Good morning. My name is Jennifer and I will be your conference operator today. At this time I would like to welcome everyone to the Stanley Works second quarter 2009 results conference call. (Operator Instructions). Thank you. At this time I would like to hand the call over to Ms. White. Please go ahead.

Thank you, Jennifer. Good morning, everyone, this is Kate White, the Director of Investor Relations for the Stanley Works. Thank you all for joining us on the Stanley Works second quarter 2009 conference 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 second quarter earnings release, which was issued this morning and a supplemental presentation, which we will refer to during the call are available on our home page, which is www.stanleyworks.com. This morning John, Jim and Don will review Stanley's second quarter 2009 results and various other topical 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 at 2:00 PM today. The replay number and access code are in our press release and as always feel free to contact me with any follow-up questions after today's call at 860-827-3833. We will be making some forward-looking statements during this call. Such statements are based on assumptions of future events that may not prove to be accurate and as such they involve risk and uncertainty. It is therefore possible that actual results may differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements in Form 8-K, which we have filed with today's press release and in our most recent 34-A. With that I will now turn the call over to our CEO, John Lundgren.

Thanks, Kate and good morning everybody. Let me start just with an overview as I think that many of you have said it has been helpful in the past on how we see the state of affairs at Stanley and just some of the highlights from the quarter. We did post GAAP earnings of $0.89 that included a $0.34 gain on the extinguishment of debt, so our normalized EPS from continuing operations was $0.55. You'll recall that the debt to which I'm referring was $103 million of our ETPS instrument that we used to finance the FACOM acquisition in 2006. It was a great opportunity and our treasury department capitalized on that. We also announced a $50 million cost-reduction program due to the steeper than expected unit volume declines in the second quarter and about half of that will be realized during 2009. I think it's important to stay ahead of the curve given the volume softness but I think it's equally important to note that the lion's share of the cuts that were recently implemented were in the areas of G&A and not at the expense of brand support and important future growth initiatives. We are really pleased with our gross margin of 39.9%. It was a record for the Stanley Works, despite the 24% drop in unit volume versus the prior year. Jim and Don are going to provide a walk later showing you how we got there, as well as why we believe we'll stay at or near that level for the second half of the year. Security posted an 8% revenue growth and a 13% profit growth. A lot of that due to acquisition but organic growth fell only 8% in the midst of this environment, which to us further validates our belief that while the…

Okay. Thanks, John. I must say, when I look at long-term trends, I love this chart almost as I love our ten-year cash flow history chart. This is a very positive trend for us with 39.9% gross margin in the second quarter, up a 160 basis points versus the second quarter of '08 where we were at 38.3. As you look at the long-term trend, it clearly is a positive trend and corroborating the theory that our gross margin percent then correlates with the strength and the differentiation of our value propositions. This performance, in particular, this year has been key to avoiding the steep declines in the operating margin rate that we otherwise would have faced in the phase of the volume challenges that we've had that are market-related. We were able to do this while bringing our year-over-year inventories down about $100 million or 17% over the prior year. The real story implied by this chart is the transformation of the company both strategically and with respect to our operational excellence. What this means when you step back from it is that, we are extraordinarily well positioned for operating leverage in any kind of a growth environment. Slow growth environment will be just fine, we'll be able to generate significant operating leverage. As we move to SG&A, I think we've also done a fairly good job of focusing on resizing our SG&A to calibrate with the revenue size implied by the current economic environment. When you look at the 255 and adjust it for the 23 million associated with acquisitions, the expenses are actually down 18% versus the second quarter of '08, just slightly less than our organic revenue decline. So, in a pretty good shape there. We've been able to do this while reinvesting about $20 million…

Thanks, Jim. As both John and Jim have mentioned earlier today, we have talked a little bit about our acquisition impact and the positive accretion we're seeing in our margin rate. So here on page 14, you can see that we wanted to give you a quick update on primarily our 2008 acquisitions. What we have here are three acquisitions that we did in 2008 that represent about 85% of the total acquisitions in that year, and in particular there's Sonitrol, Xmark and Generale de Protection. This chart we've shown over the years in various presentations around our integration process and how we drive significant synergy realization through that process. You can see that each one of the acquisitions has a significant accretive impact from where they were on their operating margin percentage before we acquired them. As an example, Sonitrol with 22% operating margin, a very strong operating margin to start with and now it's after the integration process has been complete it's greater than 30%. So some of the key features we thought we'd touch on in our integration process, just as a reminder to all of you, that we go through a very robust processes especially in the first 100 to 180 days and we develop an integration plan actually in advance of the closing of the acquisition that has the target management teams buy-in in essence before we close on the transaction. Then subsequent to that we go through a weekly and monthly senior management pulsing process and many of those acquisitions include John, Jim and myself in those pulsing processes. We've developed some very experienced integration managers primarily over the last five years. They really understand our process and how to drive these benefits. Then last but certainly not least making sure that we do…

Jennifer, we'd like to start the Q&A portion of the call right now.

