Good morning. My name is Jennifer and I will be your conference operator today. At this time I’d like to welcome everyone to Stanley Works fourth quarter 2008 results conference call. (Operator Instructions) And now I’d like to turn the call over to Miss White. You may begin your conference.

Thank you very much Jennifer. Good morning everyone. My name is Kate White, Director of Investor Relations for The Stanley Works. Thank you all very much for joining us on the call this morning. On the call in addition to myself is John Lundgren, Stanley’s Chairman and CEO; Jim Loree, Stanley’s Executive Vice President and COO; and Don Allan, Stanley’s Vice President and CFO. I would like to point out that our fourth quarter earnings release, which was issued this morning, and a presentation supplementing today’s call which we will refer to during the call are available on the Investor Relations portion of our website which is www.stanleyworks.com. This morning Jim, John and Don will review Stanley’s fourth quarter and full year 2008 results and various other topic matters, followed by a Q&A session. The entire call is expected to last approximately one hour and a replay of the call will be available beginning at 2:00 PM today. The replay number and access code are in our press release which again is on our website. And as always, please feel free to contact me with any follow-up questions after today’s call at 860-827-3833 or Corbin Walburger at 860-827-3937. We will be making some forward-looking statements during this call. Such calls are based on assumptions of future events that may not prove to be accurate and as they involve in risk and uncertainty. It is therefore possible that actual results may differ materially from any forward-looking statements that we might make today, and we direct you to the cautionary statements in Form 8-K which we have filed with today’s press release. With that I will now turn it over to our CEO, John.

Thanks Kate. Good morning everybody. Thanks for listening, phoning in. Let me start with just I think what we spent a lot of time talking about internally. I know you’re interested in just an overview of the state of Stanley, as well as some fourth quarter and annual highlights. Our fourth quarter earnings results were in line with previously communicated estimates. You will recall we had a prerelease on December 11, 2008. Those results were $0.66 in the fourth quarter ’08 translating to $3.41 for the year, excluding the fourth quarter restructuring charge which we communicated in our December 11 release and that Don Allan will talk a little bit more about later this morning. It was a very good story in terms of cash flow. Free cash flow of $419 million and that’s despite an unplanned and unanticipated increase in capital spending of about $25 million due to the cancellation of several previously existing lease arrangements. Working capital turns again a good story and a great source of cash increased by 0.6 of a turn to 5.9 despite the unprecedented volume decline that we experienced during the fourth quarter. And Jim’s going to talk about some of the sources both of cash as well as the programs driving the improved turns. It was particularly encouraging in the fourth quarter, the improvement in turns. Price realization continues to be encouraging as we virtually offset the overwhelming majority of our inflation headwinds. For the last two years we’ve averaged about 85% and I have a slide that will give you a little more granularity on that, but we’re making a lot of progress via our pricing center of excellence. The high point certainly for us in the quarter was the performance and for the year was the performance of our convergent…

Thank you John. We were very pleased with how the Security segment performed during the quarter. We started building this business back in 2002 in order to diversify our revenue base and to provide a long term source of growth. And in the quarter we certainly accomplished both of those objectives. As you can see, revenues were up 14%. It’s now at a run rate of about a $1.6 billion annual revenue business. Segment profit was up 28% to $75 million and the segment profit rate surged to 18.4%. A lot of this was driven by the convergent – the convergent Security Solutions business, also known as our Electronic Security business which is installation and monitoring electronic security systems. We had two major acquisitions during the year, Sonitrol and GDP and we also enjoyed the benefits of the reverse integration of our United States Systems integration business into the HSM business model, really reaping the synergies that we expected when we did that acquisition. Great story and kudos to [Brett Bontrigger] and his management team for excellent execution in this area. Mechanical Access had a solid quarter under the circumstances. They had to deal with a continued loss of the Home Depot hardware business, which has now finally anniversaried, and they did really well offsetting their volume declines with both price and productivity. So all in all a pretty good story in the Security segment. I’d like to talk a little bit now about the portfolio shift that we’ve been undertaking since 2002. And as you can see from the next chart here, back in 2002 the revenues from our Construction and DIY segment were approximately two-thirds of the company and Industrial and Security were the remainder. As we look to 2008 on the upper right part of the chart,…

