OVERVIEW

The Company is a diversified worldwide supplier of tools and engineered solutions for professional, industrial, construction, and do-it-yourself ("DIY") use, as well as engineered and security solutions for industrial and commercial applications. Its operations are classified into three business segments:
Security, Industrial and Construction & DIY ("CDIY"). The Security segment is a provider of access and security solutions primarily for retailers, educational, financial and healthcare institutions, as well as commercial, governmental and industrial customers. The Company provides an extensive suite of mechanical and electronic security products and systems, and a variety of security services. These include security integration systems, software, related installation, maintenance, monitoring services, healthcare solutions, automatic doors, door closers, exit devices, hardware and locking mechanisms. Security products are sold primarily on a direct sales basis and in certain instances, through third party distributors. The Industrial segment manufactures and markets:
professional industrial and automotive mechanics tools and storage systems; assembly tools and systems; plumbing, heating and air conditioning tools; hydraulic tools and accessories; and specialty tools. These products are sold to industrial customers and distributed primarily through third party distributors as well as direct sales forces. The CDIY segment manufactures and markets hand tools, consumer mechanics tools, storage systems, pneumatic tools and fastener products which are principally utilized in construction and do-it-yourself projects. These products are sold primarily to professional end users as well as consumers, and are distributed through retailers (including home centers, mass merchants, hardware stores, and retail lumber yards).

Over the past several years, the Company has generated strong free cash flow and received substantial proceeds from divestitures that enabled a transformation of the business portfolio. Beginning with the first significant security acquisitions in 2002, Stanley has consummated $2.8 billion in acquisitions and pursued a diversification strategy to enable profitable growth. The strategy involves industry, geographic and customer diversification, as exemplified by the expansion of security solution product offerings, the growing proportion of sales outside the U.S., and the deliberate reduction of the Company's dependence on sales to U.S. home centers and mass merchants. Sales outside the U.S. represented 41% of the total in 2009, up from 29% in 2002. Sales to U.S. home centers and mass merchants have declined from a high point of approximately 40% in 2002 to 14% in 2009. The reallocation of capital to higher growth businesses and attendant diversification of the revenue base helped position Stanley to weather the current challenging economic times. In the near term, management will concentrate primarily on debt reduction, driving operating efficiencies through the Stanley Fulfillment System disciplines, and the integration of acquisitions to achieve further synergies. Management continues to monitor markets for attractive acquisition targets. In the medium term the Company intends to pursue further growth opportunities in security solutions, industrial tools, healthcare markets and emerging markets while maintaining focus on the valuable branded tools and storage businesses. Refer to the "Business Overview" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009 for additional strategic discussion.

First Quarter 2009 Cost Actions and Outlook

The global economic downturn deepened during the first quarter as evidenced by a 19% decline in sales unit volumes versus the prior year. A contingency cost reduction plan was developed early in the year to protect earnings and cash flow in the event estimated full year 2009 volume declines were greater than 10-12%. Management elected to implement this plan as the quarter progressed and projections evolved to indicate that full year sales volume declines were more likely to be between 13-15%, with smaller volume declines in the back half of the year as comparisons become easier.

The Company estimates that full year diluted earnings per share will be in the range of $2.00 to $2.50 based on the following assumptions:

• Diluted earnings per share are expected to decrease within the range of $2.40 - $2.90 compared to 2008 stemming from the 13-15% sales volume decline mentioned previously

• With the U.S. dollar at present exchange levels, the Company expects revenues for the year will decline 4% from unfavorable translation. Continued weakness of foreign currencies relative to the dollar at present levels will engender an estimated $.50 per diluted share earnings decrease versus 2008 due to currency, most of which will occur by mid-year.

• Acquisitions completed in 2008 are expected to provide approximately $0.10 per diluted share earnings accretion in 2009.