(Operator Instructions) Your first question comes from Jim Lucas from Janney Montgomery.

I wanted to ask a specific question on the industrial side of the business. With the inventory corrections seeking out there, could you maybe give us a little bit more color of what you're seeing in terms of customers just still needing liquidity and using inventory correction for that versus what they're seeing in terms of their ability to get access to credit. And going forward, are inventory levels now to a point where stock outs are potentially occurring or is this just resetting to the new demand levels?

Hey, Jim. This is John. I'll start and turn it over to Jim who is going to give you even little more detail. Remember we are talking industrial and we've learned a lot in the last month or so. I would say up until then we would have thought of third of the volume decline was due to destocking. We've done a lot of granular analysis that caused us to raise that estimate to 50%. Importantly a huge portion of that for us is in Europe. It has had a tremendous impact on Facom's volume declines that's where a lot of our updated guidance or updated analysis comes from. Hard to talk about out of stocks in the industrial segment given the B to B short delivery cycles, a lot of it through distribution but I don't know if Jim add even a little more color to that because he has been doing a lot of work on Proto Facom, MAC in particular and as well as some of our storage businesses.

Yes, I mean I think the key to the inventory correction phenomenon is really the word of caution on the part of the customers and it derives from both liquidity concerns, concerns about what the ultimate size of the market really is and just overall questions that I think the distributors have in their minds about the business model that they are going to have on a prospective basis and how much volume is really going to be there. Nobody wants to get caught with their pants down on inventory in the chain and what they are finding is they can have where they used to have 20 SKUs on a rack. They can have 20 units of a SKU on a rack they can now have two and order much more frequently. To an extent that's okay because it keeps them liquid and in business. However, at some point in time the overall market's ability to deal with that issue or that situation changes when the demand returns and those SKUs units go off direct faster and we can't replenish them fast enough to meet the end market demands. So I think we're going to see in my estimation we're going to see a fairly significant rebound in terms of this inventory restocking as opposed to destocking. I don't know when that's going to occur. We have incorporated a neutral into our outlook on a prospective basis for the remainder of the year. However, if there were to be some significant restocking that would be a positive.

So is the key going to be order activity in terms of what you are going to get from a visibility standpoint given that short cycle order what they need as opposed to building out quite a bit that's needed?

I think we're prepared to respond without question despite the fact that our inventories are in really good shape. We are prepared to respond. The Stanley fulfillment system has been instrumental in terms of bringing our lead times down across the various businesses including industrial. So I think visibility to the order patterns is good. I think that what we really need in the chain is some confidence restoration at the customer level and when they start to see signs that demand will recover at some level on a year-over-year basis. I think we'll start to see that restocking occur and we'll be prepared to serve at that time.

Okay. Final question on this topic. When you look at across the multiple end markets, is this very broad-based? Are you seeing when you say industrial, are there any particular end markets that are jumping out and then with regards to SFS, could you maybe give us a little bit more color of what type of lead time reductions you've experienced?

Yes, first of all, Jim, I say it's broad spread. That's why I mentioned it as we look at our industrial segment, in the sense that sub-segments, industrial and automotive tools, industry and automotive repair and, if you will, infrastructure solutions. Only the latter of those three which is less than 20% of the segment has long lead times. There we've cut the lead times dramatically. In more importantly in things like Vidmar boxes, we've build a Vidmar box in a day. There's not much lead time to be cut from that. So, our businesses very well. In our made-for-stock tool businesses, the Proto's, the Mac's, the Facom's, we've already taken 25% and more out of our lead times. A lot of that has come from when and if we source components, the rest of it has just come from leading out our factories so it's going to vary dramatically by business. Some, always room to improve but approach world-class, Vidmar being a classic example and then 25% to 40% coming out of lead times, some of which didn't start at world-class levels for the rest of our industrial businesses.

Your next question comes from Eric Bosshard from Cleveland Research.