Thank you Jim. On Page 13 I just want to spend a few minutes and talk about that cash flow performance, focused primarily on the year. As Jim mentioned the working capital contribution really bolstered our cash flow and our free cash flow performance for 2008 with about $127 million of a contribution in that regard. And our operating cash flow was $560 million which was an increase over the prior year of about $20 million, which is an impressive performance when you consider the fact that our net income from continuing operations before the restructuring charges in the fourth quarter was actually down 12%. And so with that decline and with the focus on working capital, we were still able to achieve a sizable or decent increase in operating cash flow. John mentioned earlier on that our capital expenditures were slightly higher than we anticipated. It did increase about $50 million versus 2007. Approximately $30 of that was really planned strategic investments that we had in the pipeline since the beginning of the year. And then we had about $20 million of certain leasing structures that were terminated in the fourth quarter that due to the difficult credit markets we were not able to enter into new leasing structures at that point in time. So that’s really driving that increase. But still a very healthy free cash flow performance of almost $420 million in 2008. Regarding CapEx, as we look at 2009 we would expect that our CapEx would get down to more historical levels as a percentage of revenue, which would be about 2% as we mentioned in our press release this morning. The next page, if we take a look at our credit and liquidity status, it’s something that obviously everyone is concerned with the current economic…

Jennifer, now we are ready to take question and answers.

Your first question comes from James Lucas.

Factoring in the volume decline of down 10 to 12% and you look at your contingency planning and 2009, at what point do you think about having to take additional actions or do you think that you’ve got the cost structure in line if things were to remain stable today? And secondly, cash flow has been a fantastic story and otherwise there hasn’t been a lot of good news. When you look at the job you’ve done on working capital, what opportunities remain there?

Jim, this is John. Good morning. I’ll take the first half and I’ll let Jim take the second part of that question because he took it in the presentation and some of the initiatives that he’s leading are really, really the drivers in cash flow. Your question on contingency planning if you will, or is there yet another way that is right on it’s a topic that as recently as the middle of December and again already this year we’ve discussed with senior management. If volume continues to decline at the rate it’s declined the last two quarters, and we may well need another round of downsizing businesses later on in the year. Without being terribly specific, it would be in the second half of the year. Everything we’ve talked about and everything we’ve done it’s going to take us six months to get it implemented. So sometime between April and June, we’ll have a look forward. Hopefully the situation will be a little more clear. If it’s no worse than it is now, what Don’s put forward in terms of guidance suggests we’ve done everything we can do with a reasonable payback. If the situation’s worse, sometime in the third quarter we have contingency plans, I would say 50% developed and we’ve got three to four months to finalize those for yet another round, which of course we’re hoping isn’t necessary. But I think we’d be less than responsible as an executive management team if we didn’t have those contingency plans in place. I’m going to let Jim talk about the continued operations and on continued opportunities in cash flow, primarily via FSS because as Don suggested it’s working capital in general is a huge source of cash for us. We are not going to let up. And I’m going to turn it on over to Jim.