• The cost reduction plan initiated in the quarter is expected to generate annual savings of $100 million, an estimated $45 million of which will be realized in 2009. The Company plans to reinvest approximately $15 million of the $45 million in current year savings from the 2009 plan to fund investments in brand development and Security organic growth initiatives. The brand development entails expanded advertising in major league U.S. baseball stadiums as well as NASCAR racing sponsorships. The 2009 restructuring program, net of the previously mentioned brand and growth investments, will provide an estimated $.28 benefit per diluted share in 2009. The diluted earnings per share benefit from the 2008 actions will approximate $1.75 in 2009. The 2008 restructuring actions reflect necessary cost cutting to align with lower sales and are supplemented by the 2009 actions which are designed to improve the effectiveness of the organization as well as promote efficiency. Fastening systems will be consolidated with the consumer tools and storage business. These CDIY segment businesses have significant channel and customer overlap so the combination will leverage resources and enable more efficient operations.

• Restructuring and related charges for the above mentioned programs are projected to total approximately $35 million in 2009, with an additional $10 million in carryover charges from the 2008 actions to be recognized later in 2009, primarily pertaining to headcount reductions in Europe which are pending regulatory processes. As a result, the Company expects 2009 pre-tax restructuring and related charges will total approximately $45 million, of which $10 million was recognized in the first quarter, while most of the remaining charges will be recorded in the second and third quarters.

The diluted per share carryover savings from both cost reduction programs in 2010 will be partially offset by a number of factors including cost pressures and increased share count. Management believes the cost reduction and other strategic actions taken will position Stanley well for future growth.

RESULTS OF OPERATIONS

Below is a summary of consolidated operating results for the three months ending April 4, 2009, followed by an overview of performance by business segment. The terms "organic" and "core" are utilized to describe results aside from the impact of acquisitions during their initial 12 months of ownership. This ensures appropriate comparability to operating results in the prior period.

Net Sales: Net sales from continuing operations were $913 million in the first quarter of 2009 as compared to $1.071 billion in the first quarter of 2008, representing a decrease of $158 million or 15%. Acquisitions, primarily Sonitrol and Générale de Protection ("GdP") in the Security segment, contributed a 7% increase in net sales. Organic sales volume declined 19% and unfavorable foreign currency translation in all regions impacted sales by 6%, which was partially offset by 3% of favorable customer pricing. There were double digit percentage sales volume declines in the Americas, Europe and Asia arising from global economic weakness, with Europe, down 24%, posting the most severe volume decrease. The Industrial segment, with its European-based Facom business, had the most significant decline of the three segments with a 27% drop in sales volume which was exacerbated by distributor inventory corrections associated with credit market pressures. The CDIY segment unit volume sales declined 22% as both the fastening systems and consumer tools and storage businesses struggled in

contracting construction markets around the world. The Security segment continued to buttress the Company's overall performance with relatively modest organic sales declines by comparison.

Gross Profit: Gross profit from continuing operations was $361 million, or 39.6% of net sales, in the first quarter of 2009, compared to $406 million, or 37.9% of net sales, in the prior year. The lower gross profit amount pertained to the previously discussed widespread sales volume decline. Acquisitions, primarily Sonitrol and GdP, generated $40 million in gross profit and contributed to the strong gross margin rate expansion. The 170 basis point improvement in the gross margin rate was further enabled by overall customer pricing actions that lagged cost inflation as well as strong performance in the Security segment, particularly by the U.S. mechanical lock and electronic security integration businesses. Additionally, the cost actions taken to adjust to slow demand helped cushion margin rate pressure.

SG&A expenses: Selling, general and administrative expense ("SG&A") from continuing operations, inclusive of the provision for doubtful accounts, was $253 million, or 27.7% of net sales, in the first quarter of 2009, compared to $275 million, or 25.6% of net sales, in the prior year. Aside from acquisitions, which contributed $23 million of incremental SG&A, SG&A declined $45 million from the prior year. The Company implemented headcount reductions and various cost containment actions such as temporarily suspending certain U.S. retirement benefits in 2009 and sharply curtailing travel and other discretionary spending. There was also some reduction from variable selling and other costs as well as favorable currency translation.

