depreciation:Property, plant, and equipment is stated at cost. Depreciation is computed generally
on the straight-line method. Estimated useful lives range from 10 years to 50 years for
buildings and 3 years to 15 years for machinery and equipment. The Corporation capitalizes
improvements that extend the useful life of an asset. Repair and maintenance costs are
expensed as incurred.

Goodwill and Other Intangible
Assets:Goodwill represents the excess of the cost of an acquired entity over the net
of the amounts assigned to assets acquired and liabilities assumed. The Corporation
accounts for goodwill in accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill
and intangible assets deemed to have indefinite lives are not amortized, but are subject
to an impairment test on an annual basis, or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Other intangible assets are
amortized over their estimated useful lives.

37

---



The Corporation assesses the fair
value of its reporting units for its goodwill impairment tests based upon a discounted
cash flow methodology. Those estimated future cash flows  which are based upon
historical results and current projections  are discounted at a rate corresponding
to a market rate. If the carrying amount of the reporting unit exceeds the
estimated fair value determined through that discounted cash flow methodology, goodwill
impairment may be present. The Corporation would measure the goodwill impairment loss
based upon the fair value of the underlying assets and liabilities of the reporting unit,
including any unrecognized intangible assets, and estimate the implied fair value of
goodwill. An impairment loss would be recognized to the extent that a reporting
units recorded goodwill exceeded the implied fair value of goodwill.

The Corporation performed its annual
impairment test in the fourth quarters of 2007, 2006, and 2005. No impairment was present
upon performing these impairment tests. The Corporation cannot predict the occurrence of
certain events that might adversely affect the reported value of goodwill. Such events may
include, but are not limited to, strategic decisions made in response to economic and
competitive conditions, the impact of the economic environment on the Corporations
customer base, or a material negative change in its relationships with significant
customers.

Product Development Costs:Costs associated with the development of new products and changes to existing products
are charged to operations as incurred. Product development costs were $150.9 million in
2007, $139.4 million in 2006, and $133.8 million in 2005.

Shipping and Handling Costs:Shipping and handling costs represent costs associated with shipping products to
customers and handling finished goods. Included in selling, general, and administrative
expenses are shipping and handling costs of $340.6 million in 2007, $338.8 million in
2006, and $339.2 million in 2005. Freight charged to customers is recorded as revenue.

Advertising and Promotion:Advertising and promotion expense, which is expensed as incurred, was $199.2 million
in 2007, $182.4 million in 2006, and $193.6 million in 2005.

Product Warranties:Most of
the Corporations products in the Power Tools and Accessories segment and Hardware
and Home Improvement segment carry a product warranty. That product warranty, in the
United States, generally provides that customers can return a defective product during the
specified warranty period following purchase in exchange for a replacement product or
repair at no cost to the consumer. Product warranty arrangements outside the United States
vary depending upon local market conditions and laws and regulations. The Corporation
accrues an estimate of its exposure to warranty claims based upon both current and
historical product sales data and warranty costs incurred.

Stock-Based Compensation:In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123
(revised 2004) (SFAS No. 123R), Share-Based Payment. This Statement revised SFAS
No. 123, Accounting for Stock-Based Compensation, by eliminating the option to
account for employee stock options under Accounting Principles Board Opinion No. 25 (APB
No. 25) and requires companies to recognize the cost of employee services in exchange for
awards of equity instruments based on grant-date fair value of those awards (the
fair-value-based method). The Corporation adopted SFAS No. 123R effective
January 1, 2006, using the modified retrospective method of adoption, which permits
entities to restate all prior periods presented based on the amounts previously recognized
under SFAS No. 123 for purposes of pro forma disclosures. All prior periods were adjusted
to give effect to the fair-value-based method of accounting for awards granted on or after
January 1, 1995. SFAS No. 123R also requires the cash flows resulting from the tax
benefits of tax deductions in excess of the compensation cost recognized for share-based
arrangements to be classified as financing cash flows.

Stock-based compensation expense is
recognized on a straight-line basis over the requisite service period of the award, which
is generally the vesting period. Stock-based compensation expense is reflected in the
Consolidated Statement of Earnings in selling, general, and administrative expenses. The
fair value of stock options is determined using the Black-Scholes option valuation model,
which incorporates assumptions surrounding expected volatility, dividend yield, the
risk-free interest rate,

38

---



expected option life, and the exercise price compared to the
stock price on the grant date. In connection with the adoption of SFAS No. 123R, the
Corporation evaluated the assumptions previously used for estimating the fair value of the
options granted. Based on this evaluation, including guidance provided by the Securities
and Exchange Commission in Staff Accounting Bulletin 107, the Corporation determined that
a combination of historical and implied volatility, rather than historical volatility
alone, provided a better indicator of future stock price trends. The volatility
assumptions utilized in determining the fair value of stock options granted after 2005,
are based upon the average of historical and implied volatility. The Corporation
determined the estimated expected life of options based on a weighted average of the
average period of time from grant date to exercise date, the average period of time from
grant date to cancellation date after vesting, and the mid-point of time to expiration for
outstanding vested options. The Corporation determines the fair value of the
Corporations restricted stock based on the fair value of its common stock at the
date of grant.

Postretirement Benefits:Pension plans, which cover substantially all of the Corporations employees in
North America (if hired before 2007), Europe, and the United Kingdom (if hired before
2005), consist primarily of non-contributory defined benefit plans. The defined benefit
plans are funded in conformity with the funding requirements of applicable government
regulations. Generally, benefits are based on age, years of service, and the level of
compensation during the final years of employment. Prior service costs for defined benefit
plans generally are amortized over the estimated remaining service periods of employees.

Certain employees are covered by
defined contribution plans. The Corporations contributions to these plans are based
on a percentage of employee compensation or employee contributions. These plans are funded
on a current basis.

In addition to pension benefits,
certain postretirement medical, dental, and life insurance benefits are provided to most
United States retirees who retired before 1994. Most current United States employees are
eligible for postretirement medical and dental benefits from their date of retirement to
age 65. Retirees in other countries generally are covered by government-sponsored
programs.

The Corporation uses the corridor
approach in the valuation of defined benefit plans and other postretirement benefits. The
corridor approach defers all actuarial gains and losses resulting from variances between
actual results and economic estimates or actuarial assumptions. For defined benefit
pension plans, these unrecognized gains and losses are amortized when the net gains and
losses exceed 10% of the greater of the market- related value of plan assets or the
projected benefit obligation at the beginning of the year. For other postretirement
benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated
postretirement benefit obligation at the beginning of the year. The amount in excess of
the corridor is amortized over the average remaining service period to retirement date of
active plan participants or, for retired participants, the average remaining life
expectancy.

In September 2006, the FASB issued
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans  an Amendment of FASB Statements No. 87, 88, 106, and
132(R). SFAS No. 158 requires two major changes to accounting for defined benefit and
other postretirement plans, with two different effective dates. The first requirement of
SFAS No. 158, which the Corporation adopted as of December 31, 2006, requires the
recognition of the overfunded or underfunded status of a defined benefit postretirement
plan as an asset or a liability in the balance sheet, with changes in the funded status
recorded through comprehensive income in the year in which those changes occur. The impact
of the adoption of SFAS No. 158 is more fully described in Note 12.

The second requirement of SFAS No.
158, which is effective for the Corporation as of December 31, 2008, requires that the
funded status be measured as of an entitys year-end balance sheet date rather than
as of an earlier date as currently permitted. The Corporation currently uses a measurement
date of September 30 for the majority of its defined benefit pension and postretirement
plans.

39

---



Environmental Liabilities:The
Corporation accrues for its environmental remediation costs, including costs of required
investigation, remedial activities, and post-remediation operating and maintenance, when
it is probable that a liability has been incurred and the amount can be reasonably
estimated. For matters associated with properties currently operated by the Corporation,
the Corporation makes an assessment as to whether an investigation and remediation would
be required under applicable federal and state laws. For matters associated with
properties previously sold or operated by the Corporation, the Corporation considers any
applicable terms of sale and applicable federal and state laws to determine if it has any
remaining liability. For environmental remediation matters, the most likely cost to be
incurred is accrued based on an evaluation of currently available facts with respect to
each individual site, including current laws and regulations, remedial activities under
consideration, and prior remediation experience. Where no amount within a range of
estimates is considered by the Corporation as more likely to occur than another, the
minimum amount is accrued. In establishing an accrual for environmental remediation costs
at sites with multiple potentially responsible parties, the Corporation considers its
likely proportionate share of the anticipated remediation costs and the ability of other
parties to fulfill their obligations. Accrued liabilities are not discounted. When future
liabilities are determined to be reimbursable by insurance coverage a receivable is
recorded related to the insurance reimbursement when reimbursement is virtually certain.
As more fully disclosed in Note 21, the uncertain nature inherent in estimating the costs
of such environmental remediation and the possibility that current estimates may not
reflect the final outcome could result in the recognition of additional expenses in future
periods.

Derivative Financial Instruments:The Corporation is exposed to market risks arising from changes in interest rates.
With products and services marketed in over 100 countries and with manufacturing sites in
10 countries, the Corporation also is exposed to risks arising from changes in foreign
currency rates. The Corporation uses derivatives principally in the management of interest
rate and foreign currency exposure. It does not utilize derivatives that contain leverage
features. On the date on which the Corporation enters into a derivative, the derivative is
designated as a hedge of the identified exposure. The Corporation formally documents all
relationships between hedging instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedge transactions. In this documentation,
the Corporation specifically identifies the asset, liability, firm commitment, forecasted
transaction, or net investment that has been designated as the hedged item and states how
the hedging instrument is expected to reduce the risks related to the hedged item. The
Corporation measures effectiveness of its hedging relationships both at hedge inception
and on an ongoing basis.

For each derivative instrument that
is designated and qualifies as a fair value hedge, the gain or loss on the derivative
instrument as well as the offsetting loss or gain on the hedged item attributable to the
hedged risk are recognized in current earnings during the period of the change in fair
values. For each derivative instrument that is designated and qualifies as a cash flow
hedge, the effective portion of the gain or loss on the derivative instrument is reported
as a component of accumulated other comprehensive income (loss) and reclassified into
earnings in the same period or periods during which the hedged transaction affects
earnings. The remaining gain or loss on the derivative instrument in excess of the
cumulative change in the present value of future cash flows of the hedged item, if any, is
recognized in current earnings during the period of change. For hedged forecasted
transactions, hedge accounting is discontinued if the forecasted transaction is no longer
probable of occurring, in which case previously deferred hedging gains or losses would be
recorded to earnings immediately. For derivatives that are designated and qualify as
hedges of net investments in subsidiaries located outside the United States, the gain or
loss (net of tax) is reported in accumulated other comprehensive income (loss) as part of
the cumulative translation adjustment to the extent the derivative is effective. For
derivative instruments not designated as hedging instruments, the gain or loss is
recognized in current earnings during the period of change.

Interest Rate Risk Management:The Corporation has designated each of its outstanding interest rate swap agreements
as fair value hedges of the underlying fixed rate obligation. The fair value of the
interest rate swap agreements is recorded in other current assets, other assets, other
current liabilities, or other long-term liabilities with a corresponding increase or
decrease in the fixed rate obligation. The changes in the fair value of the interest rate
swap agreements and the underlying fixed rate obligations are recorded as equal and
offsetting unrealized gains and losses in interest expense in the Consolidated Statement
of Earnings. Gains or losses resulting from the early termination of interest rate swaps
are deferred as an increase or decrease to the carrying value of the related debt and
amortized as an adjustment to the yield of the related debt instrument over the remaining
period originally covered by the swap.

40

---



Foreign Currency Management:The fair value of foreign currency-related derivatives are generally included in the
Consolidated Balance Sheet in other current assets, other assets, other current
liabilities, and other long-term liabilities. The earnings impact of cash flow hedges
relating to forecasted purchases of inventory is reported in cost of goods sold to match
the underlying transaction being hedged. Realized and unrealized gains and losses on these
instruments are deferred in accumulated other comprehensive income (loss) until the
underlying transaction is recognized in earnings.

The earnings impact of cash flow
hedges relating to the variability in cash flows associated with foreign
currency-denominated assets and liabilities is reported in cost of goods sold, selling,
general, and administrative expenses, or other expense (income), depending on the nature
of the assets or liabilities being hedged. The amounts deferred in accumulated other
comprehensive income (loss) associated with these instruments generally relate to foreign
currency spot-rate to forward-rate differentials and are recognized in earnings over the
term of the hedge. The discount or premium relating to cash flow hedges associated with
foreign currency-denominated assets and liabilities is recognized in net interest expense
over the life of the hedge.