Okay. Thank you John. Well I think first of all, we could have done better than 5.9 in turns had it not been for the precipitous volume decline and so I think there is a calibration that can occur where we clearly believe that in ’09 that we can do better than 5.9 turns. Starting with that, I think that is relatively clear to us. As we get into north of 6 turns and north, it gets a little murkier. We do know that we have great momentum. We do know that we have a business process transformation and not just a one act play. And there is a lot of act – [Audio Impairment – 22 seconds]

- that historically we’ve proven that providing it gives more information to more people than quite frankly we want to have out in the public domain. We’ll say two things. Acquisitions contributed for two reasons. One they were positive and Brett’s team did a really good job bringing them on board quickly and having them up and running as part of our business in absolute terms. Secondarily, we acquired albeit at relatively high prices, we acquired some very high margin businesses with the equivalent to become even higher margin when we started to realize the synergies. Number one. Number two, their markets were not as adversely impacted as I suggested by some of the macroeconomic factors, so there was some reasonable organic growth. Third and last, offset by as Jim touched on on the mechanical side the continued headwind from the loss of about $50 million annually or $12.5 million a quarter of high margin hardware business. So to summarize, great performance in convergent, both in terms of growth and margin enhancement and synergy achievement; solid performance in our mechanical side, somewhat offset by the volume in margin drag of hardware which as Jim pointed out has anniversaried so we see some potential for some reasonable momentum in the mechanical segment going forward. [Unidentified Analyst]: What I’m wondering is, has the structural profitability of the convergent business improved when you do take out the acquisitions that sort of mix up the margin?

Absolutely. I mean, what I think you basically have – when I talked earlier about the benefits of the reverse integration, that is said another way, what’s happened is we’ve taken the legacy systems integration business that we had before we bought HSM and we’ve converted it to the HSM business model. Now what that means is recurring revenue has become an extremely important part of – first of all, you can’t distinguish between the two organizations any more. They’ve become one. And secondly the folks that used to sell systems integration, which was basically installation, are now selling monitoring in addition to their installation which in and of itself drives higher gross margins and higher operating margins. And that’s what’s happening. And the segment is basically legacy operating margins have gone from mid-single digits up to double-digits. And at the same time HSM brought in very high operating margin and Sonatrol with the synergies in addition to GDP all mix up the operating and the gross margins.

Next question, Jennifer.

Your next question comes from is from Eric Bosshard.

First of all, the lack of providing 2009 guidance you attributed to the volatility. Can you just talk about where you see the greatest volatility or uncertainty in 2009 that’s sort of pushing you to that decision?

I think yes, Don provided the guidance obviously with a unanimous agreement from Jim and me and others. And a big piece of it of course is volume because we’ve had a 7 and 10% consecutive volume decline. So economically and numerically that’s the biggest piece. But Don why don’t you address the first – the first half of Eric’s question?

Yes, Eric, I think the volatility clearly is in the unit volume. And the difficulty of seeing out beyond a few months is very hard for many companies including us to see. And the performance we saw in the fourth quarter with our different segments where we are CDIY and Industrial segment having significant volume losses, and those would be the ones that we would be the most focused on. You know, what it would mean for them going forward into 2009. Obviously the Security segment we want to monitor closely as well to insure that there’s no volume loss and impact there. But it’s the first two segments that we’re really focused on going forward.

And Eric so you don’t cut off and you get to ask your second question, let me just add, you know our business extraordinarily well. With the exception of some of our Security business and our Engineered Storage Solution business and hydraulics, these are very short cycle businesses. Particularly CDIY and Bostage and many of our smaller Industrial tool business, I know you know and most of the people on the call, you know, understand that a major customer orders on Monday and we ship it on Wednesday. And that’s, you know, we have our supply chains linked as well as we can. But you know simply said that the short cycle nature of those businesses and the recent history that’s just so out of proportion with anything else we’ve ever seen is what causes let me say our lack of clarity into the even short term future. But you had a follow-up I know.

Yes. The follow-up is in Security, the flat organic performance in the fourth quarter is impressive. As you look at historically and you’ve talked a little bit about the order book in that business and can you just give us a little bit of sense of what that looks like and how we should even be thinking about that business in total for 2009 based on sort of indications in orders and quoting activity you’re seeing now?