Interest and Other-net: Net interest expense from continuing operations in the first three months of 2009 was $16 million compared to $21 million in the first three months of 2008. The decrease is related to lower interest rates on short-term borrowings in the current year. Additionally, the Company entered into interest rate swaps on certain term debt which reduced the effective interest rate.

Other-net expense from continuing operations amounted to $30 million in the first quarter of 2009 versus $20 million in 2008, primarily due to increased intangible asset amortization expense and acquisition deal costs required to be expensed from the adoption of SFAS 141R in January 2009.

Income Taxes: The effective income tax rate on continuing operations was 26.0% in the first quarter this year, consistent with 26.2% in the prior year.

Business Segment Results

The Company's reportable segments are aggregations of businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit (which is defined as net sales minus cost of sales, and SG&A aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes the corporate overhead expense element of SG&A, interest income, interest expense, other-net (inclusive of intangible asset amortization expense), restructuring and asset impairments, and income tax expense. Corporate overhead is comprised of world headquarters facility expense, cost for the executive management team and the expense pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Refer to the Restructuring and Asset Impairments section of MD&A for the restructuring charges attributable to each segment. As discussed previously, the Company's operations are classified into three business segments: Security, Industrial, and Construction and Do-It-Yourself ("CDIY").

Security: Security sales increased 12% to $374 million during the first three months of 2009 from $333 million in the corresponding 2008 period. Acquisitions, primarily Sonitrol and GdP, contributed nearly a 22% increase in sales. There was a 5% unfavorable foreign currency impact from Europe and Canada. Organic unit volume declines were partially offset by favorable customer pricing. On a combined basis, price and volume were down mid-single digits in convergent security, and for mechanical access solutions the decrease was in line with the overall segment decline. Mechanical access solutions posted volume growth with services, certain national and governmental accounts, and remodeling and retro-fit activity that were more than offset by overall weakness in retail, banking and other sectors. Lower organic unit volume in convergent electronic security primarily pertained to fewer system installations especially in national accounts, causing a mix shift to higher

margin recurring monthly service revenue.

Security segment profit amounted to $71 million, or 18.9% of net sales, for the first quarter of 2009 as compared with $53 million, or 16.0% of net sales, in the prior year. This 290 basis point profit expansion was attributable to the previously mentioned mix shift to higher margin service revenues, acquisitions and related synergies, benefits of customer pricing and proactive cost actions.

Industrial: Industrial sales of $236 million in the first quarter of 2009 decreased 29% from $333 million in the prior year. Unfavorable foreign currency translation, primarily European, reduced sales by 5%. Unit volumes in Europe and the Americas fell 29% and 25%, respectively, and all businesses within the segment experienced 20% or greater declines. The Industrial and Automotive Tools businesses experienced significant customer inventory corrections that accounted for approximately one third of the unit volume declines in Europe and the U.S. In Engineered Solutions, price gains and stable government demand were more than offset by lower volumes due to reduced capital expenditures within the commercial customer base.

Industrial segment profit was $25 million, or 10.4% of net sales, for the first quarter of 2009, compared with $49 million, or 14.6% of net sales, in 2008. Segment profit decreased substantially due to the sales volume declines. Also, European cost savings from headcount reduction actions take longer to achieve due to the European Union works council process; these actions should help alleviate profit pressure later in the year once implemented. Customer price recovery and productivity exceeded inflation enabling the double digit profit rate despite difficult economic conditions.

Construction & Do-It-Yourself ("CDIY"): CDIY sales were $303 million in the first quarter of 2009, down 25% from $406 million in the prior year. Segment unit volumes dropped 23% in both the Americas and Europe and to a lesser extent in Asia as the global economic downturn expanded geographically. Foreign currency translation negatively impacted sales by 7% which was partially offset by favorable customer pricing. International sales declined rapidly throughout the first quarter and significantly from the fourth quarter of 2008. Fastening systems continued to be affected by sharply lower construction and industrial economic activity worldwide. U.S. sales for the consumer tools and storage ("CT&S") business were down by 11%, slightly better than the 13% decline in the fourth quarter of 2008. Key U.S. customer point of sale data for CT&S products were down 9% versus the first quarter of 2008.