Good morning, guys. It's actually [Mark] stepping in for Eric. In terms of the security segment, organic was a little bit softer and just kind of looking back to last quarter you guys thought that for the year it would run around that down mid-single digit rate, so second quarter a little bit softer than that. How should we think about the second half organically within the security segment? Is 2Q a better run rate or is the first quarter a better run rate for the business?

I would say Mark that the second quarter is probably not the best run rate for the back half of the year, it's most likely a blend of the first half and what we are assuming for the back half of the year.

Okay. Within that piece of the business pricing in total for the company still favorable but slightly less favorable than 1Q. Was the pricing pressure relative to the first quarter within the installed business in security or are you seeing some pricing pressure elsewhere?

The pricing pressure within security is definitely on the install business, in particular the national accounts pricing is under a lot of pressure. As our customers just like we look to cut costs they are going after their vendors and clearly when they have leverage, purchasing leverage, they are willing to exert it much more so than in a typical environment. So, we are not seeing dramatic pricing pressure in the core commercial accounts which is good and the margins are holding up well there and we know we are walking from some business in national accounts where we are just not capitulating on price to the extent that some of the other competitors are. We believe strongly in our value proposition and the performance of the business substantiates that and so we are trying to hold our prices at a fairly constant level in that business, even in the national accounts.

Okay. Mark, this is John, I'll just add onto that so you don't get cut off. It may appear on the surface to be a rather bold statement that we are holding prices particularly in national accounts and not theoretically, in reality losing some business. We are cautiously optimistic and there is a lot of historical precedent to say that much of that business will come back to us when whoever's taken it, regardless of whether it's a large national competitor or a small local competitor, on the national accounts level, it's much more likely to be a larger competitor. When and if, they fail to deliver at the level that we've delivered in the past, you know and it's clear in the industry, our attrition rates are not among the lowest, they are the lowest in commercial security. There is a reason for that and a business that an account that is won on price will can and might well ultimately be lost on service. We'll get it back on our terms at our price that does take some time. We're very patient in that regard, because we think that's the right strategy for a business that's such an important part of our future.

The next question comes from Sam Darkatsh from Raymond James.

Thank you. This is Jeff calling in for Sam. First question, it surrounds the restructuring, you mentioned 35%, but its headcount, of the other 65% of that, is any of that discretionary spend that you would expect to come back faster, if units stabilize?

Jeff, this is Don. We won't expect any of this to come back faster than the previous restructuring programs we've done. We believe that these particular items are very similar items to what we've done before, so with additional cuts around T&E, and other discretionary spend. It's a real question mark for next year, how much comes back. It's really about us as a management team and how we control it and what decisions we make and what we allow to come back. It's really going to be dependent on what our ultimate thoughts are on the end markets and our revenue projections for next year. So, there will be some cost pressures that we talked about before around certain employee benefits that could be $40 to $60 million. It's difficult to really know of the carryover benefit we're getting, how much of that that comes back, as you say, or what pressures we have that offset it because it's really going to be dependent on our decision and what we allow to come back and it's going to be based on our revenue projections.

Okay. Second question, the improvement in gross margin, or the change, old guidance to new guidance for gross margin, I assume is mostly mix but my question is the second half degradation in gross margin if you are guiding towards 100 bps or so, is that all related to price? And can you talk about the price versus material inflation relationship and where you see that going in the second half?

We actually benefited on a year-over-year basis by about, slightly over 300 basis points from the combination of productivity projects, price and acquisition mix. Some of those aspects will abate as time goes on because in particular, price, the vast majority of our pricing was implemented in the second and third quarter of last year. So when we look at a back half year-over-year analysis, clearly price will not be increasing sequentially at the same rate. That said, inflation is a crapshoot and that's why we have a range because we had modest deflation in this quarter, very modest, but there was a point in the quarter when we thought we were going to have inflation. So, as you know, in the March-April timeframe, commodity prices were spiking, they subsequently abated and it's not clear from here, you know, what commodity prices are going to do. A lot depends on the perception of the economic recovery and when it occurs and what the speculators do and so on in the commodity markets. However, that clearly is the reason that we have a range and what we feel is a relatively conservative range for the gross margin that we indicated.

This is John. Importantly, it is a sequential decline arithmetically but from, if you will 39.5% to 38.5% the midpoint of the range that Don required, I'll live with that in this environment, if we can continue to achieve it, but you know, arithmetically you are correct and I think that Jim explained the rationale behind it.