Income Taxes:The Corporation
accounts for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes, which establishes financial accounting and reporting standard for the effect of
income taxes. The provision for income taxes is determined using the asset and liability
approach. Under this approach, deferred income taxes represent the expected future tax
consequences of temporary differences between the carrying amounts and tax basis of assets
and liabilities. Valuation allowances are recorded to reduce the deferred tax assets to an
amount that will more likely than not be realized. No provision is made for the U.S.
income taxes on the undistributed earnings of wholly-owned foreign subsidiaries as
substantially all such earnings are permanently reinvested, or will only be repatriated
when possible to do so at minimal additional tax cost.

In June 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 provides guidance for the
recognition, derecognition and measurement in financial statements of tax positions taken
in previously filed tax returns or tax positions expected to be taken in tax returns. FIN
48 requires an entity to recognize the financial statement impact of a tax position when
it is more likely than not that the position will be sustained upon examination. If the
tax position meets the more-likely-than-not recognition threshold, the tax effect is
recognized at the largest amount of the benefit that is greater than fifty percent likely
of being realized upon ultimate settlement. FIN 48 also provides guidance for balance
sheet classification of interest and penalties associated with tax matters, accounting in
interim periods, disclosure, and transition. FIN 48 requires that a liability created for
unrecognized tax benefits shall be presented as a liability and not combined with deferred
tax liabilities or assets. FIN 48 permits an entity to recognize interest related to tax
uncertainties as either income taxes or interest expense. FIN 48 also permits an entity to
recognize penalties related to tax uncertainties as either income tax expense or within
other expense classifications. The Corporation adopted FIN 48 effective January 1, 2007.
Consistent with its past practice, the Corporation continued to recognize interest and
penalties as income tax expense. The impact of the adoption of FIN 48 is more fully
disclosed in Note 11.

New Accounting Pronouncements:In September 2007, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, established a framework for measuring fair value, and expands
disclosures about fair value measurements. This statement clarifies how to measure fair
value as permitted under other accounting pronouncements but does not require any new fair
value measurements.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits entities to choose to measure certain financial assets and
liabilities at fair value, with the change in unrealized gains and losses on items for
which the fair value option has been elected reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007.

The Corporation has not elected to
adopt the fair value option provided under SFAS No. 159 in measuring certain financial
assets and liabilities. The Corporation will be required to adopt SFAS No. 157 as of
January 1, 2008. The Corporation is currently evaluating the impact of its adoption of SFAS No.
157 and has not yet determined the effect on its earnings or financial position.

41

---



NOTE 2: ACQUISITION

Effective March 1, 2006, the
Corporation acquired Vector Products, Inc. (Vector). The cash purchase price for the
transaction was $158.5 million, net of cash acquired of $.1 million and including
transaction costs of $.9 million. The addition of Vector to the Corporations Power
Tools and Accessories segment allows the Corporation to offer customers a broader range of
products.

The transaction has been accounted
for in accordance with SFAS No. 141, Business Combinations, and accordingly, the
financial position and results of operations have been included in the Corporations
Balance Sheet and Statement of Earnings since the date of acquisition.

In early 2007, the Corporation
completed the purchase price allocation of Vector. The purchase price allocation of the
acquired business, based upon an independent appraisal and managements estimates at
the date of acquisition, in millions of dollars, is as follows:

|                                        
|----------------------------------------
|Accounts receivable                     
|Inventories                             
|Property and equipment                  
|Goodwill                                
|Intangible assets                       
|Other current and long-term assets      
|                                        
|Total assets acquired                   
|                                        
|Accounts payable and accrued liabilities
|Other liabilities                       
|                                        
|Total liabilities                       
|                                        
|Fair value of net assets acquired       
|                                        

The Corporation does not believe that
the goodwill and intangible assets recognized will be deductible for income tax purposes.

Prior to the date of the acquisition
of Vector and during 2006, the Corporation identified opportunities to integrate the
business into its existing Power Tools and Accessories segment. Subsequent to the
acquisition, the Corporation approved integration actions relating to the acquired
business in the amount of $1.3 million. These actions principally reflect severance costs
associated with administrative and distribution functions of the acquired business as well
as the cost of lease and other contractual obligations for which no future benefit will be
realized. The Corporation completed these actions during 2007.

NOTE 3: INVENTORIES

The classification of inventories at
the end of each year, in millions of dollars, was as follows:

|                                  | 2007
|--------------------------------- | ----
|                                 
|FIFO cost                         |     
|Raw materials and work-in-process |     
|Finished products                 |     
|                                 
|                                  |     
|Adjustment to arrive at           |     
|LIFO inventory value              |     
|                                 
|                                  |     
|                                 

The cost of United States inventories
stated under the LIFO method was approximately 50% and 54% of the value of total
inventories at December 31, 2007 and 2006, respectively.

NOTE 4: PROPERTY, PLANT,
AND EQUIPMENT

Property, plant, and equipment at the
end of each year, in millions of dollars, consisted of the following:

|                                        | 2007
|--------------------------------------- | ----
|                                       
|Property, plant, and equipment at cost: |     
|Land and improvements                   |     
|Buildings                               |     
|Machinery and equipment                 |     
|                                       
|                                        |     
|Less accumulated depreciation           |     
|                                       
|                                        |     
|                                       

Depreciation expense was $132.6
million, $146.2 million and $146.0 million for the years ended December 31, 2007, 2006,
and 2005, respectively.

42

---



NOTE 5: GOODWILL AND
OTHER IDENTIFIED INTANGIBLE ASSETS

The changes in the carrying amount of
goodwill by reportable business segment, in millions of dollars, were as follows:

|                                               
|-----------------------------------------------
|                                               
|Goodwill at January 1, 2006                    
|Acquisition                                    
|Activity associated with prior year acquisition
|Currency translation adjustment                
|                                               
|Balance at December 31, 2006                   
|Acquisition                                    
|Activity associated with prior year acquisition
|Currency translation adjustment                
|                                               
|Balance at December 31, 2007                   
|                                               

The carrying amount of acquired
intangible assets included in other assets at the end of each year, in millions of dollars,
was as follows:

|                                   | 2007
|---------------------------------- | ----
|                                  
|Customer relationships             |     
|(net of accumulated amortization   |     
|of $10.3 in 2007 and $5.1 in 2006) |     
|Technology and patents             |     
|(net of accumulated amortization   |     
|of $7.0 in 2007 and $4.9 in 2006)  |     
|Trademarks and trade names         |     
|(net of accumulated amortization   |     
|of $3.7 in 2007 and $1.9 in 2006)  |     
|                                  
|Total intangibles, net             |     
|                                  

Trademarks and trade names include
indefinite-lived assets of $193.9 million at December 31, 2007 and 2006, respectively.

Expense associated with the
amortization of intangible assets in 2007, 2006, and 2005 was $9.1 million, $7.3 million,
and $3.5 million, respectively. At December 31, 2007, the weighted-average amortization
periods were 13 years for customer relationships, 10 years for technology and patents, and
10 years for trademarks and trade names. The estimated future amortization expense for
identifiable intangible assets during each of the next five years is $9.1 million.

NOTE 6: OTHER CURRENT
LIABILITIES

Other current liabilities at the end
of each year, in millions of dollars, included the following:

|                                       | 2007
|-------------------------------------- | ----
|                                      
|Trade discounts and allowances         |     
|Employee benefits                      |     
|Salaries and wages                     |     
|Advertising and promotion              |     
|Warranty                               |     
|Income taxes, including deferred taxes |     
|All other                              |     
|                                      
|                                       |     
|                                      

All other at December 31, 2007 and
2006, consisted primarily of accruals for foreign currency derivatives, environmental
exposures, interest, insurance, restructuring, and taxes other than income taxes.

The following provides information
with respect to the Corporations warranty accrual, in millions of dollars:

|                                      | 2007
|------------------------------------- | ----
|                                     
|Warranty reserve at January 1         |     
|Accruals for warranties issued during |     
|the period and changes in estimates   |     
|related to pre-existing warranties    |     
|Settlements made                      |     
|Additions due to acquisition          |     
|Currency translation adjustments      |     
|                                     
|Warranty reserve at December 31       |     
|                                     

43

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NOTE 7: SHORT-TERM
BORROWINGS

Short-term borrowings in the amounts
of $329.7 million and $258.9 million at December 31, 2007 and 2006, respectively,
consisted primarily of borrowings under the terms of the Corporations commercial
paper program, uncommitted lines of credit, and other short-term borrowing arrangements.
The weighted-average interest rate on short-term borrowings outstanding was 5.45% and
5.43% at December 31, 2007 and 2006, respectively.

The Corporation maintains an
agreement under which it may issue commercial paper at market rates with maturities of up
to 365 days from the date of issue. The maximum amount authorized for issuance under its
commercial paper program is $1.0 billion. There was $324.1 million and $251.4 million
outstanding under this agreement at December 31, 2007 and 2006, respectively.

In October 2004, the Corporation
entered into a $1.0 billion unsecured revolving credit facility that would have expired in
October 2009. In December 2007, the Corporation replaced that $1.0 billion unsecured
revolving credit facility (the Former Credit Facility) with a $1.0 billion senior
unsecured revolving credit agreement (the Credit Facility) that expires December 2012. The
amount available for borrowings under the Credit Facility and Former Credit Facility was
$675.9 million and $748.6 million at December 31, 2007 and 2006, respectively.

Under the Credit Facility, the
Corporation has the option of borrowings at LIBOR plus an applicable margin or at other
variable rates set forth therein. The Credit Facility provides that the interest rate
margin over LIBOR, initially set at .30%, will increase (by a maximum amount of .30%) or
decrease (by a maximum amount of .12%) based on changes in the ratings of the
Corporations long-term senior unsecured debt.

In addition to interest payable on
the principal amount of indebtedness outstanding from time to time under the Credit
Facility, the Corporation is required to pay an annual facility fee, initially equal to
..10% of the amount of the aggregate commitments under the Credit Facility, whether used or
unused. The Corporation is also required to pay a utilization fee, initially equal to .05%
per annum, applied to the outstanding balance when borrowings under the Credit Facility
exceed 50% of the aggregate commitments. The Credit Facility provides that both the
facility fee and the utilization fee will increase or decrease based on changes in the
ratings of the Corporations long-term senior unsecured debt.

The Credit Facility includes usual
and customary covenants for transactions of this type, including covenants limiting liens
on assets of the Corporation, sale-leaseback transactions and certain asset sales, mergers
or changes to the businesses engaged in by the Corporation. The Credit Facility requires
that the Corporation maintain specific leverage and interest coverage ratios. As of
December 31, 2007, the Corporation was in compliance with all terms and conditions of the
Credit Facility.

Under the Former Credit Facility, the
Corporation had the option of borrowing at LIBOR plus a specific percentage, or at other
variable rates set forth therein. The Former Credit Facility provided that the interest
rate margin over LIBOR, initially set at .375%, would increase (by a maximum amount of
..625%) or decrease (by a maximum amount of .115%) based upon changes in the ratings of the
Corporations long-term senior unsecured debt.

In addition to interest payable on
the principal amount of indebtedness outstanding from time to time under the Former Credit
Facility, the Corporation was required to pay an annual facility fee, equal to .125% of
the amount of the Former Credit Facilitys commitment, whether used or unused. The
Corporation was also required to pay a utilization fee, equal to .125%, applied to the
outstanding balance when borrowings under the Former Credit Facility exceed 50% of the
Former Credit Facility. The Former Credit Facility provides that both the facility fee and
the utilization fee would increase or decrease based upon changes in the ratings of the
Corporations long-term senior unsecured debt.

Under the terms of uncommitted lines
of credit at December 31, 2007, the Corporation may borrow up to approximately $375
million on such terms as may be mutually agreed. These arrangements do not have
termination dates and are reviewed periodically. No material compensating balances are
required or maintained.

The average borrowings outstanding
under the Corporations commercial paper program, uncommitted lines of credit, and
other short-term borrowing arrangements during 2007 and 2006 was $361.0 million and $509.6
million, respectively.

44

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NOTE 8: LONG-TERM DEBT

The composition of long-term debt at
the end of each year, in millions of dollars, was as follows:

|                                                      | 2007
|----------------------------------------------------- | ----
|                                                     
|6.55% notes due 2007                                  |     
|7.125% notes due 2011                                 |     
|(including discount of $1.1 in 2007 and $1.4 in 2006) |     
|4.75% notes due 2014                                  |     
|(including discount of $1.5 in 2007 and $1.7 in 2006) |     
|5.75% notes due 2016                                  |     
|(including discount of $1.1 in 2007 and $1.2 in 2006) |     
|7.05% notes due 2028                                  |     
|Other loans due through 2009                          |     
|Fair value hedging adjustment                         |     
|Less current maturities of long-term debt             |     
|                                                     
|                                                      |     
|                                                     

As more fully described in Note 1, at
December 31, 2007 and 2006, the carrying amount of long-term debt and current maturities
thereof includes $32.7 million and $24.2 million, respectively, relating to outstanding or
terminated fixed-to-variable rate interest rate swaps agreements. Deferrred gains on the
early termination of interest rate swaps were $21.1 million and $25.3 million at December
31, 2007 and 2006.