Segment profit was $29 million, or 9.5% of net sales, for the first quarter of 2009, compared to $47 million or 11.6% of net sales in the prior year. While the 9.5% segment profit rate declined 210 basis points from the first quarter of 2008, it represents a sequential improvement from 6.4% in the fourth quarter of 2008. The positive impacts of customer pricing and manufacturing productivity on the segment profit rate were more than offset by lower sales volumes. As previously discussed pertaining to the industrial segment, there is a longer time frame necessary for implementation of cost reduction actions in Europe but these should favorably impact the profit rate later in the year.

Restructuring and Asset Impairments

At April 4, 2009, the Company's restructuring reserve balance was $65.1 million. The Company expects to utilize a majority of these reserves in 2009 and estimates approximately 30% will be expended in 2010

depending upon the timing of actions in Europe as discussed below. A summary of the restructuring reserve activity from January 3, 2009 to April 4, 2009 is as follows (in millions):

                                                    Acquisition           Net
                                      1/3/09          Accrual          Additions        Usage        Currency       4/4/09

Acquisitions
Severance and related costs           $  10.8      $         0.8      $         -      $  (0.9 )    $     (0.3 )    $  10.4
Facility closure                          1.8                1.6                -         (0.1 )             -          3.3

Subtotal acquisitions                    12.6                2.4                -         (1.0 )          (0.3 )       13.7

2009 Actions
Severance and related costs                 -                  -              8.3         (1.2 )             -          7.1
Asset impairments                           -                  -              0.7         (0.7 )             -            -
Facility closure                            -                  -              0.1         (0.1 )             -            -

Subtotal 2009 actions                       -                  -              9.1         (2.0 )             -          7.1

Pre-2009 Actions
Severance and related costs              54.1                  -                -         (8.7 )          (1.1 )       44.3
Other                                     1.2                  -                -         (1.2 )             -            -

Subtotal Pre-2009 actions                55.3                  -                -         (9.9 )          (1.1 )       44.3

Total                                 $  67.9      $         2.4      $       9.1      $ (12.9 )    $     (1.4 )    $  65.1

2009 Actions: In response to further sales volume declines associated with the economic recession, the Company initiated various cost reduction programs in the first quarter of 2009. Severance charges of $8.3 million were recorded during the quarter relating to the reduction of approximately 480 employees. In addition to severance, $0.7 million in charges was recognized for asset impairments. The asset impairments pertain to production and distribution assets written down as a result of the decision to move certain manufacturing activities to lower cost countries and the closure of several small distribution centers. Facility closure costs totaled $0.1 million. Of the amounts charged in the first quarter, $2.0 million has been utilized to date, with $7.1 million of reserves remaining as of April 4, 2009. Of the charges recognized in the first quarter of 2009: $4.2 million pertains to the Security segment, $1.6 million to the Industrial segment; $2.9 million to the CDIY segment; and $0.4 million to non-operating entities.

Pre-2009 Actions: During 2008, the Company initiated cost reduction initiatives in order to maintain its cost competitiveness. A large portion of these actions were initiated in the fourth quarter as the Company responded to deteriorating business conditions resulting from the U.S. economic weakness and slowing global demand, primarily in its CDIY and Industrial segments. Severance charges of $70.0 million were recorded relating to the reduction of approximately 2,700 employees. In addition to severance, $13.6 million in charges were recognized pertaining to asset impairments for production assets and real estate, and $0.7 million for facility closure costs. Of the $85.5 million full year 2008 restructuring and asset impairment charges, $13.8 million, $29.7 million, $35.6 million, and $6.4 million pertained to the Security, Industrial, CDIY, and Non-operating segments, respectively. Also, $1.2 million in other charges stemmed from the termination of service contracts. During 2007, the Company also initiated $11.8 million of cost reduction actions in various businesses entailing severance for 525 employees and the exit of a leased facility. As of January 3, 2009 the reserve balance related to these prior actions totaled $55.3 million. The amount utilized in the first quarter of 2009 totaled $9.9 million. The remaining reserve balance of $44.3 million predominantly relates to actions in Europe that are pending completion with the European Works Council process.