No, all we want to say you know although I’d argue we have probably better visibility into Security than others, but we really don’t want to be talking about order books on this call. Two things happened. Two things that I think are appropriate and hopefully helpful. One is a relatively small percentage of our Security business, mechanical and convergent, is based on new construction. A smaller percentage than one might think. Second, regardless I could give you a number for the order book and it would not help you unless I were to give you more granularity than is readily apparent, because it could be a contracted breadth business as won for a new hospital that’s going to be constructed in December, or it could be an installation at a retailer next week. So the number itself depending on when those projects are scheduled to be performed you know really wouldn’t help you. But candidly it’s a fair question, but it’s not just one we want to be talking about on an earnings call.

Next question, Jennifer.

Your next question comes from Sam Darkatsh.

First off, your pricing in Q4 was up 4 and if I recall correctly it was up 3% in the third quarter. Does that imply that you had perhaps a small round of price increases in the fourth quarter? Or was that a timing issue as to when the pricing went through in the third quarter? Was that mixed? That was the first question. Second question would be, what are your trends you’re seeing sell through versus sell in? And the last question would be, I don’t recall whether you said what convergent organic growth was. You mentioned what it overall was but not organically. Those are my three questions.

Okay. Well, let’s address them in reverse order. How about that? Although I think the limit is two questions, isn’t it? That’s all right. We’ll do both of these. So as far as the convergent organic growth, it’s very difficult to give an accurate number for the sub-segment of convergent because the HSM acquisition and all the acquisitions are mixed together. But as far as we can tell, we were up modestly, up a point or two. Something like that. Nothing dramatic. But I wouldn’t take that number to the bank and bet on it. But I think directionally it’s accurate. The sell throughs, sell in, retailers in the United States were very judicious with their inventory management. If anything, they’re average to slightly below average levels with their inventory at this point in time. So I think that bodes – you know our inventories are in good shape. Their inventories are in good shape. If we ever get any stabilization in housing prices, it could be very interesting in terms of volume. But we don’t see that at this point in time. Or housing sales. Housing prices we’re beginning to see some stabilization. And then the third question was – yes, do you want to take that one?

Simply said, Sam, very few pricing actions implemented in the fourth quarter. What you saw in the third quarter or fourth quarter were actions taken in the second half of the year and reflected in Don’s outlook is the fact that despite what’s going on in materials market it took us a while to get those prices. We do see some carry forward that is going to help us in the early parts of the year and of course it should be clear as close as you follow Stanley what focus we place on price realization through our COE and maintaining those prices as long as we can. Because it took us three to six months to get them, despite 88% recovery. So it’s important that they don’t decline faster than it took us to realize them. And that’s the positive lift. But it’s much more carry over than it is new actions.

Next question, Jennifer.

Your next question comes from Nigel Coe.

Inventories was obviously just a fantastic storage in the quarter particularly when you think about the price inflation within those inventories. What impact did that have on the margins year-on-year?

The impact of the price inflation arbitrage? Is that what you’re –

No, no, no – it’s inventory reduction.

Oh, inventory reduction. Well the exact impact on margin year-over-year is difficult to assess. But certainly as you lower your volumes, you lower your inventory, you definitely get a negative impact to your margin rate. And it can – it’s certainly part of the kind of assumptions we gave you for ’09 related to the volume impact. As far as inventory, I would say that it was not a huge impact in 2008. But it did have a slight negative impact.

I think S&P announced last week they’re putting you on reviewing the rating. Can you just confirm that there would be no impact from losing a notch or two of your rating?

Well, last I heard it was Moody’s and not S&P and what they did was they put us under review for possible downgrade from single A where we are at this point in time. That is about a several month process, where we have the opportunity to go talk to them and explain our situation in more detail. And then have a discussion with them about what we might to prospectively if they have continuing concerns after that. And we’ll see how that plays out. So there’s nothing that is cast in concrete at this point in time. It clearly is a possibility. We don’t see why it makes sense. However, you know, we want to talk to them and get their perspective on it.

The next question, Jennifer.

Your next question comes from Seth Weber.