And when you think about the pressure on unit costs that is created by this volume issue that we have relative to the marketplace, that also is a big variable and we're anxiously looking forward to the day when we can actually have some volume to run through our factories and benefit from the absorption of overhead that will create. Now the contribution margin and the gross margin in this company varies by about 10 points and so that's going to really bode well for us when we do have some kind of a resurgence or at least some kind of up-tick, would be a better word than resurgence in volume.

And then just last point, just to add a little color to the same subject. We've made it very clear working capital is a focus, working capital returns is a focus. It goes without saying, but it's worth for us, but it's worth repeating. We no longer run our factories for liquidations, the mantra is sell one, replenish one is how we think about it. And to Jim's points with the soft volumes, we're not going to simply run product in the inventory, miss our working capital returns, but to the extent in that reduced volume environment, we continue to basically produce to fulfill demand and nothing more that has pressure on margins. So it all contributes, but the objective being to maintain it within 100 basis points of a 163 year record first half performance.

The next question comes from Nigel Coe from Deutsche Bank.

Good morning, guys, this is actually [Nicole] asking questions on Nigel's behalf. First of all, if we can just go into a little bit more detail on the price inflation dynamic, if you could quantify that for the current quarter it would be helpful?

This is Don, Nicole. We really don't want to get into that level of detail for various reasons. I think we've been very clear that prices are positive and productivity was as well and mix of security with a little bit of deflation, as Jim just indicated and that's really where we would like to leave it.

Okay. And then, if you could speak to the head count reductions, how many have you actually taken out so far and then could you provide the mix between US and Europe?

The new set of actions are about 200 headcount, so I don't have the other ones right in front of me. We can certainly get that to organize; it's about 2000 people roughly.

200 on top of 2000. The 2200 in total the combination of the three programs.

This is John that is skewed toward the US; A, 60% of our revenues are in the US and B, as I think everyone on the call realize the costs have been recognized in the charges but in terms of cash flow, there are very rigorous and serious sets of legal and procedural guidelines that one follows in Europe and we understand them very well. We've successfully been through in the past and we're not going to attempt to circumvent or accelerate any of those processes and procedures that are there for a reason. So we will ultimately get where we need to be in Europe, the dialog and the collaboration with the unions and the works councils has been all we could hope for. There is tremendous reality and I think outstanding perspective on what the situation is. They have been skewed in the US, heads that come out later on will be and the cost associated with that, certainly from a cash perspective, will be skewed more towards Europe just due to the time lag.

The next question comes from Michael Kim from Imperial Capital.

Hi, good morning, guys. Just going back to the security segment and specific to the convergent business, you guys talked a little bit about the increase in RMR and speak a little bit about attrition and pricing and where you're seeing in particular areas of either strength or weakness. Thanks.

Well, I feel like we've pretty much have covered, I am not sure if you caught the first part of the call Michael, but we delved into that in a fair amount of detail. If you want to call offline to Kate afterwards, she can run you through it, okay?

Sure, I apologize.

Page 11, on the presentation, Michael, that's more detail than anyone has ever provided on this subject in a call of this nature, so if there is something beyond that that you need, Kate if she is able, will provide that for you offline, if that's okay?

Okay. So, I missed the beginning part of the call earlier.

I think you'll find that pretty helpful. We did it for a reason and the reason was your question is a valid one, but let's not do it twice.

Okay, sounds good. And then just maybe more in general terms, can you talk a little about the framework for RMR relative to installations, installations obviously have been under pressure from the macro environment and how we should probably think about RMR going forward?

Michael, it's the exact same answer. Jim spent five minutes on it. It's on page 11. And why don't you have a look at that and then give Kate a call, but hopefully you will get more than what you need on that explanation.

Our hypothesis going into the call was that, that would be a topic that people would want to understand, so we took the proactive step of providing that information in great detail. So, I think you will really get what you need from that when talking to Kate.

The next question comes from Kenneth Zener, Macquarie Capital.

I wonder if you could just kind of talk about the competitive landscape specifically in tools, given the extreme downturns that we've had, and I think you guys are managing your business very well and at a reasonable leverage. How is it looking relative to the private label competitors that you see, whether they are European or Asian, and how has that impacted the M&A landscape that you see?