Indebtedness of subsidiaries in the
aggregate principal amounts of $155.9 million and $341.5 million were included in the
Consolidated Balance Sheet at December 31, 2007 and 2006, respectively, in short-term
borrowings, current maturities of long-term debt, and long-term debt.

Principal payments on long-term debt
obligations due over the next five years are as follows: $.2 million in 2008, $.1 million
in 2009, $ in 2010, $400.0 million in 2011, and $ million in 2012. Interest
payments on all indebtedness were $104.3 million in 2007, $98.0 million in 2006, and $94.3
million in 2005.

NOTE 9: DERIVATIVE
FINANCIAL INSTRUMENTS

The Corporation is exposed to market
risks arising from changes in interest rates. With products and services marketed in over
100 countries and with manufacturing sites in 11 countries, the Corporation also is
exposed to risks arising from changes in foreign exchange rates.

Credit Exposure:The
Corporation is exposed to credit-related losses in the event of nonperformance by
counterparties to certain derivative financial instruments. The Corporation monitors the
creditworthiness of the counterparties and presently does not expect default by any of the
counterparties. The Corporation does not obtain collateral in connection with its
derivative financial instruments.

The credit exposure that results from
interest rate and foreign exchange contracts is the fair value of contracts with a
positive fair value as of the reporting date. Some derivatives are not subject to credit
exposures. The fair value of all financial instruments is summarized in Note 10.

Interest Rate Risk Management:The Corporation manages its interest rate risk, primarily through the use of interest
rate swap agreements, in order to achieve a cost-effective mix of fixed and variable rate
indebtedness. It seeks to issue debt opportunistically, whether at fixed or variable
rates, at the lowest possible costs. The Corporation may, based upon its assessment of the
future interest rate environment, elect to manage its interest rate risk associated with
changes in the fair value of its indebtedness, or the future cash flows associated with
its indebtedness, through the use of interest rate swaps.

The amounts exchanged by the
counterparties to interest rate swap agreements normally are based upon the notional
amounts and other terms, generally related to interest rates, of the derivatives. While
notional amounts of interest rate swaps form part of the basis for the amounts exchanged
by the counterparties, the notional amounts are not themselves exchanged and, therefore,
do not represent a measure of the Corporations exposure as an end user of derivative
financial instruments.

The Corporations portfolio of
interest rate swap instruments at December 31, 2007 and 2006, consisted of $325.0 million
notional and $400.0 million notional amounts of fixed-to-variable rate swaps with a
weighted-average fixed rate receipt of 5.08% and 5.11%, respectively. The basis of the
variable rate paid is LIBOR.

Credit exposure on the
Corporations interest rate derivatives at December 31, 2007 and 2006, was $11.6
million and $4.7 million, respectively. Foreign Currency Management:The
Corporation enters into various foreign currency contracts in managing its foreign
currency exchange risk. Generally, the foreign currency contracts have maturity dates of
less than twenty-four months. The contractual amounts of foreign currency derivatives,
principally forward exchange contracts, generally are exchanged by the counterparties. The
Corporations foreign currency derivatives are designated to, and generally are
denominated in the currencies of, the underlying exposures. To

45

---



minimize the volatility of
reported equity, the Corporation may hedge, on a limited basis, a portion of its net
investment in subsidiaries located outside the United States through the use of foreign
currency forward contracts and purchased foreign currency options.

The Corporation seeks to minimize its
foreign currency cash flow risk and hedges its foreign currency transaction exposures
(that is, currency exposures related to assets and liabilities) as well as certain
forecasted foreign currency exposures. Hedges of forecasted foreign currency exposures
principally relate to the cash flow risk relating to the sales of products manufactured or
purchased in a currency different from that of the selling subsidiary. The Corporation
hedges its foreign currency cash flow risk through the use of forward exchange contracts
and, to a small extent, options. Some of the forward exchange contracts involve the
exchange of two foreign currencies according to the local needs of the subsidiaries. Some
natural hedges also are used to mitigate risks associated with transaction and forecasted
exposures. The Corporation also responds to foreign exchange movements through various
means, such as pricing actions, changes in cost structure, and changes in hedging
strategies.

The following table summarizes the
contractual amounts of forward exchange contracts as of December 31, 2007 and 2006, in
millions of dollars, including details by major currency as of December 31, 2007. Foreign
currency amounts were translated at current rates as of the reporting date. The
Buy amounts represent the United States dollar equivalent of commitments
to purchase currencies, and the Sell amounts represent the United States
dollar equivalent of commitments to sell currencies.

|AS OF DECEMBER 31, 2007 | BUY | SELL
|----------------------- | --- | ----
|                       
|United States dollar    |     |     
|Pound sterling          |     |     
|Euro                    |     |     
|Canadian dollar         |     |     
|Australian dollar       |     |     
|Czech koruna            |     |     
|Japanese yen            |     |     
|Swedish krona           |     |     
|New Zealand dollar      |     |     
|Swiss franc             |     |     
|Norwegian krone         |     |     
|Danish krone            |     |     
|Other                   |     |     
|                       
|Total                   |     |     
|                       
|AS OF DECEMBER 31, 2006 |     |     
|                       
|Total                   |     |     
|                       

No options to buy or sell currencies
were outstanding at December 31, 2007.

Credit exposure on foreign currency
derivatives as of December 31, 2007 and 2006, was $18.0 million and $32.7 million,
respectively.

Hedge ineffectiveness and the portion
of derivative gains and losses excluded from the assessment of hedge effectiveness related
to the Corporations cash flow hedges that were recorded to earnings during 2007,
2006, and 2005 were not significant.

Amounts deferred in accumulated other
comprehensive income (loss) at December 31, 2007, that are expected to be re-classified
into earnings during 2008 represent an after-tax loss of $21.4 million. The amount
expected to be reclassified into earnings in the next twelve months includes unrealized
gains and losses related to open foreign currency contracts. Accordingly, the amount that
is ultimately reclassified into earnings may differ materially.

NOTE 10: FAIR VALUE OF
FINANCIAL INSTRUMENTS

The fair value of a financial
instrument represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying amount of financial
instruments that are recognized at historical cost amounts.

The following methods and assumptions
were used by the Corporation in estimating fair value disclosures for financial
instruments:

 Cash and cash equivalents,
trade receivables, certain other current assets, short-term borrowings, and current
maturities of long-term debt: The amounts reported in the Consolidated Balance Sheet
approximate fair value.

 Long-term debt: Publicly
traded debt is valued based on quoted market values. The fair value of other long-term
debt is estimated based on quoted market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining maturities.

 Interest rate hedges: The fair
value of interest rate hedges reflects the estimated amounts that the Corporation would
receive or pay to terminate the contracts at the reporting date.

 Foreign currency contracts:
The fair value of forward exchange contracts and options is estimated using prices
established by financial institutions for comparable instruments.

46

---



The following table sets forth, in
millions of dollars, the carrying amounts and fair values of the Corporations
financial instruments, except for those noted above for which carrying amounts approximate
fair values:

|ASSETS (LIABILITIES)   
AS OF DECEMBER 31, 2007 | CARRYING
  AMOUNT | FAIR
VALUE
|----------------------------------------------- | ----------------- | ----------
|                                               
|Non-derivatives:                                |                   |           
|Long-term debt                                  |                   |           
|                                               
|Derivatives relating to:                        |                   |           
|Debt                                            |                   |           
|Assets                                          |                   |           
|Foreign Currency                                |                   |           
|Assets                                          |                   |           
|Liabilities                                     |                   |           
|                                               

|ASSETS (LIABILITIES)   
AS OF DECEMBER 31, 2006 | CARRYING
  AMOUNT | FAIR
VALUE
|----------------------------------------------- | ----------------- | ----------
|                                               
|Non-derivatives:                                |                   |           
|Long-term debt                                  |                   |           
|                                               
|Derivatives relating to:                        |                   |           
|Debt                                            |                   |           
|Assets                                          |                   |           
|Liabilities                                     |                   |           
|Foreign Currency                                |                   |           
|Assets                                          |                   |           
|Liabilities                                     |                   |           
|                                               

# NOTE 11: INCOME TAXES

Earnings from continuing operations
before income taxes for each year, in millions of dollars, were as follows:

|                | 2007
|--------------- | ----
|               
|United States   |     
|Other countries |     
|               
|                |     
|               

Significant components of income taxes (benefit) from continuing operations for each year, in millions of dollars, were as follows:

|                | 2007
|--------------- | ----
|               
|Current:        |     
|United States   |     
|Other countries |     
|               
|                |     
|               
|Deferred:       |     
|United States   |     
|Other countries |     
|               
|                |     
|               
|                |     
|               

Income tax benefits recorded directly
as an adjustment to equity as a result of the exercise of employee stock options and the
vesting of other stock-based compensation arrangements were $13.3 million, $9.7 million,
and $13.9 million in 2007, 2006, and 2005, respectively. Income tax benefits (expense)
recorded directly as an adjustment to equity as a result of hedging activities was $13.8
million, $8.9 million, and $(6.7) million in 2007, 2006 and 2005, respectively.

Income tax payments were $139.5
million in 2007, $221.7 million in 2006, and $165.8 million in 2005.

Deferred tax (liabilities) assets at
the end of each year, in millions of dollars, were composed of the following:

|                                       | 2007
|-------------------------------------- | ----
|                                      
|Deferred tax liabilities:              |     
|Employee and postretirement benefits   |     
|Other                                  |     
|                                      
|Gross deferred tax liabilities         |     
|                                      
|Deferred tax assets:                   |     
|Tax loss carryforwards                 |     
|Tax credit and capital loss            |     
|carryforwards                          |     
|Postretirement benefits                |     
|Environmental remediation matters      |     
|Stock-based compensation               |     
|Other                                  |     
|                                      
|Gross deferred tax assets              |     
|                                      
|Deferred tax asset valuation allowance |     
|                                      
|Net deferred tax assets                |     
|                                      

Deferred income taxes are included in
the Consolidated Balance Sheet in other current assets, other assets, other current
liabilities, and other long-term liabilities. Other deferred tax assets principally relate
to accrued liabilities that are not currently deductible and items relating to uncertain
tax benefits which would not affect the annual effective tax rate. FIN 48 requires that a
liability created for unrecognized tax benefits shall be presented as a liability and not
combined with deferred tax assets or liabilities. As further described below, the January
1, 2007 adoption of FIN 48 resulted in a $157.8 million reduction in deferred tax
liabilities and a $12.2 million net reduction in deferred tax assets.

47

---



During the year ended December 31,
2007, the deferred tax asset valuation allowance decreased by $91.9 million. That decrease
was principally attributable to the tax settlement that is further described below.

Tax loss carryforwards at December
31, 2007, consisted of net operating losses expiring from 2008 to 2026.

A reconciliation of income taxes
(benefit) at the federal statutory rate to the Corporations income taxes for each
year, both from continuing operations, in millions of dollars, is as follows:

|                                   | 2007
|---------------------------------- | ----
|                                  
|Income taxes at federal            |     
|statutory rate                     |     
|Tax settlement                     |     
|Taxes associated with repatriation |     
|of foreign earnings                |     
|Lower effective taxes on           |     
|earnings in other countries        |     
|Other net                         |     
|                                  
|Income taxes (benefit)             |     
|                                  

The American Jobs Creation Act of
2004 (AJCA) introduced a special one-time dividends received deduction on the repatriation
of certain foreign earnings to the United States, during a one-year period. The deduction
resulted in an approximate 5.25% federal income tax rate on eligible repatriations of
foreign earnings. During the fourth quarter of 2005, the Corporations Chief
Executive Officer and Board of Directors approved a domestic reinvestment plan as required
by the AJCA. During the fourth quarter of 2005, the Corporation repatriated $888.3 million
of previously unremitted foreign earnings and recognized $51.2 million of tax expense
related to the repatriation.

At December 31, 2007, unremitted
earnings of subsidiaries outside of the United States were approximately $1.7 billion, on
which no United States taxes had been provided. The Corporations intention is to
reinvest these earnings permanently or to repatriate the earnings only when possible to do
so at minimal additional tax cost. It is not practicable to estimate the amount of
additional taxes that might be payable upon repatriation of foreign earnings.

At December 31, 2006, the Corporation
recognized reserves of $303.4 million associated with various tax matters in a number
of jurisdictions. Of that amount, $271.2 million was included in other long-term
liabilities.

Uncertain Tax Positions:As
disclosed in Note 1 of Notes to Consolidated Financial Statements the Corporation adopted
FIN 48 effective January 1, 2007. Upon adoption, the Corporation recorded the cumulative
effect of the change in accounting principle of $7.3 million as a reduction to retained
earnings. In addition, the Corporation recognized a $152.9 million increase in the
liability for unrecognized tax benefits, a $157.8 million reduction in deferred tax
liabilities, and a $12.2 million net reduction in deferred tax assets. Upon adoption on
January 1, 2007, the Corporation recognized $456.3 million of liabilities for unrecognized
tax benefits (tax reserves) of which $96.8 million related to interest. The liabilities
for unrecognized tax benefits at January 1, 2007, included $38.6 million for which the
disallowance of such items would not affect the annual effective tax rate.

