The following discussion contains statements reflecting the Company's views about its future performance that constitute "forward looking statements" under the Private Securities Litigation Act of 1995. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements Please read the information under the caption entitled "Cautionary Statement Under The Private Securities Litigation Reform Act Of 1995."

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 the first half of 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 16% in 2009. The reallocation of capital to higher growth businesses and related 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.

2009 Outlook

This outlook discussion is intended to provide broad insight into the Company's near term earnings and cash flow generating prospects to clarify results will be lower than in prior periods, and not to discuss all factors affecting such projections.

The global economic downturn deepened during the first half of the year as evidenced by a 22% decline in organic sales unit volumes versus the prior year. Management elected to implement further cost reduction plans in 2009 as projections indicate full year sales unit volume declines are likely to be between 18-20%, steeper than the 13-15% previously expected. Smaller volume declines are expected in the second half of the year as comparisons become easier and customer inventory corrections in the Industrial segment gradually abate.

The cost reduction plan initiated in the first quarter is expected to generate annual savings of $100 million, an estimated $45 million of which will be realized in 2009. The Company is reinvesting approximately $20 million in current year savings to fund investments in brand development and Security segment organic growth initiatives. The brand development entails expanded advertising in ten major league U.S. baseball stadiums as well as NASCAR racing sponsorships. In July, 2009 management announced an additional $50 million in annualized cost saving measures which were taken in further response to sales volume declines, comprised of discretionary spending cuts as well as headcount reductions primarily in general and administrative functions. The July 2009 actions will generate $25 million of savings in 2009. The 2009 cost actions combined with those taken in 2008 are expected to provide a total diluted earnings per share benefit of approximately $2.27 in 2009. The 2008 restructuring actions reflect necessary cost cutting to align with lower sales and are supplemented by the 2009 actions which are also designed to improve the effectiveness of the organization as well as promote efficiency. As reported in the first quarter, the fastening systems business is undergoing consolidation 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. Pre-tax restructuring and related charges for the above mentioned programs are projected to total approximately $45 million in 2009, of which slightly more than half will be incurred in the remainder of the year.

The diluted per share carryover savings from the cost reduction programs is estimated at $.99 in 2010. This will be partially offset by cost pressures and increased share count. Management believes the cost reduction and other strategic actions taken position Stanley well to deliver favorable operating leverage when even modest economic growth resumes.

On May 1, 2009, the Company repurchased $103 million of its junior subordinated debt securities issued in November 2005 for $59 million in cash. The transaction resulted in a pre-tax gain of $44 million and had a $0.34 positive impact on diluted earnings per share.

Management estimates that full year diluted earnings per share from continuing operations will be in the range of $2.34 to $2.84 as compared with $2.74 in 2008. Aside from the $.34 per share gain on the previously discussed extinguishment of debt, such earnings in 2009 are expected to be in the range of $2.00 to $2.50.

RESULTS OF OPERATIONS

Below is a summary of consolidated operating results for the three and six months ended July 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 $919 million in the second quarter of 2009 as compared to $1.152 billion in the second quarter of 2008, representing a decrease of $233 million or 20%.

Acquisitions, primarily Sonitrol and Générale de Protection ("GdP") in the Security segment, contributed a 6% increase in net sales. Organic sales unit volume declined 24% and unfavorable foreign currency translation in all regions reduced sales by 4%, which was partially offset by 2% of favorable customer pricing. Organic unit volume was down 22% in the Americas and 32% in Europe, while the less significant Australia / Asia region declined 20%, amid global economic weakness. The Industrial segment had the most significant decline of the three segments with a 37% drop in sales unit volume which was exacerbated by inventory corrections throughout the supply chain associated with credit market pressures. The CDIY segment unit volume sales declined 26% as both the fastening systems and consumer tools and storage businesses struggled in contracting construction markets around the world. The Security segment continued to perform relatively better in this recessionary environment with a sales unit volume decline of 11%, reflecting reduced equipment installations partially offset by strong growth in recurring (monitoring and service) revenues.