Acquisition Related: During the first quarter of 2009, $2.4 million of reserves were established for an acquisition closed in the latter half of 2008 related to the consolidation of security monitoring call centers. Of this amount $0.8 million was for the severance of approximately 90 employees and $1.6 million related to the closure of a branch facility, primarily from remaining lease obligations. The Company utilized $1.0 million of the restructuring reserves during the first quarter of 2009 established for previous acquisitions and as of April 4, 2009, $13.7 million in acquisition-related accruals remain.

The remaining balance primarily relates to approximately $7 million for Facom for which the timing of payments depends upon the actions of certain European governmental agencies as well as the call center consolidation expected to occur in the later quarters of 2009.

FINANCIAL CONDITION

Liquidity, Sources and Uses of Capital:

Operating and Investing Activities: Cash flow from operations was $4 million in the first quarter of 2009 compared to $108 million in 2008, related to lower earnings in the current year associated with the economic recession, working capital and other operating outflows. Working capital usage was $45 million in the quarter due to a decrease in accounts payable pertaining to lower manufacturing activity and other spending reductions. Other operating cash outflows were $37 million in the first three months of 2009 as compared with a $9 million inflow in the prior year. This fluctuation is mainly attributable to payments on foreign currency related derivative contracts as well as higher restructuring payments in the current year.

Capital and software expenditures were $22 million in the first quarter of 2009, down slightly compared to $25 million in 2008. The Company will continue to make capital investments that are necessary to drive productivity and cost structure improvements while ensuring that such investments provide a rapid return on capital employed.

Free cash flow, as defined in the following table, was an $18 million outflow in the first quarter of 2009 compared to an $83 million inflow in the corresponding 2008 period. The Company believes free cash flow is an important measure of its liquidity, as well as its ability to fund future growth and provide a dividend to shareowners. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and business acquisitions, among other items.

           (Millions of Dollars)                               2009      2008

           Net cash provided by operating activities           $   4     $ 108
           Less: capital and software expenditures               (22 )     (25 )

           Free cash (outflow) inflow                          $ (18 )   $  83

Financing Activities:

Net proceeds from short-term borrowings amounted to cash outflows of $7 million in 2009 compared to inflows of $120 million in 2008. The net proceeds in the prior year were primarily utilized to fund $102 million in common stock repurchases.

As described more fully in Note H. Equity Option, the Company paid a $16 million premium in the first quarter of 2009 for options to repurchase 3 million shares of its common stock at a strike price averaging $31.19. These options have a cap on the appreciation at an average of $45.97 per share and expire in March 2010.

During the first quarter of 2009, Fitch Ratings affirmed the Company's long and short term debt ratings at A and F1 respectively and kept the outlook as stable. After placing the ratings under review in January, on April 16 Moody's Investor Services downgraded the Company's senior unsecured debt rating by one "notch" from A2 to A3 and short term debt rating term from P-1 to P-2 while maintaining the stable outlook. The Company's debt ratings and outlook remain unchanged by Standard & Poors with a corporate credit rating of A, short term rating of A-1, and stable outlook. As detailed in the Liquidity and Financial Condition section of the Company's 2008 Annual Report on Form 10K, the Company has adequate liquidity with various credit lines.

OTHER MATTERS

Critical Accounting Estimates: There have been no other significant changes in the Company's critical accounting estimates during the first quarter of 2009. Refer to the "Other Matters" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009 for a discussion of the Company's critical accounting estimates.