As of December 31, 2007, the
Corporation has recognized $398.7 million of liabilities for unrecognized tax benefits of
which $81.3 million related to interest. As of December 31, 2007, the Corporation
classified $75.4 million of its liabilities for unrecognized tax benefits within other
current liabilities. Non-current tax reserves are recorded in other long-term liabilities
in the Consolidated Balance Sheet.

A reconciliation of the beginning and
ending amount of unrecognized tax benefits, excluding interest, in million of dollars, is
set forth below:

|                                                      
|------------------------------------------------------
|Balance at January 1, 2007                            
|Additions based on tax positions related to 2007      
|Additions for tax positions related to 2006 and prior 
|Reductions for tax positions related to 2006 and prior
|Settlements (payments)                                
|Expiration of the statute of limitations              
|Foreign currency translation adjustment               
|                                                      
|Balance at December 31, 2007                          
|                                                      

The liabilities for unrecognized tax
benefits at December 31, 2007, include $83.5 million for which the disallowance of such
items would not affect the annual effective tax rate. However, the timing of the
realization of the tax benefits is uncertain. Such uncertainty would not impact tax
expense but could affect the timing of tax payments to taxing authorities.

The Corporation recognizes interest
and penalties relating to its liabilities for unrecognized tax benefits as an element of
tax expense. During the year ended December 31, 2007, the Corporation recognized $20.7
million in interest as a component of tax expense. Penalties were not significant.

48

---



The Corporation conducts business
globally and, as a result, the Corporation and/or one or more of its subsidiaries files
income tax returns in the federal and various state jurisdictions in the U.S. as well as
in various jurisdictions outside of the U.S. In certain jurisdictions, the Corporation is
either currently in the process of a tax examination or the statute of limitations has not
yet expired. The Corporation generally remains subject to examination of its U.S. federal
income tax returns for 2004 and later years, except as disclosed below. In the U.S., the
Corporation generally remains subject to examination of its various state income tax
returns for a period of four to five years from the date the return was filed. The state
impact of any federal changes remains subject to examination by various states for a
period up to one year after formal notification of the states. The Corporation generally
remains subject to examination of its various income tax returns in its significant
jurisdictions outside the U.S. for periods ranging from three to five years after the date
the return was filed. However, in Canada and Germany, the Corporation remains subject to
examination of its tax returns for 1999 and later years.

During 2003, the Corporation received
notices of proposed adjustments from the U.S. Internal Revenue Service (IRS) in connection
with audits of the tax years 1998 through 2000. The principal adjustment proposed by the
IRS, and disputed by the Corporation, consisted of the disallowance of a capital loss
deduction taken in the Corporations tax returns and interest on the deficiency. This
matter was the subject of litigation between the Corporation and the U.S. government. If
the U.S. government were to have prevailed in its disallowance of the capital loss
deduction and imposition of related interest, it would have resulted in a cash outflow by
the Corporation of approximately $180 million. If the Corporation were to have prevailed,
it would have resulted in the Corporation receiving a refund of taxes previously paid of
approximately $50 million, plus interest. In December 2007, the Corporation and the U.S.
government reached a settlement agreement with respect to the previously described
litigation. That settlement agreement resolved the litigation relating to the audits of
the tax years 1998 through 2000 and also resolved the treatment of this tax position in
subsequent years. As a result of the settlement agreement, the Corporation recognized a
$153.4 million reduction to tax expense in 2007, representing a reduction of the
previously unrecognized tax benefit associated with the IRSs disallowance of the
capital loss, the imposition of related interest, and the effects of certain related tax
positions taken in subsequent years. The effect of tax positions taken in subsequent years
included the recognition of $31.4 million of previously unrecognized net operating loss
carryforwards of a subsidiary. The Corporation expects that the IRS closing agreements
will be finalized in 2008. The Corporation expects to make cash payments of approximately
$50 million during 2008 relating to this settlement.

Judgment is required in assessing the
future tax consequences of events that have been recognized in the Corporations
financial statements or income tax returns. Additionally, the Corporation is subject to
periodic examinations by taxing authorities in many countries. The Corporation is
currently undergoing periodic examinations of its tax returns in the United States (both
federal and state), Canada, Germany, and the United Kingdom. The IRS is currently
examining the Corporations U.S. Federal income tax returns for 2004 and 2005. To
date, no proposed adjustments have been issued; however, the Corporation expects that the
IRS will complete that examination and issue proposed adjustments in 2008. The Corporation
is also subject to legal proceedings regarding certain of its tax positions in a number of
countries, including Italy. The final outcome of the future tax consequences of these
examinations and legal proceedings as well as the outcome of competent authority
proceedings, changes in regulatory tax laws, or interpretation of those tax laws, changes
in income tax rates, or expiration of statutes of limitation could impact the
Corporations financial statements. The Corporation is subject to the effects of
these matters occurring in various jurisdictions. Accordingly, the Corporation has tax
reserves recorded for which it is reasonably possible that the amount of the unrecognized
tax benefit will increase or decrease within the next twelve months. Any such increase or
decrease could have a material affect on the financial results for any particular fiscal
quarter or year. However, based on the uncertainties associated with litigation and the
status of examinations, including the protocols of finalizing audits by the relevant tax
authorities, which could include formal legal proceedings, it is not possible to estimate
the impact of any such change.

49

---



NOTE 12: POSTRETIREMENT
BENEFITS

As disclosed in Note 1 of Notes to
Consolidated Financial Statements, SFAS No. 158, adopted by the Corporation effective
December 31, 2006, requires the recognition of the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in the balance sheet, with
changes in the funded status recorded through other comprehensive income (loss). The
Corporation uses a measurement date of September 30 for the majority of its defined
benefit pension and postretirement plans. Defined postretirement benefits consist of
several unfunded health care plans that provide certain postretirement medical, dental,
and life insurance benefits for most United States employees. The postretirement medical
benefits are contributory and include certain cost-sharing features, such as deductibles
and co-payments. The following tables set forth the funded status of the defined benefit
pension and postretirement plans, and amounts recognized in the Consolidated Balance
Sheet, in millions of dollars.

|                                              
|----------------------------------------------
|                                              
|PENSION BENEFITS
PLANS IN THE  
UNITED STATES 
|                                              
|CHANGE IN BENEFIT OBLIGATION                  
|Benefit obligation at beginning of year       
|Service cost                                  
|Interest cost                                 
|Plan participants' contributions              
|Actuarial (gains) losses                      
|Foreign currency exchange rate changes        
|Benefits paid                                 
|Plan amendments                               
|                                              
|Benefit obligation at end of year             
|                                              
|CHANGE IN PLAN ASSETS                         
|Fair value of plan assets at beginning of year
|Actual return on plan assets                  
|Expenses                                      
|Benefits paid                                 
|Employer contributions                        
|Contributions by plan participants            
|Foreign currency exchange rate changes        
|                                              
|Fair value of plan assets at end of year      
|                                              
|Funded status                                 
|Contributions subsequent to measurement date  
|                                              
|Accrued benefit cost at December 31           
|                                              
|AMOUNTS RECOGNIZED IN THE                     
|CONSOLIDATED BALANCE SHEET                    
|Noncurrent assets                             
|Current liabilities                           
|Postretirement benefits                       
|                                              
|Net amount recognized at December 31          
|                                              
|WEIGHTED-AVERAGE ASSUMPTIONS                  
|USED TO DETERMINE BENEFIT                     
|OBLIGATIONS AS OF MEASUREMENT                 
|DATE                                          
|Discount rate                                 
|Rate of compensation increase                 
|                                              

50

---



The amounts recognized in accumulated
other comprehensive income (loss) as of December 31, 2007 and 2006, are as follows:

|December 31, 2007           | PENSION BENEFITSPLANS IN THEUNITED STATES | PENSION BENEFITSPLANS OUTSIDE OFTHE UNITED STATES | OTHERPOSTRETIREMENTBENEFITSALL PLANS | TOTAL
|--------------------------- | ----------------------------------------- | ------------------------------------------------- | ------------------------------------ | -----
|                           
|Prior service cost (credit) |                                           |                                                   | $                                    | 11   
|Net loss                    |                                           |                                                   |                                      | 196  
|                           
|Total                       |                                           |                                                   | $                                    | 208  
|                           

|December 31, 2006           |  |  |   |    
|--------------------------- |  |  | - | ---
|                           
|Prior service cost (credit) |  |  | $ | 14 
|Net loss                    |  |  |   | 363
|                           
|Total                       |  |  | $ | 378
|                           

The amounts in accumulated other
comprehensive loss as of December 31, 2007, that are expected to be recognized as
components of net periodic benefit cost (credit) during 2008 are as follows:

|                           
|---------------------------
|                           
|Prior service cost (credit)
|Net loss                   
|                           
|Total                      
|                           

The allocation, by asset category, of
assets of defined benefit pension plans in the United States at September 30, 2007 and
2006, respectively, were as follows:

|2007                   
|-----------------------
|                       
|Equity Securities      
|Fixed Income Securities
|Alternative Investments
|                       
|                       
|                       

At September 30, 2007, the
Corporations targeted allocation, by asset category, of assets of defined benefit
pension plans in the United States is equity securities  65% (comprised of 50% U.S.
and 15% non-U.S. equities); fixed income securities  30%; and alternative
investments  5%.

The allocation, by asset category, of
assets of defined benefit pension plans outside of the United States at September 30, 2007
and 2006, respectively, were as follows:

|2007                   
|-----------------------
|                       
|Equity Securities      
|Fixed Income Securities
|Real Estate            
|Other                  
|                       
|                       
|                       

At September 30, 2007, the
Corporations targeted allocation, by asset category, of assets of defined benefit
pension plans outside of the United States is equity securities  68%; fixed income
securities  25%; and real estate  7%.

To the extent that the actual
allocation of plan assets differs from the targeted allocation by more than 5% for any
category, plan assets are rebalanced within three months.

The Corporation establishes its
estimated long-term return on plan assets considering various factors, which include the
targeted asset allocation percentages, historic returns, and expected future returns.
Specifically, the factors are considered in the fourth quarter of the year preceding the
year for which those assumptions are applied.

51

---



The accumulated benefit obligation
related to all defined benefit pension plans and information related to unfunded and
underfunded defined benefit pension plans at the end of each year, in millions of dollars,
follows:

|                                                       |      | 
|------------------------------------------------------ | ---- | 
|                                                       |     
|2006                                                   | 2006
|                                                      
|All defined benefit plans:                             |      | 
|Accumulated benefit obligation                         |      | 
|Unfunded defined benefit plans:                        |      | 
|Projected benefit obligation                           |      | 
|Accumulated benefit obligation                         |      | 
|Defined benefit plans with an accumulated benefit      |      | 
|obligation in excess of the fair value of plan assets: |      | 
|Projected benefit obligation                           |      | 
|Accumulated benefit obligation                         |      | 
|Fair value of plan assets                              |      | 
|                                                      

The following table sets forth, in
millions of dollars, benefit payments, which reflect expected future service, as
appropriate, expected to be paid in the periods indicated.

|         
|---------
|         
|2008     
|2009     
|2010     
|2011     
|2012     
|2013-2017
|         

The net periodic cost (benefit)
related to the defined benefit pension plans included the following components, in
millions of dollars:

|                                  
|----------------------------------
|                                  
|2006                              
|                                  
|Service cost                      
|Interest cost                     
|Expected return on plan assets    
|Amortization of the unrecognized  
|transition obligation             
|Amortization of prior service cost
|Amortization of net actuarial loss
|                                  
|Net periodic cost                 
|                                  
|WEIGHTED-AVERAGE ASSUMPTIONS      
|USED IN DETERMINING NET           
|PERIODIC COST FOR YEAR:           
|Discount rate                     
|Expected return on plan assets    
|Rate of compensation increase     
|                                  

52

---



The net periodic cost related to the
defined benefit postretirement plans included the following components, in millions of
dollars:

|                                   | 2007
|---------------------------------- | ----
|                                  
|Service cost                       |     
|Interest cost                      |     
|Amortization of prior service cost |     
|Amortization of net actuarial loss |     
|Curtailment gain                   |     
|                                  
|Net periodic cost                  |     
|                                  
|Weighted-average discount rate     |     
|used in determining                |     
|net periodic cost for year         |     
|                                  

The health care cost trend rate used
to determine the postretirement benefit obligation was 9.0% for participants under 65 and
7.75% for participants 65 and older in 2007. This rate decreases gradually to an ultimate
rate of 5.0% in 2013, and remains at that level thereafter. The trend rate is a
significant factor in determining the amounts reported. A one-percentage-point change in
these assumed health care cost trend rates would have the following effects, in millions
of dollars:

|ONE-PERCENTAGE-POINT           | INCREASE | (DECREASE)
|------------------------------ | -------- | ----------
|                              
|Effect on total of service and |          |           
|interest cost components       |          |           
|Effect on postretirement       |          |           
|benefit obligation             |          |           
|                              

In 2008, the Corporation expects to
make cash contributions of approximately $27 million to its defined benefit pension plans.
The amounts principally represent contributions required by funding regulations or laws or
those related to unfunded plans necessary to fund current benefits. In addition, the
Corporation expects to continue to make contributions in 2008 sufficient to fund benefits
paid under its other postretirement benefit plans during that year, net of contributions
by plan participants. The Corporation expects that such contributions will be
approximately $10 million in 2008.