Well, I guess that's two very different questions, Ken. If I can try to dissect them, I will. We have talked about this on previous calls and other than our Stanley associates we certainly value the Stanley brand as our most important asset. What happens in any branded category, and this is both industrial and CDIY, but if you particularly think of the Stanley brand and Bostitch brand, we are number one or two in every category where we compete and that is a very good place to be. There are numerous recessions or periods of economic downturn over the last 30, 40 years where two things happen; private label and even generics as you've suggested grow, and the leading brand growths, and it's the brands in the middle that get squeezed out. Why is that? Obviously people in the middle are trading down to private label, but the customers want and need the leading brand as a reference point, so they can even widen the gap between private label or the retailers brand and the leading, if you will, national brand or the leading premium brand. So the winners, year in, year out, through these periods of economic downturn are the number one brand. Thankfully we're it in almost every category. And private label, and it is at the expense of particularly the numbers three and four brand. How that has impacted the M&A landscape? We've talked over time, there's tremendous, if you will, consolidation opportunity in the industry, but quite frankly there's little or nothing going on and our view is that hasn't affected it at all. Any and all companies, our views are very cautious in terms of protecting their balance sheets and there's been no more or less activity than we've seen in the past. So that's a long way of saying no change.

I mean our hope would be that the industry would consolidate at some point, the hand tool industry, and that some of these number three and number four brands, owners of these brands would want to consolidate their activities with us. As John said, it's actionability are implied. Actionability is everything when it comes to that and if there is no desire, there is no activity.

Understood. The second question I have, just further clarity on the impressive benefit you guys are getting on the gross margin line. You guys were just talking about in terms of the percentage basis, but the implied 75 million, that's primarily from a more realistic view about your input costs?

No. It's a combination of productivity projects, price and acquisition mix offset and that's over 300 basis points, as I mentioned. Offset by significantly higher unit cost related to lack of absorption in the manufacturing area.

Yes. Our view, Ken, is we think that something a lot of folks are missing, we can talk about modest deflation and it looks like there maybe some. Our volumes are down 20%. Our actual costs all other things being equal are up dramatically. A 20% volume decline and that much less volume flowing through our factories overwhelms the modest impact of any deflation, which Jim and Don already suggested, we're only beginning to see. So, it's taking a lot of hard work on three other fronts. Our normal productivity funnels, short lead times purchasing, you name it to keep up all the benefits to come from our SFS initiative, it's taken all of that to keep us where we are and input costs are a very, very small piece of any positives we've seen in the past. Quite frankly, a very small piece of our belief that we can maintain within a 100 basis points those margins going forward in the second half of the year.

The last question comes from Michael Rehaut from JPMorgan.

This is actually Ray Huang on for Mike. You guys talked about the market share gains in CDIYs, I'm wondering if you could break out or give some more detail on which end markets or channels are getting share and then, if you had any detail on any specific products or initiatives that are driving the gains.

Well, the end market is defined by the name of the segment, which construction in DIY. There is no particular differentiation there between construction and DIY. I mean the share gains coming in the US at large retailers in particular, one very large retailer, the largest retailer in the world and we've got substantial share gain there. Then in Europe we've a number of smaller customers, when taken in the aggregate representing reasonably significant share gain.

Then if you think about CDIY stabilizing in the back half of the year, how we should look at the margins on in that segment, are you kind of thinking in the 10% range for the back half of the year?

We're not going to forecast margins by segment. We never have. I think what's important that Jim Loree mentioned in quite a bit of detail, when he went through that segment is three sequential quarterly increases that we're very encouraged by and that's coming not just from the cost benefit of combining our former Consumer Tools and Storage business the path that's, but also by essentially having a larger combined team to focus on the same end markets and we're seeing, the cost benefits I say are fairly obvious and straightforward. They're easy, but the share gains have come or beginning to come and we think will come in the future, due to the fact that we have the strength and strength, the combined professional organization, a product development process, focusing on the same customers and the same end markets, which was the logic for putting these two businesses together in the first place. So, thus far it has been probably, pick a number three quarters' cost, 25% volume going forward. That's going to be about 50-50, which validates the rationale for combining those businesses in the first place.

At this time I would like to hand the call back over to Ms. Kate White.

Thank you, Jennifer. We wanted to close today by letting you know how you could gain access to members of the Stanley Management Team throughout the remainder of the year. We will be participating in a number of industry conferences as well as hosting an Analyst Day in November at the New York Stock Exchange. We have laid out these locations and dates in slide number 20 in our presentation. This concludes the Stanley Works second quarter 2009 conference call. We thank you for your time today. Again, if you have any questions, please feel free to either email or call me.

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