Year-to-date net sales from continuing operations were $1.832 billion in 2009, a $391 million or 18% decrease, versus $2.223 billion for the first half of 2008. Acquisitions provided growth of 6%, attributable mainly to Sonitrol and GdP. Foreign currency translation reduced sales by 5%, which was partially offset by a 3% pricing increase, while volume decreased 22% compared to the prior year. Overall revenues declined 15% in the first quarter and 20% in the second quarter. The organic sales unit volume decline was 19% in the first quarter and deteriorated to 24% in the second quarter with the sharpest declines in Europe and the Industrial segment, which was adversely impacted by customer inventory corrections. Macro-economic data indicate declines may be stabilizing and management is cautiously optimistic the second quarter represents a trough in demand for the Company's products.

Gross Profit: Gross profit from continuing operations was $367 million, or 39.9% of net sales, in the second quarter of 2009, compared to $442 million, or 38.3% of net sales, in the prior year. The lower gross profit amount pertains to the previously discussed widespread sales volume decline. The 39.9% gross margin rate represents a record high for the Company. Acquisitions, primarily Sonitrol and GdP, generated $40 million in gross profit and contributed substantially to the strong gross margin rate expansion. The 160 basis point improvement in the gross margin rate was further enabled by overall realization of customer pricing and a favorable mix shift of sales to the Security segment. The margin rate performance in Security was aided by an increase in recurring revenues relative to lower margin equipment and other product sales. Additionally, the Company experienced lower commodity prices during the quarter and the cost actions taken throughout the company to adjust to slow demand helped cushion margin rate pressure. These favorable factors impacting the gross margin rate were partially offset by negative productivity associated with sales volume declines.

On a year-to-date basis, gross profit from continuing operations was $728 million, or 39.7% of net sales, in 2009, compared to $848 million, or 38.1% of net sales, for the corresponding 2008 period. Acquisitions contributed $79 million of gross profit. The factors affecting the year-to-date performance are primarily the same as those discussed pertaining to the second quarter.

SG&A expenses: Selling, general and administrative expense ("SG&A") from continuing operations, inclusive of the provision for doubtful accounts, was $255 million, or 27.8% of net sales, in the second quarter of 2009, compared to $283 million, or 24.6% of net sales, in the prior year. Acquisitions contributed $23 million of incremental SG&A as core SG&A declined $51 million, or 18%, from the prior year related to disciplined cost actions taken to realign expenses with lower sales volumes. 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. Partially offsetting these decreases was $5 million in spending to expand the convergent security business sales force and major league baseball brand awareness campaign.

SG&A expense totaled $508 million, or 27.7% of sales, for the first half of 2009 versus $558 million, or 25.1%, in 2008. Acquisitions increased SG&A by $46 million. Aside from acquisitions, SG&A spending decreased $96 million, or 17%, from the prior year. The factors affecting year-to-date SG&A costs are consistent with those discussed previously related to the second quarter.

Interest and Other-net: Net interest expense from continuing operations in the second quarter of 2009 was $15 million compared to $20 million in the second quarter of 2008. Year-to-date net interest expense from continuing operations was $32 million in 2009 compared to $41 million in the first half of 2008. The decrease for both the 3 month and 6 month periods pertains to lower interest rates on short-term borrowings in the current year and the repurchase of $137 million of the Company's junior subordinated debt securities ($103 million in May, 2009 and $34 million in October, 2008). Additionally, during the first quarter of 2009 the Company entered into interest rate swaps on certain term debt which reduced the effective interest rate. These factors were partially offset by decreased interest income as a result of lower cash balances and reduced interest rates earned on cash holdings.

Other, net from continuing operations amounted to $13 million of income in the second quarter of 2009 versus $21 million of expense in 2008. On a year-to-date basis, other, net expense was $18 million in 2009 as compared with $41 million in 2008. The Other, net performance for both the second quarter and first half of 2009 relative to the prior year periods is primarily attributable to the $44 million pre-tax gain from the repurchase of $103 million junior subordinated debt securities on May 1, 2009. This was partially offset by increased intangible asset amortization expense from recent acquisitions.