Expense for defined contribution
plans amounted to $12.4 million, $12.5 million, and $12.7 million in 2007, 2006, and 2005,
respectively.

NOTE 13:
STOCKHOLDERS EQUITY

The Corporation repurchased
5,477,243, 11,753,700, and 6,276,700 shares of its common stock during 2007, 2006, and
2005 at an aggregate cost of $461.4 million, $896.0 million, and $525.7 million,
respectively.

To reflect the repurchases during
2007 and 2006 in its Consolidated Balance Sheet, the Corporation: (i) first, reduced its
common stock by $2.7 million and $5.9 million, respectively,
          representing the aggregate par value of the shares repurchased; (ii) next,
          reduced capital in excess of par value by $82.0 million and $474.7 million,
          respectively  an amount which brought capital in excess of par value to
          zero during the quarter in which the repurchases occurred; and (iii) last,
          charged the residual of $376.7 million and $415.4 million, respectively, to
          retained earnings.

SFAS No. 130, Reporting
Comprehensive Income, defines comprehensive income as non-stockholder changes in
equity. Accumulated other comprehensive income (loss) at the end of each year, in millions
of dollars, included the following components:

|                                                 | 2007
|------------------------------------------------ | ----
|                                                
|Foreign currency translation adjustment          |     
|Net loss on derivative instruments, net of tax   |     
|Minimum pension liability adjustment, net of tax |     
|                                                
|                                                 |     
|                                                

53

---



The Corporation has designated
certain intercompany loans and foreign currency derivative contracts as long-term
investments in certain foreign subsidiaries and foreign currency derivative contracts. Net
translation (loss) gain associated with these designated intercompany loans and foreign
currency derivative contracts in the amounts of $(3.3) million and $(.4) million were
recorded in the foreign currency translation adjustment in 2007 and 2006, respectively.

Foreign currency translation
adjustments are not generally adjusted for income taxes as they relate to indefinite
investments in foreign subsidiaries. The minimum pension liability adjustments as of
December 31, 2007 and 2006, are net of taxes of $101.7 million and $188.5 million,
respectively.

NOTE 14: EARNINGS PER
SHARE

The computations of basic and diluted
earnings per share for each year were as follows:

|2007                                       
|-------------------------------------------
|                                           
|Numerator:                                 
|Net earnings from continuing operations    
|Net loss from discontinued operations      
|                                           
|Net earnings                               
|                                           
|Denominator:                               
|Denominator for basic earnings per share  
|weighted-average shares                    
|Employee stock options and                 
|other stock-based plans                    
|                                           
|Denominator for diluted earnings per share
|adjusted weighted-average shares and       
|assumed conversions                        
|                                           
|Basic earnings per share                   
|Continuing operations                      
|Discontinued operations                    
|                                           
|Basic earnings per share                   
|                                           
|Diluted earnings per share                 
|Continuing operations                      
|Discontinued operations                    
|                                           
|Diluted earnings per share                 
|                                           

The following options to purchase
shares of common stock were outstanding during each year, but were not included in the
computation of diluted earnings per share because the effect would be anti-dilutive. The
options indicated below were anti-dilutive because the related exercise price was greater
than the average market price of the common shares for the year.

|                                | 2007
|------------------------------- | ----
|                               
|Number of options (in millions) |     
|Weighted-average exercise price |     
|                               

NOTE 15: STOCK-BASED
COMPENSATION

The Corporation recognized total
stock-based compensation costs of $25.9 million, $29.2 million, and $30.1 million in 2007,
2006, and 2005, respectively. These amounts are reflected in the Consolidated Statement of
Earnings in selling, general, and administrative expenses. The total income tax benefit
for stock-based compensation arrangements was $9.1 million, $10.2 million, and $10.5
million in 2007, 2006, and 2005, respectively.

The Corporation has three stock-based
employee compensation plans, which are described below. At December 31, 2007, unrecognized
stock-based compensation expense related to non-vested stock options, restricted stock and
Performance Equity Plan stock awards totaled $60.4 million. The cost of these non-vested
awards is expected to be recognized over a weighted-average period of 2.6 years.

Stock Option Plan:Under
various stock option plans, options to purchase common stock may be granted until 2013.
Options are granted at fair market value at the date of grant, generally become
exercisable in four equal installments beginning one year from the date of grant, and
expire 10 years after the date of grant. The plans permit the issuance of either incentive
stock options or non-qualified stock options.

54

---



Under all stock option plans, there
were 1,667,661 shares of common stock reserved for future grants as of December 31, 2007.
Transactions are summarized as follows:

|                                 | STOCKOPTIONS | WEIGHTED-AVERAGEEXERCISEPRICE
|-------------------------------- | ------------ | -----------------------------
|                                
|Outstanding at December 31, 2004 |              |                              
|Granted                          |              |                              
|Exercised                        |              |                              
|Forfeited                        |              |                              
|                                
|Outstanding at December 31, 2005 |              |                              
|Granted                          |              |                              
|Exercised                        |              |                              
|Forfeited                        |              |                              
|                                
|Outstanding at December 31, 2006 |              |                              
|Granted                          |              |                              
|Exercised                        |              |                              
|Forfeited                        |              |                              
|                                
|Outstanding at December 31, 2007 |              |                              
|                                
|Options expected to vest at      |              |                              
|December 31, 2007                |              |                              
|                                
|Options exercisable at           |              |                              
|December 31, 2007                |              |                              
|                                

As of December 31, 2007, the weighted
average remaining contractual term was 5.6 years, 5.5 years, and 4.2 years for options
outstanding, options expected to vest, and options exercisable, respectively. As of
December 31, 2007, the aggregate intrinsic value was $80.3 million, $80.2 million, and
$79.2 million for options outstanding, options expected to vest, and options exercisable,
respectively. These preceding aggregate intrinsic values represent the total pretax
intrinsic value (the difference between the Corporations closing stock price on the
last trading day of 2007 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option holders
exercised their options on December 31, 2007. These amounts will change based on the fair
market value of the Corporations stock.

Cash received from option exercises
in 2007, 2006, and 2005, was $70.0 million, $38.5 million, and $56.0 million,
respectively. The Corporation has recognized $13.3 million, $9.7 million, and $13.9
million, as a financing cash flow, within the caption Issuance of common
stock, for the years ended December 31, 2007, 2006, and 2005, respectively,
associated with the cash flows resulting from the tax benefits of tax deductions in excess
of the compensation cost recognized for share-based arrangements.

The total intrinsic value of options
exercised in 2007, 2006, and 2005, was $59.0 million, $39.1 million, and $52.7 million,
respectively. The actual tax benefit realized for the tax deduction from option exercises
totaled $20.4 million, $13.4 million, and $18.2 million in 2007, 2006, and 2005,
respectively.

The weighted-average grant-date fair
values of options granted during 2007, 2006, and 2005, were $22.98 per share, $25.52 per
share, and $26.12 per share, respectively. The fair value of options granted during 2007,
2006, and 2005, were determined using the Black-Scholes option valuation model with the
following weighted-average assumptions:

|                       | 2007
|---------------------- | ----
|                      
|Expected life in years |     
|Interest rate          |     
|Volatility             |     
|Dividend yield         |     
|                      

The Corporation has a share
repurchase program that was implemented based on the belief that its shares were
undervalued and to manage share growth resulting from option exercises. At December 31,
2007, the Corporation has remaining authorization from its Board of Directors to
repurchase an additional 4,895,308 shares of its common stock.

55

---



Restricted Stock Plan:In
2004, the Corporation adopted a restricted stock plan. A total of 1,000,000 shares of
restricted stock were authorized under this plan. Under the restricted stock plan,
eligible employees are awarded restricted shares of the Corporations common stock.
Restrictions on awards generally expire from three to four years after issuance, subject
to continuous employment and certain other conditions. Transactions are summarized as
follows:

|                               
|-------------------------------
|                               
|Non-vested at December 31, 2004
|Granted                        
|Forfeited                      
|Vested                         
|                               
|Non-vested at December 31, 2005
|Granted                        
|Forfeited                      
|Vested                         
|                               
|Non-vested at December 31, 2006
|Granted                        
|Forfeited                      
|Vested                         
|                               
|Non-vested at December 31, 2007
|                               

The fair value of the shares vested
during 2007 and 2006 were $14.5 million and $1.1 million, respectively. The fair value of
shares that vested during 2005 was not significant.

As of December 31, 2007, 206,352
shares of common stock were reserved for future grants.

Performance Equity Plan:The
Corporation also has a Performance Equity Plan (PEP) under which awards payable in the
Corporations common stock are made. Vesting of the awards, which can range from 0%
to 150% of the initial award, is based on pre-established financial performance measures
during a two-year performance period. The fair value of the shares that vested during
2007, 2006, and 2005 was $4.4 million, $7.4 million, and $12.7 million, respectively.
During 2007, 2006, and 2005, the Corporation granted 41,880, 44,988, and 41,189,
performance shares under the PEP, respectively. At December 31, 2007 and 2006, there were
82,923 and 84,693 performance shares outstanding under the PEP, respectively.

NOTE 16: BUSINESS
SEGMENTS AND GEOGRAPHIC INFORMATION

The Corporation has elected to
organize its businesses based principally upon products and services. In certain instances
where a business does not have a local presence in a particular country or geographic
region, however, the Corporation has assigned responsibility for sales of that
businesss products to one of its other businesses with a presence in that country or
region.

The Corporation operates in three
reportable business segments: Power Tools and Accessories, Hardware and Home Improvement,
and Fastening and Assembly Systems. The Power Tools and Accessories segment has worldwide
responsibility for the manufacture and sale of consumer and industrial power tools and
accessories, lawn and garden products, and electric cleaning, automotive, lighting, and
household products, as well as for product service. In addition, the Power Tools and
Accessories segment has responsibility for the sale of security hardware to customers in
Mexico, Central America, the Caribbean, and South America; for the sale of plumbing
products to customers outside the United States and Canada; and for sales of household
products. On March 1, 2006, the Corporation acquired Vector, which is included in the
Power Tools and Accessories segment. The Hardware and Home Improvement segment has
worldwide responsibility for the manufacture and sale of security hardware (except for the
sale of security hardware in Mexico, Central America, the Caribbean, and South America).
The Hardware and Home Improvement segment also has responsibility for the manufacture of
plumbing products and for the sale of plumbing products to customers in the United States
and Canada. The Fastening and Assembly Systems segment has worldwide responsibility for
the manufacture and sale of fastening and assembly systems.

Sales, segment profit, depreciation
and amortization, and capital expenditures set forth in the following tables exclude the
results of the discontinued European security hardware business, as more fully described
in Note 19 of Notes to Consolidated Financial Statements.

56

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Business Segments(MILLIONS OF DOLLARS)

|                                                                  |                           |                             |                              
|----------------------------------------------------------------- | ------------------------- | --------------------------- | -----------------------------
|Year Ended December 31, 2007                                      | Power
Tools &
Accessories | Hardware
& Home
Improvement | Fastening
& Assembly 
Systems
|                                                                 
|Sales to unaffiliated customers                                   |                           |                             | $                            
|Segment profit (loss) (for Consoli-                               |                           |                            
|dated, operating income before      restructuring and exit costs) |                           |                             |                              
|Depreciation and amortization                                     |                           |                             |                              
|Income from equity method investees                               |                           |                             |                              
|Capital expenditures                                              |                           |                             |                              
|Segment assets                                                    |                           |                            
|(for Consolidated, total assets)                                  |                           |                             |                              
|Investment in equity method investees                             |                           |                             |                              
|                                                                  |                           |                            
|Year Ended December 31, 2006                                      |                           |                            
|                                                                 
|Sales to unaffiliated customers                                   |                           |                             | $                            
|Segment profit (loss) (for Consoli-                               |                           |                            
|dated, operating income)                                          |                           |                             |                              
|Depreciation and amortization                                     |                           |                             |                              
|Income from equity method investees                               |                           |                             |                              
|Capital expenditures                                              |                           |                             |                              
|Segment assets                                                    |                           |                            
|(for Consolidated, total assets)                                  |                           |                             |                              
|Investment in equity method investees                             |                           |                             |                              
|                                                                  |                           |                            
|Year Ended December 31, 2005                                      |                           |                            
|                                                                 
|Sales to unaffiliated customers                                   |                           |                             | $                            
|Segment profit (loss) (for Consoli-                               |                           |                            
|dated, operating income)                                          |                           |                             |                              
|Depreciation and amortization                                     |                           |                             |                              
|Income from equity method investees                               |                           |                             |                              
|Capital expenditures                                              |                           |                             |                              
|Segment assets                                                    |                           |                            
|(for Consolidated, total assets)                                  |                           |                             |                              
|Investment in equity method investees                             |                           |                             |                              
|                                                                  |                           |                            
|                                                                 

57

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The profitability measure employed by
the Corporation and its chief operating decision maker for making decisions about
allocating resources to segments and assessing segment performance is segment profit (for
the Corporation on a consolidated basis, operating income before restructuring and exit
costs). In general, segments follow the same accounting policies as those described in
Note 1, except with respect to foreign currency translation and except as further
indicated below. The financial statements of a segments operating units located
outside of the United States, except those units operating in highly inflationary
economies, are generally measured using the local currency as the functional currency. For
these units located outside of the United States, segment assets and elements of segment
profit are translated using budgeted rates of exchange. Budgeted rates of exchange are
established annually and, once established, all prior period segment data is restated to
reflect the current years budgeted rates of exchange. The amounts included in the
preceding table under the captions Reportable Business Segments and
Corporate, Adjustments, & Eliminations are reflected at the
Corporations budgeted rates of exchange for 2007. The amounts included in the
preceding table under the caption Currency Translation Adjustments
represent the difference between consolidated amounts determined using those budgeted
rates of exchange and those determined based upon the rates of exchange applicable under
accounting principles generally accepted in the United States.