Could we just go back to the Security margin and acquisition question again for a second? Do these acquisitions that you made, do they change the historical seasonality that we’ve seen in the margin in that business, you know where fourth quarter is typically lower?

A little bit. You’ll recall there were two things. And what it will do is partially mitigate it. The two things historically driving the large swings in margins 200 to 400 basis points in a quarter were second and third quarters were historically higher than fourth and first quarters were primarily in our mechanical security segment. Those seasonality elements still exist, which is one reason we’re not providing margin by sub-segment within sub-segment, because it’s more information than anybody can realistically or practically use. But we do a tremendous amount of mechanical locking business on university campuses. We normally do that when university students are not there. Those tend to be the months of June and July, which are in the second and third quarter and that’s very good. It’s incremental high margin business, which inflates second and third quarter at the expense if you will of first and fourth quarter. The second issue is on installs, which relates primarily to our access technologies business, secondarily to some of our monitoring and other businesses where we encounter site readiness issues in the first and fourth quarter, where we show up to put in a door and the concrete hasn’t been poured because of the snowstorm or because of rains in the Southwest or something of that nature. Again, so we get some unanticipated and difficult to plan volume reductions, weather related in the first and fourth quarter which are rarely an issue in the second and third calendar quarters. Because HSM, Sonatrol, GDP have added meaningful revenue and they’ve added it in convergent and they are less susceptible to site readiness issues and slightly less involved in particularly campus university installations, although they do do some of that, that seasonality will be partially mitigated. But it will not disappear.

And if we could just flip over to the other two business segments, I think on the call last quarter you talked about a new fairly large contract or some sort of award that you’d won on the CDIY business. Did that weigh on the margin at all in the quarter? And then my follow-up question would be, I think Jim you had mentioned that you kind of hoped the CDIY margins have bottomed here. You didn’t make that some comment on Industrial. Do you think Industrial margins could yet still go down further?

We as a policy don’t name customers names on this call, but the contract we won is encouraging. There was little impact in the fourth quarter although what impact was there was positive, you know, and it will offset some of the headwinds going forward in the first quarter. On the CDIY business, Jim, do you want to take the second half?

Yes, I mean, I think there’s a number of things that are going to occur within Industrial, that might occur within Industrial, that could move the margins down a little bit. Probably not precipitously from here; on the other hand they could go up. So it’s a little bit of the same kind of issue that we had relative to guidance. There’s the big $64,000 question is what’s unit volume going to do? And what’s the economy going to do? And clearly there’s a healthy dose of fixed costs in the Industrial business, definitely as much as anywhere from a manufacturing perspective in the plant system. And so there is a significant absorption issue in this segment when volume goes down. By the same token, you get benefits when it goes up. So I can’t give you a specific answer per se, although I will say that the unit volume declines that the company has experienced over the last two quarters are unprecedented. In looking back all the way to the ‘70s, we have not ever had two quarters where the unit volume declines were greater than 7% for two consecutive quarters. So now we have had that, for the first time, and so we’re now in uncharted territories. We expect as we indicated in our documentation, we expect that we’ll have similar unit volume performance in the first quarter that we had in the fourth. That would be three consecutive quarters. It’s difficult for me to imagine that this could go on at this level for an extended period of time. However, you know, we have to prepare for the possibility that it could and we are preparing for that possibility, although we don’t expect it to occur. If we had a dramatic further drop in volume in Industrial, yes, they could go down further. And yes, we would take action.

Next question, Jennifer.

Your next question comes from Michael Rehaut.

First question just on unit volume, you know, when you did the prerelease about a month ago you indicated expectation for volume down 12 to 14% and it came in a bit better than that. But you also at the same time in the ’09 sort of guidelines kind of took the range a little bit lower, I guess being a little bit more cautious or conservative there in terms of first negative 10, you went to negative 10 to 12. I just wanted to know if there was anything that occurred I guess in the December month that you know caused the 4Q volume decline to be a bit better than initial guidance and if that had anything to do with a little bit more conservative take in the ’09 guidelines?