Income Taxes: The Company's effective income tax rate from continuing operations was 27.1% in the second quarter of this year, compared with 26.1% in the prior year's quarter. The year-to-date effective income tax rate from continuing operations was 26.7% in 2009 versus 26.1% in 2008. The increase in the effective tax rate in both the current quarter and first half of 2009 relative to the prior year is mainly due to the tax effect applicable to the $44 million pre-tax gain on extinguishment of debt partially offset by a decrease in tax effect associated with the geographic distribution of earnings and a non-recurring tax asset step up in a European jurisdiction.

Discontinued Operations: The net loss from discontinued operations amounted to $1 million in the second quarter of 2009 and $2 million year-to-date primarily related to the purchase price true-up of CST/berger and other small businesses divested in 2008. Discontinued operations provided $4 million and $6 million of net income in the second quarter and first six months of 2008, respectively, reflecting the operating results of these businesses prior to divestiture.

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 8% to $391 million during the second quarter of 2009 from $362 million in the corresponding 2008 period. Sonitrol, GdP and several smaller acquisitions collectively contributed a 19% increase in sales. There was a 3% unfavorable foreign currency impact

from Europe and Canada. Organic unit volume declines of 11% were partially offset by 3% in favorable customer pricing. On a combined basis, price and volume were down in the lower teens in convergent security and mid-single digits in mechanical access solutions. The segment was adversely impacted by commercial construction project delays associated with weak economic conditions; however the rate of abandoned projects appeared to be stabilizing. Security was helped by relative strength in the refurbish/renovation market and its consistent focus on customer service that fosters high retention. The mechanical access solutions sales volume performance was buffered to some extent by market share gains with certain large customers, which partially offset more acute volume pressures in the mechanical lock and hardware businesses. Lower organic unit volume in convergent electronic security pertained to fewer system installations especially in large project and national accounts, and to a much lesser extent in smaller, core commercial accounts which possess higher profit margins. As a result, there was a favorable mix shift in convergent security and the overall segment sales to higher margin recurring monthly service revenue (including security monitoring and maintenance) which grew organically by 9%. This improved sales mix in convergent security is partially attributable to the recent increase in the core commercial account sales force, a strategic emphasis on recurring service revenue and away from installation-only jobs, and reduced dependence on lower margin, more cyclical large construction projects.

Year-to-date segment sales were $764 million in 2009 as compared to $694 million in 2008, an increase of 10%. Acquisitions generated a 20% increase in sales. Pricing increased sales by 3%, which was more than offset by a 9% organic unit volume decline and a 4% reduction from foreign currency translation. The factors affecting the year-to-date sales performance are largely consistent with those described in the analysis of the second quarter.

Security segment profit totaled $74 million, or 19.0% of net sales, for the second quarter of 2009 as compared with $66 million, or 18.2% of net sales, in the prior year. On a year-to-date basis, segment profit was $145 million, or 19.0% of net sales, in 2009 compared to $119 million, or 17.2% of net sales, in the prior year period. The increase in segment profit for the second quarter and first half of 2009 was primarily attributable to acquisitions, partially offset by the impact of lower organic sales volumes. The robust segment profit rate expansion in both periods was enabled by the accretive impact from well-executed acquisition integration, the previously mentioned mix shift to higher margin service revenues, the benefits of customer pricing and proactive cost actions.

Industrial: Industrial sales of $204 million in the second quarter of 2009 decreased 40% from $338 million in the prior year. Unfavorable foreign currency translation, primarily European, reduced sales by 4%, which was partially offset by 2% in favorable pricing. Unit volumes fell nearly 38% due to ongoing weakness in the U.S. and Europe. Pervasive customer inventory corrections throughout the supply chain within the industrial and automotive tools business accounted for approximately half of the unit volume declines. The remaining decrease reflects broad-based reduced demand stemming from recessionary economic conditions. Industrial channels were down more severely than the automotive channels due to the global production slowdown and reflecting relatively stronger demand for mechanics tools associated with the aging automobile fleet particularly in the U.S. In Engineered Solutions, price gains and relatively stable government demand were more than offset by sharply lower volumes due to reduced capital expenditures within the commercial customer base.