Segment profit excludes interest
income and expense, non-operating income and expense, adjustments to eliminate
intercompany profit in inventory, and income tax expense. In addition, segment profit
excludes restructuring and exit costs. In determining segment profit, expenses relating to
pension and other postretirement benefits are based solely upon estimated service costs.
Corporate expenses, as well as certain centrally managed expenses, including expenses
related to share-based compensation, are allocated to each reportable segment based upon
budgeted amounts. While sales and transfers between segments are accounted for at cost
plus a reasonable profit, the effects of intersegment sales are excluded from the
computation of segment profit. Intercompany profit in inventory is excluded from segment
assets and is recognized as a reduction of cost of goods sold by the selling segment when
the related inventory is sold to an unaffiliated customer. Because the Corporation
compensates the management of its various businesses on, among other factors, segment
profit, the Corporation may elect to record certain segment-related expense items of an
unusual or non-recurring nature in consolidation rather than reflect such items in segment
profit. In addition, certain segment- related items of income or expense may be recorded
in consolidation in one period and transferred to the various segments in a later period.

Segment assets exclude pension and
tax assets, intercompany profit in inventory, intercompany receivables, and goodwill
associated with the Corporations acquisition of Emhart Corporation in 1989.

The reconciliation of segment profit
to consolidated earnings from continuing operations before income taxes for each year, in
millions of dollars, is as follows:

|                                                           | 2007 | 2006 | 2005
|---------------------------------------------------------- | ---- | ---- | ----
|                                                          
|Segment profit for total reportable business segments      |      |      | $   
|Items excluded from segment profit:                        |      |     
|Adjustment of budgeted foreign exchange rates to           |      |     
|actual rates                                               |      |      |     
|Depreciation of Corporate property                         |      |      |     
|Adjustment to businesses' postretirement benefit           |      |     
|expenses booked in consolidation                           |      |      |     
|Other adjustments booked in consolidation directly         |      |     
|related to reportable business segments                    |      |      |     
|Amounts allocated to businesses in arriving at segment     |      |     
|profit in excess of (less than) Corporate center operating |      |     
|expenses, eliminations, and other amounts identified above |      |      |     
|                                                          
|Operating income before restructuring and exit costs       |      |      |     
|Restructuring and exit costs                               |      |      |     
|                                                          
|Operating income                                           |      |      |     
|Interest expense, net of interest income                   |      |      |     
|Other expense (income)                                     |      |      |     
|                                                          
|Earnings from continuing operations before income taxes    |      |      | $   
|                                                          

58

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The reconciliation of segment assets
to consolidated total assets at the end of each year, in millions of dollars, is as
follows:

|                                              | 2007
|--------------------------------------------- | ----
|                                             
|Segment assets for total                      |     
|reportable business segments                  |     
|Items excluded from segment assets:           |     
|Adjustment of budgeted foreign exchange rates |     
|to actual rates                               |     
|Goodwill                                      |     
|Pension assets                                |     
|Other Corporate assets                        |     
|                                             
|                                              |     
|                                             

Other Corporate assets principally
consist of cash and cash equivalents, tax assets, property, and other assets.

Sales to The Home Depot, a customer
of the Power Tools and Accessories and Hardware and Home Improvement segments, accounted
for approximately $1.3 billion, $1.3 billion, and $1.4 billion of the Corporations
consolidated sales for the years ended December 31, 2007, 2006, and 2005, respectively.
Sales to Lowes Home Improvement Warehouse, a customer of the Power Tools and
Accessories and Hardware and Home Improvement segments, accounted for approximately $.9
billion of the Corporations consolidated sales for the years ended December 31,
2007, 2006, and 2005, respectively.

The composition of the
Corporations sales by product group for each year, in millions of dollars, is set
forth below:

|                                                       | 2007
|------------------------------------------------------ | ----
|                                                      
|Consumer and industrial                                |     
|power tools and product service                        |     
|Lawn and garden products                               |     
|Consumer and industrial accessories                    |     
|Cleaning, automotive, lighting, and household products |     
|Security hardware                                      |     
|Plumbing products                                      |     
|Fastening and assembly systems                         |     
|                                                      
|                                                       |     
|                                                      

The Corporation markets its products
and services in over 100 countries and has manufacturing sites in 11 countries. Other than
in the United States, the Corporation does not conduct business in any country in which
its sales in that country exceed 10% of consolidated sales. Sales are attributed to
countries based on the location of customers. The composition of the Corporations
sales to unaffiliated customers between those in the United States and those in other
locations for each year, in millions of dollars, is set forth below:

|              | 2007
|------------- | ----
|             
|United States |     
|Canada        |     
|             
|North America |     
|Europe        |     
|Other         |     
|             
|              |     
|             

The composition of the
Corporations property, plant, and equipment between those in the United States and
those in other countries as of the end of each year, in millions of dollars, is set forth
below:

|                | 2007
|--------------- | ----
|               
|United States   |     
|Mexico          |     
|Other countries |     
|               
|                |     
|               
|                |     

NOTE 17: LEASES

The Corporation leases certain
service centers, offices, warehouses, manufacturing facilities, and equipment. Generally,
the leases carry renewal provisions and require the Corporation to pay maintenance costs.
Rental payments may be adjusted for increases in taxes and insurance above specified
amounts. Rental expense for 2007, 2006, and 2005 amounted to $103.6 million, $101.3
million, and $99.7 million, respectively. Capital leases were immaterial in amount. Future
minimum payments under non-cancelable operating leases with initial or remaining terms of
more than one year as of December 31, 2007, in millions of dollars, were as follows:

|           | 
|---------- | 
|          
|2008       | 
|2009       | 
|2010       | 
|2011       | 
|2012       | 
|Thereafter | 
|          
|           | 
|          

59

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NOTE 18: RESTRUCTURING
ACTIONS

A summary of restructuring activity
during the three years ended December 31, 2007, in millions of dollars, is set forth
below:

|                                          
|------------------------------------------
|                                          
|Restructuring reserve at December 31, 2004
|Utilization of reserves:                  
|Cash                                      
|Foreign currency translation              
|                                          
|Restructuring reserve at December 31, 2005
|Reserves established in 2006              
|Reversal of reserves                      
|Utilization of reserves:                  
|Cash                                      
|Non-cash                                  
|Foreign currency translation              
|                                          
|Restructuring reserve at December 31, 2006
|Reserves established in 2007              
|Utilization of reserves:                  
|Cash                                      
|Non-cash                                  
|Foreign currency translation              
|                                          
|Restructuring reserve at December 31, 2007
|                                          

During 2007, the Corporation recorded
a restructuring charge of $19.0 million. The $19.0 million was net of $3.4 million
representing the excess of proceeds received on the sale of a manufacturing facility which
will be closed as part of the restructuring actions, over its carrying value. The 2007
restructuring charge reflects actions to reduce the Corporations manufacturing cost
base and selling, general and administrative expenses in its Power Tools and Accessories
and Hardware Improvement segments. The restructuring actions to reduce the
Corporations manufacturing cost base in the Power Tools and Accessories segment
includes the closure of one facility, transferring the production to other facilities, and
outsourcing certain manufactured items. Actions to reduce the Corporations
manufacturing cost base in the Hardware and Home Improvement segment primarily related to
optimization of its North American finishing operations.

The principal component of the 2007
restructuring charge related to the elimination of manufacturing and selling, general and
administrative positions. As a result, a severance benefit accrual of $14.8 million,
related to the Power Tools and Accessories segment ($12.4 million) and the Hardware and
Home Improvement segment ($2.4 million), was included in the restructuring charge. The
severance benefits accrual included the elimination of approximately 650 positions. The
Corporation estimates that, as a result of increases in manufacturing employee headcount
in other facilities, approximately 100 replacement positions will be filled, yielding a
net total of approximately 550 positions eliminated as a result of the 2007 restructuring
actions. The restructuring reserve also included a $7.4 million write-down to fair value
of certain long-lived assets of the Hardware and Home Improvement segment, which are
either held for sale or have been idled in preparation for disposal as of December 31,
2007.

During 2007, 2006, and 2005 the
Corporation paid severance and other exit costs related to restructuring charges taken of
$1.0 million, $1.7 million and $13.6 million, respectively.

The Corporation anticipates that
actions contemplated under the $17.3 million restructuring accrual at December 31, 2007,
will be completed during 2008 and 2009.

NOTE 19: DISCONTINUED
OPERATIONS

The Corporations former
European security hardware business is classified as discontinued operations. The European
security hardware business consisted of the NEMEF, Corbin, and DOM businesses. In November
2005, the Corporation completed the sale of the remaining European security hardware
business with the sale of the DOM security hardware business and received cash proceeds,
net of cash transferred, of $17.2 million.

During 2005, the Corporation
recognized a $.1 million loss on the sale of the DOM security hardware business.

Sales and earnings before income
taxes of the discontinued operations were $60.1 million and $.5 million, respectively, for
the year ended December 31, 2005.

The results of the discontinued
operations do not reflect any expense for interest allocated by or management fees charged
by the Corporation.

60

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NOTE 20: OTHER EXPENSE
(INCOME)

Other expense (income) was $2.3
million in 2007, $2.2 million in 2006, and $(51.6) million in 2005. During 2005, the
Corporation received a payment of $55.0 million relating to the settlement of
environmental and product liability coverage litigation with an insurer.

NOTE 21: LITIGATION AND
CONTINGENT LIABILITIES

The Corporation is involved in
various lawsuits in the ordinary course of business. These lawsuits primarily involve
claims for damages arising out of the use of the Corporations products and
allegations of patent and trademark infringement. The Corporation also is involved in
litigation and administrative proceedings involving employment matters and commercial
disputes. Some of these lawsuits include claims for punitive as well as compensatory
damages.

The Corporation, using current
product sales data and historical trends, actuarially calculates the estimate of its
exposure for product liability. The Corporation is insured for product liability claims
for amounts in excess of established deductibles and accrues for the estimated liability
up to the limits of the deductibles. All other claims and lawsuits are handled on a
case-by-case basis. The Corporations estimate of the costs associated with product
liability claims, environmental exposures, and other legal proceedings is accrued if, in
managements judgment, the likelihood of a loss is probable and the amount of the
loss can be reasonably estimated.

The Corporation also is party to
litigation and administrative proceedings with respect to claims involving the discharge
of hazardous substances into the environment. Some of these assert claims for damages and
liability for remedial investigations and clean-up costs with respect to sites that have
never been owned or operated by the Corporation but at which the Corporation has been
identified as a potentially responsible party. Other matters involve current and former
manufacturing facilities.