Yes. I mean simply said, December ended a little better than we had anticipated, given where our order book stood on December 11 when we did a prerelease. The teams did a nice job, shipping what we had on order. At the same time as Jim demonstrated quite well, we did nothing to pull any business forward. We worked hard on balancing production with demand. And as a consequence the last two weeks of December were a little better than we anticipated that they might be. And as a consequence we said this wasn’t our intent but to the extent that any of that came out of the first quarter, the first quarter could be a little softer. As I know you’re acutely aware, the home centers and all large retailers given that their fiscal years end January 31, the month of January is a very, very difficult month to project business. And it’s not even always a good indicator of the quarter. Specifically, it’s the way the business models work, orders tend to be light as do shipments in the month of January. And quite often the lighter they are in January, the better they are in February and March, thus making first quarter a relatively normal quarter in terms of volume. Given the tremendous uncertainty out there right now, it makes it even more difficult to project December actuals and January orders into a first quarter number. So simply said, we’ve changed nothing, Mike, from the long term perspective. December was a little better. We said if that unintentionally came out of the first quarter of the year, it might be a little worse.

First just a follow on to that, where was it a little bit better in December than you anticipated? And I just don’t want to get cut off in terms of my actual second question, but any type of comments you can give in terms of pension expense expected in ’09 versus ’08, given the declines in the equity markets for the extent that you can help us in terms of your thinking for budgeting there?

That’s fine, because I think it’s a relevant question and because it’s a non-issue for Stanley, I’m glad you asked it and it’s one that Don will address. In terms of the volume, quite frankly it was better literally across the board. Both Security businesses finished strong, our CDIY segment did not finish as weakly as we’d anticipated, and there were as you know our Industrial segment is a very large diverse portfolio of businesses, some a little up, some a little down. But simply said it was across the board with convergent and mechanical Security finishing strong. Neither Bostage or consumer tools and storage finished strong but they weren’t quite as weak as we’d anticipated, and mixed results across our Industrial portfolio. Don do you want to talk a little bit about pension expense?

Sure. As you’re probably aware, you know, pension expense is not a big number for Stanley Works. We don’t have many defined contribution plans which would drive a lot of pension expense.

We provide benefit plans. We have a lot of defined contribution plans.

And as a result, we don’t expect our pension expense to go up much at all in 2009. It could be a modest increase but the overall number is relatively immaterial for the company and the increase would follow that same way.

And as a consequence that’s probably nothing we need to adjust existing models for.

Last question, Jennifer.

Your last question comes from Kenneth Zener.

Just looking at Security and the convergent side of that business, I think about 30% of that business currently is recurring revenue. Given the backward integration that you’re having in HSM and the likelihood that installs will fall at a greater rate than recurring revenue, I assume, can you talk about where that might go in terms of some level of sensitivity? If your install slides down, could that convergent get to 40 plus percent of recurring revenue?

First of all convergent recurring mix and convergent is about 40%, not 30. And at the moment we’re not expecting a significant contraction in the installs, nor are we experiencing one. If it were to occur, basically the profit margin on install is considerably less than it is on the recurring revenue. I mean you’re talking about gross margins that are double on a rate basis on the recurring side. So you know it’s not going to have a dramatic impact because it will have some negative impact if we had a big dive in installations, but not a dramatic impact because the mix - the rate mix would go up. It would have a longer term impact for sure because that stream of recurring revenue over time would be affected by lower installs. So that’s really the dynamic there.

And that 40% number that includes the recent French acquisition I assume?

Includes everything, yes.

Includes everything. All in breadth convergence business as we reported.

Thank you very much everybody for your participation today. Again if you have any questions please call Corbin Walburger or myself. Our contact information is both in the press release and on the website and have a wonderful day. Thank you.

This does conclude today’s conference call. You may now disconnect.