The Environmental Protection Agency
(EPA) and the Santa Ana Regional Water Quality Control Board (the Water Quality Board)
have each initiated administrative proceedings against the Corporation and certain of the
Corporations current or former affiliates alleging that the Corporation and numerous
other defendants are responsible to investigate and remediate alleged groundwater
contamination in and adjacent to a 160-acre property located in Rialto, California. The
cities of Colton and Rialto, as well as the West Valley Water District and the Fontana
Water Company, a private company, also have initiated lawsuits against the Corporation and
certain of the Corporations former or current affiliates in the Federal District
Court for California, Central District alleging similar claims that the Corporation is
liable under the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA), the Resource Conservation and Recovery Act, and state law for the discharge
or release of hazardous substances into the environment and the contamination caused by
those alleged releases. All defendants have crossclaims against one another in the federal
litigation. The administrative proceedings and the lawsuits generally allege that West
Coast Loading Corporation (WCLC), a defunct company that operated in Rialto between 1952
and 1957, and an as yet undefined number of other defendants are responsible for the
release of perchlorate and solvents into the groundwater basin that supplies drinking
water to the referenced three municipal water suppliers and one private water company in
California and that the Corporation and certain of the Corporations current or
former affiliates are liable as a successor of WCLC. The federal lawsuit
filed by the West Valley Water District and the Fontana Water Company was voluntarily
dismissed in October 2007. Judgment has been entered in favor of all defendants, including
the Corporation and certain of the Corporations current and former affiliates, in
the federal lawsuit brought by the City of Colton as to Coltons federal claims. The
remaining state claims and the crossclaims in that lawsuit have been dismissed by the
court on jurisdictional grounds. The City of Colton and several co-defendants have
appealed the dismissal of these claims. The City of Colton also has re-filed its claims in
California state court and filed a new federal action arising out of the Comprehensive
Environmental Response, CERCLA, the Resource Conservation and Recovery Act, and state law.
Certain defendants have crossclaimed against other defendants in the new federal action
and have asserted claims against The United States Department of Defense, EPA, and the
City of Rialto. Certain defendants have cross-claims against other defendants in the new
state court action and have asserted claims against the State of California. The
Corporation believes that neither the facts nor the law support an allegation that the
Corporation is responsible for the contamination and is vigorously contesting these
claims.

The EPA has provided an affiliate of
the Corporation a Notice of Potential Liability related to environmental
contamination found at the Centredale Manor Restoration Project Superfund site, located in
North Providence, Rhode Island. The EPA has

61

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discovered dioxin, polychlorinated biphenyls,
and pesticide contamination at this site. The EPA alleged that an affiliate of the
Corporation is liable for site cleanup costs under CERCLA as a successor to the liability
of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the
EPAs costs related to this site. The EPA, which considers the Corporation to be the
primary potentially responsible party (PRP) at the site, is expected to release a draft
Feasibility Study Report, which will identify and evaluate remedial alternatives for the
site, in 2008. At December 31, 2007, the estimated remediation costs related to this site
(including the EPAs past costs as well as costs of additional investigation,
remediation, and related costs, less escrowed funds contributed by PRPs who have reached
settlement agreements with the EPA), which the Corporation considers to be probable and
can be reasonably estimable, range from approximately $49 million to approximately $100
million, with no amount within that range representing a more likely outcome. During 2007,
the Corporation increased its reserve for this environmental remediation matter by $31.7
million to $48.7 million, reflecting the probability that the Corporation will be
identified as the principal financially viable PRP upon issuance of the EPA draft
Feasibility Study Report in 2008. The Corporation has not yet determined the extent to
which it will contest the EPAs claims with respect to this site. Further, to the
extent that the Corporation agrees to perform or finance remedial activities at this site,
it will seek participation or contribution from additional potentially responsible parties
and insurance carriers. As the specific nature of the environmental remediation activities
that may be mandated by the EPA at this site have not yet been determined, the ultimate
remedial costs associated with the site may vary from the amount accrued by the
Corporation at December 31, 2007.

As of December 31, 2007, the
Corporations aggregate probable exposure with respect to environmental liabilities,
for which accruals have been established in the consolidated financial statements, was
$107.3 million. These accruals are reflected in other current liabilities and other
long-term liabilities in the Consolidated Balance Sheet.

Total future costs for environmental
remediation activities will depend upon, among other things, the identification of any
additional sites, the determination of the extent of contamination at each site, the
timing and nature of required remedial actions, the technology available, the nature and
terms of cost sharing arrangements with other PRPs, the existing legal requirements and
nature and extent of future environmental laws, and the determination of the
Corporations liability at each site. The recognition of additional losses, if and
when they may occur, cannot be reasonably predicted.

In the opinion of management, amounts
accrued for exposures relating to product liability claims, environmental matters, income
tax matters, and other legal proceedings are adequate and, accordingly, the ultimate
resolution of these matters is not expected to have a material adverse effect on the
Corporations consolidated financial statements. As of December 31, 2007, the
Corporation had no known probable but inestimable exposures relating to product liability
claims, environmental matters, income tax matters, or other legal proceedings that are
expected to have a material adverse effect on the Corporation. There can be no assurance,
however, that unanticipated events will not require the Corporation to increase the amount
it has accrued for any matter or accrue for a matter that has not been previously accrued
because it was not considered probable. While it is possible that the increase or
establishment of an accrual could have a material adverse effect on the financial results
for any particular fiscal quarter or year, in the opinion of management there exists no
known potential exposure that would have a material adverse effect on the financial
condition or on the financial results of the Corporation beyond any such fiscal quarter or
year.

62

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NOTE 22: QUARTERLY
RESULTS (UNAUDITED)

|(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 2007 | FIRSTQUARTER | SECONDQUARTER | THIRDQUARTER | FOURTHQUARTER
|------------------------------------------------------------------------ | ------------ | ------------- | ------------ | -------------
|                                                                        
|Sales                                                                    |              |               | $            | 1,577.       
|Gross margin                                                             |              |               |              | 560.         
|Net earnings                                                             |              |               |              | 108.         
|                                                                        
|Net earnings per common sharebasic                                      |              |               | $            | 1.6          
|                                                                        
|Net earnings per common sharediluted                                    |              |               | $            | 1.6          
|                                                                        

|YEAR ENDED DECEMBER 31, 2006          | FIRSTQUARTER | SECONDQUARTER | THIRDQUARTER | FOURTHQUARTER
|------------------------------------- | ------------ | ------------- | ------------ | -------------
|                                     
|Sales                                 |              |               | $            | 1,528.       
|Gross margin                          |              |               |              | 543.         
|Net earnings                          |              |               |              | 113.         
|                                     
|Net earnings per common sharebasic   |              |               | $            | 1.4          
|                                     
|Net earnings per common sharediluted |              |               | $            | 1.4          
|                                     

As more fully described in Note 11,
net earnings for the fourth quarter of 2007 included a $153.4 million favorable tax
settlement. In addition, as more fully described in Notes 18 and 21, respectively, net
earnings for the fourth quarter of 2007 included a restructuring charge of $19.0 million
before taxes ($12.8 million after taxes) and a charge for an environmental remediation
matter of $31.7 million before taxes ($20.6 million after taxes).

Earnings per common share are
computed independently for each of the quarters presented. Therefore, the sum of the
quarters may not be equal to the full year earnings per share.

63

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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS

To the Stockholders and
Board of Directorsof The Black &
Decker Corporation:

We have audited the accompanying
consolidated balance sheet of The Black & Decker Corporation and Subsidiaries as of
December 31, 2007 and 2006, and the related consolidated statements of earnings,
stockholders equity, and cash flows for each of the three years in the period ended
December 31, 2007. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and schedule are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of The Black & Decker Corporation and Subsidiaries at
December 31, 2007 and 2006, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2007, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set
forth therein.

As discussed in Note 1, the
Corporation adopted the provisions of the Financial Accounting Standards Board
Interprtation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, effective January 1, 2007. Also, as discussed in Note 1,
the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, as of December 31, 2006.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), The
Black & Decker Corporation and Subsidiaries internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 15, 2008 expressed an unqualified
opinion thereon.

/s/ ERNST & YOUNG LLP

Baltimore, MarylandFebruary
15, 2008

64

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ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE
CONTROLS AND PROCEDURES

Under the supervision and with the
participation of Corporations management, including the Chief Executive Officer and
Chief Financial Officer, the Corporation evaluated the effectiveness of the design and
operation of the Corporations disclosure controls and procedures as of December 31,
2007. Based upon that evaluation, the Corporations Chief Executive Officer and Chief
Financial Officer concluded that the Corporations disclosure controls and procedures
are effective.

MANAGEMENTS REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Corporations management is
responsible for establishing and maintaining adequate internal control over financial
reporting. Under the supervision and with the participation of the Corporations
management, including the Chief Executive Officer and Chief Financial Officer, the
Corporation evaluated the effectiveness of the design and operation of its internal
control over financial reporting based on the framework in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, the Corporations Chief Executive
Officer and Chief Financial Officer concluded that the Corporations internal control
over financial reporting was effective as of December 31, 2007.

Ernst & Young LLP, the
Corporations independent registered public accounting firm, audited the
effectiveness of internal control over financial reporting and, based on that audit,
issued the report set forth on the following page.

CHANGES IN INTERNAL
CONTROL OVER FINANCIAL REPORTING

There were no changes in the
Corporations internal controls over financial reporting during the quarterly period
ended December 31, 2007, that have materially affected, or are reasonably likely to
materially affect, the Corporations internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

On February 14, 2008, the
Corporations Board of Directors approved an amended and restated employment
agreement between the Corporation and Nolan D. Archibald, the Corporations chairman,
president, and chief executive officer, and an amended and restated severance benefits
agreement with certain key executives, other than Mr. Archibald. The only material
amendments to these agreements relate to the adoption of The Black & Decker 2008
Executive Long-Term Incentive/Retention Plan (the 2008 Long-Term Plan) by
the Board effective February 1, 2008.

Upon the termination of his
employment by the Corporation without cause or by Mr. Archibald with good reason, Mr.
Archibald would be entitled to certain benefits, including a severance payment. Under the
terms of the amended and restated employment agreement, the amount of the severance
payment would equal three times the sum of Mr. Archibalds annual base salary,
the EAIP Maximum Payment, and the LTP Amount.
For purposes of the employment agreement, EAIP Maximum Payment means the
maximum payment that Mr. Archibald could have received under the executive annual
incentive plan, determined as if Mr. Archibald had remained a participant and all
performance goals that would have entitled Mr. Archibald to a maximum payment are met or
exceeded, and LTP Amount means an amount equal to 105% of Mr. Archibald's base salary as of his
termination date as adjusted upward (or downward)
proportionately to the extent the closing sale price per share of the Corporations
common stock on the trading date immediately preceding the date of Mr. Archibalds
termination of employment exceeds (or is less than) the average daily closing sale price
of the Corporations common stock during the first quarter of 2008.

The severance benefits agreements
provide for the payment of specified benefits if employment terminates under certain
circumstances following a change in control, including a severance payment. Under the
terms of the amended and restated severance benefits agreements, the severance payment
would equal three times the sum of the executives annual base salary, the
maximum participant award, and an amount equal to, depending on the executive, 60-90% of the
executives annual base salary adjusted upward (or downward) proportionately to
the extent the closing sale price per share of the Corporations common stock on the
trading date immediately preceding the date of the executives termination of
employment exceeds (or is less than) the average daily closing sale price of the
Corporations common stock during the first quarter of 2008. For purposes of the severance
benefits agreements, maximum participant award means the maximum payment that the executive could
have received under the applicable annual incentive plan, determined as if the executive had remained
a participant and all performance goals that would have entitled an executive to a maximum payment are
met or exceeded.

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REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders and
Board of Directors of The Black &
Decker Corporation:

We have audited The Black &
Decker Corporation and Subsidiaries internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Black & Decker Corporations management is responsible
for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, The Black &
Decker Corporation and Subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on the COSO
criteria.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of The Black & Decker Corporation and Subsidiaries as of
December 31, 2007 and 2006, and the related consolidated statements of earnings,
stockholders equity, and cash flows for each of the three years in the period ended
December 31, 2007, and our report dated February 15, 2008 expressed an unqualified opinion
thereon.

/s/ ERNST & YOUNG LLP

Baltimore, MarylandFebruary
15, 2008

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required under this Item
with respect to Directors is contained in the Corporations Proxy Statement for the
Annual Meeting of Stockholders to be held April 17, 2008, under the captions
Election of Directors, Corporate Governance, and
Section 16(a) Beneficial Ownership Reporting Compliance and is
incorporated herein by reference.

Information required under this Item
with respect to Executive Officers of the Corporation is included in Item 1 of Part I of
this report.

ITEM 11. EXECUTIVE COMPENSATION

Information required under this Item
is contained in the Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 2008, under the captions Corporate
Governance and Executive Compensation and is incorporated herein
by reference.

ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required under this Item
is contained in the Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 2008, under the captions Voting
Securities, Security Ownership by Management, and Equity
Compensation Plan Information and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required under this Item
is contained in the Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 2008, under the caption Corporate
Governance and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required under this Item
is contained in the Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 2008, under the caption Ratification of the
Selection of the Independent Registered Public Accounting Firm and is incorporated
herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)    
          List of Financial Statements, Financial Statement Schedules, and Exhibits

(1)    
          LIST OF FINANCIAL STATEMENTS The following consolidated financial statements of
          the Corporation and its subsidiaries are included in Item 8 of Part II of this
          report:

Consolidated Statement of Earnings
 years ended December 31, 2007, 2006, and 2005.

Consolidated Balance Sheet 
December 31, 2007 and 2006.

Consolidated Statement of
Stockholders Equity  years ended December 31, 2007, 2006, and 2005.

Consolidated Statement of Cash Flows
 years ended December 31, 2007, 2006, and 2005.

Notes to Consolidated
Financial Statements.

Report of Independent Registered
Public Accounting Firm on Consolidated Financial Statements.

(2)    
          LIST OF FINANCIAL STATEMENT SCHEDULES

The following financial statement
schedules of the Corporation and its subsidiaries are included herein:

Schedule II  Valuation and
Qualifying Accounts and Reserves.

All other schedules for which
provision is made in the applicable accounting regulations of the Commission are not
required under the related instructions or are inapplicable and, therefore, have been
omitted.

(3)    
          LIST OF EXHIBITSThe following exhibits are either included in this report or
          incorporated herein by reference as indicated below:

# Exhibit 3(a)

Articles of Restatement of the
Charter of the Corporation, included in the Corporations Quarterly Report on Form
10-Q for the quarter ended June 29, 1997, are incorporated herein by reference.

# Exhibit 3(b)

Bylaws of the Corporation, as
amended, included in the Corporations Current Report on Form 8-K filed with the
Commission on December 13, 2007, are incorporated herein by reference.

# Exhibit 4(a)

Indenture dated as of June 26, 1998,
by and among Black & Decker Holdings Inc., as Issuer, the Corporation, as Guarantor,
and The First National Bank of Chicago, as Trustee, included in the Corporations
Quarterly Report on Form 10-Q for the quarter ended June 28, 1998, is incorporated herein
by reference.

# Exhibit 4(b)(1)

Credit Agreement, dated as of October
29, 2004, among the Corporation, Black & Decker Holdings, Inc., as Initial Borrowers,
the initial lenders named therein, as Initial Lenders, Citibank, N.A., as Administrative
Agent, JPMorgan Chase Bank, as Syndication Agent, and Bank of America, N.A., BNP Paribas
and Commerzbank AG, as Co-Documentation Agents, included in the Corporations Current
Report on Form 8-K filed with the Commission on November 4, 2004, is incorporated herein
by reference.

# Exhibit 4(b)(2)

Amendment, dated June 16, 2006, to
the Credit Agreement, dated as of October 29, 2004, among the Corporation, Black &
Decker Luxembourg S.ar.L, Black & Decker Luxembourg Finance S.C.A., the banks,
financial institutions and other institutional lenders and issuing banks listed on the
signature pages thereof, and Citibank, N.A., as administrative agent, included in the
Corporations Quarterly Report on Form 10-Q for the quarter ended July 2, 2006, is
incorporated herein by reference.

# Exhibit 4(c)

Indenture  between the  Corporation  and The Bank of New York,  as Trustee,  dated as of June 5, 2001,  included in the  Corporation's
Registration Statement on Form S-4 (Reg. No. 333-64790), is incorporated herein by reference.

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# Exhibit 4(d)

Indenture, dated as of October 18,
2004, between the Corporation and The Bank of New York, as Trustee, included in the
Corporations Current Report on Form 8-K filed with the Commission on October 20,
2004, is incorporated herein by reference.

# Exhibit 4(e)

Indenture, dated as of November 16,
2006, between the Corporation and The Bank of New York, as Trustee, included in the
Corporations Annual Report on Form 10-K for the year ended December 31, 2006, is
incorporated herein by reference.

# Exhibit 4(f)

First Supplemental Indenture, dated
as of November 16, 2006, between the Corporation and The Bank of New York, as Trustee,
included in the Corporations Annual Report on Form 10-K for the year ended December
31, 2006, is incorporated herein by reference.

The Corporation agrees to furnish a
copy of any other documents with respect to long-term debt instruments of the Corporation
and its subsidiaries upon request.

# Exhibit 4(g)

Credit Agreement, dated as of
December 7, 2007, among the Corporation, Black & Decker Luxembourg Finance S.C.A., and
Black & Decker Luxembourg S.A.R.L., as Initial Borrowers, the initial lenders named
therein, as Initial Lenders, Citibank, N.A., as Administrative Agent, JPMorgan Chase Bank,
as Syndication Agent, and Bank of America, N.A., BNP Paribas and Commerzbank AG, as
Documentation Agents, included in the Corporations Current Report on Form 8-K filed
with the Commission on December 13, 2007, is incorporated herein by reference.

# Exhibit 10(a)

The Black & Decker Corporation
Deferred Compensation Plan for Non-Employee Directors, as amended, included in the
Corporations Annual Report on Form 10-K for the year ended December 31, 2005, is
incorporated herein by reference.

# Exhibit 10(b)

The Black & Decker Non-Employee
Directors Stock Plan, as amended and restated, included in the Corporations Annual
Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by
reference.

# Exhibit 10(c)

The Black & Decker 1989 Stock
Option Plan, as amended, included in the Corporations Quarterly Report on Form 10-Q
for the quarter ended March 30, 1997, is incorporated herein by reference.

# Exhibit 10(d)

The Black & Decker 1992 Stock
Option Plan, as amended, included in the Corporations Annual Report on Form 10-K for
the year ended December 31, 2005, is incorporated herein by reference.

# Exhibit 10(e)

The Black & Decker 1995 Stock
Option Plan for Non-Employee Directors, as amended, included in the Corporations
Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by
reference.

# Exhibit 10(f)

The Black & Decker 1996 Stock
Option Plan, as amended, included in the Corporations Annual Report on Form 10-K for
the year ended December 31, 2005, is incorporated herein by reference.

# Exhibit 10(g)

The Black & Decker 2003 Stock
Option Plan, as amended, included in the Corporations Annual Report on Form 10-K for
the year ended December 31, 2006, is incorporated herein by reference.

# Exhibit 10(h)

The Black & Decker Corporation
2004 Restricted Stock Plan, included as Exhibit B to the Proxy Statement, dated March 16,
2004, for the 2004 Annual Meeting of Stockholders of the Registrant, is incorporated
herein by reference.

# Exhibit 10(i)

The Black & Decker Performance
Equity Plan, as amended, included in the Corporations Annual Report on Form 10-K for
the year ended December 31, 2005, is incorporated herein by reference.

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# Exhibit 10(j)

Form of Restricted Share Agreement
relating to The Black & Decker Corporation 2004 Restricted Stock Plan, included in the
Corporations Current Report on Form 8-K filed with the Commission on April 28, 2005,
is incorporated herein by reference.

# Exhibit 10(k)

Form of Nonqualified Stock Option
Agreement with executive officers relating to the Corporations stock option plans,
included in the Corporations Current Report on Form 8-K filed with the Commission on
April 28, 2005, is incorporated herein by reference.

# Exhibit 10(l)

The Black & Decker Executive
Annual Incentive Plan, as amended and restated.

# Exhibit 10(m)

The Black & Decker Management
Annual Incentive Plan, as amended, included in the Corporations Quarterly Report on
Form 10-Q for the quarter ended April 1, 2007, is incorporated herein by reference.

# Exhibit 10(n)(1)

The Black & Decker Supplemental
Pension Plan, as amended and restated, included in the Corporations Annual Report on
Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.

# Exhibit 10(n)(2)

First Amendment to The Black &
Decker Supplemental Pension Plan, included in the Corporations Quarterly Report on
10-Q for the quarter ended April 2, 2006, is incorporated herein by reference.

# Exhibit 10(o)

The Black & Decker Supplemental
Retirement Savings Plan, as amended and restated, included in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by
reference.

# Exhibit 10(p)

The Black & Decker Supplemental
Executive Retirement Plan, as amended and restated, included in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by
reference.

# Exhibit 10(q)

The Black & Decker Executive Life
Insurance Program, as amended, included in the Corporations Quarterly Report on Form
10-Q for the quarter ended April 4, 1993, is incorporated herein by reference.

# Exhibit 10(r)

The Black & Decker Executive
Salary Continuance Plan, as amended and restated, included in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by
reference.

# Exhibit 10(s)

Form of Severance Benefits Agreement
by and between the Corporation and approximately 16 of its key employees.

# Exhibit 10(t)

Amended and Restated Employment
Agreement, dated as of February 14, 2008, by and between the Corporation and Nolan D.
Archibald.

# Exhibit 10(u)

Severance Benefits Agreement, dated
February 14, 2008, by and between the Corporation and John W. Schiech.

# Exhibit 10(v)

Severance Benefits Agreement, dated February
14, 2008, by and between the Corporation and Charles E. Fenton.

# Exhibit 10(w)

Severance Benefits Agreement, dated
February 14, 2008, by and between the Corporation and Michael D. Mangan.

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# Exhibit 10(x)

Severance Benefits Agreement, dated February
14, 2008, by and between the Corporation and Paul F. McBride.

# Exhibit 10(y)

The Black & Decker Corporation
Corporate Governance Policies and Procedures Statement, as amended, included in the
Corporations Current Report on Form 8-K filed with the Commission on April 25, 2007,
is incorporated herein by reference.

# Exhibit 10(z)

The description of the compensatory
arrangement with the Chief Executive Officer contained in the Corporations Current
Report on Form 8-K filed with the Commission on April 25, 2007, is incorporated herein by
reference.

# Exhibit 10(aa)

The Black & Decker 2008 Executive
Long-Term Incentive/Retention Plan, included in the Corporations Current Report on
Form 8-K filed with the Commission on February 7, 2008, is incorporated herein by
reference.

Items 10(a) through 10(aa) constitute
management contracts and compensatory plans and arrangements required to be filed as
exhibits under Item 14(c) of this Report.

# Exhibit 21

List of Subsidiaries.

# Exhibit 23

Consent of Independent Registered
Public Accounting Firm.

# Exhibit 24

Powers of Attorney.

# Exhibit 31.1

Chief Executive Officers
Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

# Exhibit 31.2

Chief Financial Officers
Certification Pursuant to Rule 13a-14(a)/15-d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

# Exhibit 32.1

Chief Executive Officers
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

# Exhibit 32.2

Chief Financial Officers
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.

All other items are not
applicable or none.

(b) Exhibits

The exhibits required by Item 601 of
Regulation S-K are filed herewith.

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(c) Financial Statement
Schedules and Other Financial Statements

The Financial Statement Schedule
required by Regulation S-X is filed herewith.

SCHEDULE
IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVESTHE BLACK & DECKER
CORPORATION AND SUBSIDIARIES(MILLIONS OF DOLLARS)

|DESCRIPTION                                      | BALANCEATBEGINNINGOF PERIOD | ADDITIONSCHARGED TO COSTS ANDEXPENSES | DEDUCTIONS | OTHERCHARGESADD(DEDUCT) | BALANCEAT ENDOF PERIOD
|------------------------------------------------ | --------------------------- | ------------------------------------- | ---------- | ----------------------- | ----------------------
|                                                
|Year Ended December 31, 2007                     |                             |                                       |            |                         |                       
|Reserve for doubtful accounts and cash discounts |                             |                                       | $          | 44                      | .5                    
|                                                
|Year Ended December 31, 2006                     |                             |                                      
|Reserve for doubtful accounts and cash discounts |                             |                                       | $          | 45                      | .1                    
|                                                
|Year Ended December 31, 2005                     |                             |                                      
|Reserve for doubtful accounts and cash discounts |                             |                                       | $          | 52                      | .1                    
|                                                

(a)    
          Accounts written off during the year and cash discounts taken by customers.

(b)    
          Primarily includes currency translation adjustments and amounts associated with
          acquired and divested businesses.

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Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Exchange Act of 1934,  the  registrant  has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                         |                                                                                                                                                                                                        
|------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DATE:  February 15, 2008 | THE BLACK  &  DECKER CORPORATION
By    /s/ NOLAN D. ARCHIBALD                   
              
            Nolan D. Archibald
            Chairman,
President, and             Chief Executive Officer

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below on February 15, 2008,
by the following persons on behalf of the registrant and in the capacities indicated.

|SIGNATURE                                                                                                                                                                                                                                                                          | TITLE                                                                                                                              | DATE                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------
|                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                  
|Principal Executive Officer/s/ NOLAN D. ARCHIBALD
                   Nolan D. Archibald

Principal Financial Officer/s/ MICHAEL D. MANGAN                  
Michael D. Mangan 
Principal Accounting Officer/s/ CHRISTINA M. MCMULLEN        
               
Christina M. McMullen | Chairman, President, and Chief Executive Officer

Senior Vice President and Chief Financial Officer

Vice President and Controller | February 15, 2008February 15, 2008February 15, 2008

---

This report has been signed by the
following directors, constituting a majority of the Board of Directors, by Nolan D.
Archibald, Attorney-in-Fact.

| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Nolan D. Archibald  
Norman R. Augustine 
Barbara L. Bowles   
George W. Buckley   
M. Anthony Burns    
Kim B. Clark

|                                                                                         |                         
|---------------------------------------------------------------------------------------- | ------------------------
|By    /s/ NOLAN D. ARCHIBALD
            Nolan D. Archibald
            Attorney-in-Fact | DATE:  February
15, 2008

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