Year-to-date net sales from continuing operations were $440 million in 2009, down 34% compared to $671 million in 2008. Pricing provided a 2% increase in sales. Foreign currency translation reduced sales by approximately 4% and organic unit volume declined 32%. The Industrial segment's six month performance was affected by the same factors discussed pertaining to the second quarter results, although the sales volume declines accelerated in the second quarter.

Industrial segment profit was $19 million, or 9.4% of net sales, for the second quarter of 2009, compared with $44 million, or 13.0% of net sales, in 2008. Year-to-date segment profit for the Industrial segment was $44 million, or 9.9% of net sales, for 2009, versus $93 million, or 13.8% of net sales, in 2008. Segment profit contracted substantially in both periods relative to the prior year due to

sales volume pressure and represented a low point over the past several years for the segment. Macro-economic data indicate industrial production declines are leveling off albeit at a low level. Customer price recovery helped offset negative productivity stemming from low sales volumes. European cost savings from headcount reduction actions take longer to achieve due to the country-specific works council process but these actions will help alleviate profit pressure as they are executed over the next several months. Consequently, management believes the segment profit rate likely represents a trough and should recover to some extent in the second half.

Construction & Do-It-Yourself ("CDIY"): CDIY sales were $324 million in the second quarter of 2009, down 28% from $452 million in the prior year. Foreign currency translation negatively impacted sales by 5% which was partially offset by 3% favorable customer pricing. Segment unit volumes dropped 26% overall, comprised of 24% in the Americas and 27% in both Europe and Asia amid the global economic downturn and sharply lower construction activity. However revenue in the segment appears to be stabilizing and has flattened out recently, ending the quarter better than it started. There are some signs of improvement based on point of sale data at key customers that is steady to slightly up and inventories at these customers are currently stable. Management believes the strength of the Stanley and other brands along with its high quality, competitive product offerings are enabling the segment to weather the recession relatively well.

Year-to-date net sales from continuing operations were $628 million in 2009 as compared to $858 million in 2008, a decrease of 27%. Unfavorable foreign currency translation of 6% was partially offset by a 3% pricing increase. Sales unit volume declined 24% with the reductions fairly consistent across the Americas, Europe and Asia. This reflected an acceleration of international sales volume declines in the second quarter which stabilized towards the end of the quarter.

Segment profit was $37 million, or 11.3% of net sales, for the second quarter of 2009, compared to $66 million or 14.6% of net sales in the prior year. While the 11.3% segment profit rate declined 330 basis points from the second quarter of 2008, it represents a sequential improvement from 6.4% in the fourth quarter of 2008 and 9.5% in the first quarter of 2009 fostered by the cost actions taken to date. The positive impacts of pricing and productivity projects on the segment profit rate were more than offset by lower sales volumes. The integration of the fastening systems business into consumer tools and storage that was announced in the first quarter of 2009 is progressing well, exceeding interim targets at the gross margin level and providing a modest lift to the segment profit rate. As previously discussed in relation to the Industrial segment, there is a longer time frame necessary for implementation of headcount reductions in Europe. These European cost actions will be fully implemented during the second half of 2009 and are expected to favorably impact the profit rate as they supplement actions already taken in other regions. On a year-to-date basis, segment profit was $65 million, or 10.4% of net sales, compared to $113 million, or 13.2% of net sales, in 2008 reflecting the same factors discussed pertaining to the second quarter.

Restructuring and Asset Impairments

At July 4, 2009, the Company's restructuring reserve balance was $61.7 million.
The Company expects to execute substantially all actions in 2009, although
severance and certain other payments will continue to some extent in to 2010. A
summary of the restructuring reserve activity from January 3, 2009 to July 4,
2009 is as follows (in millions):


                                                   Acquisition           Net
                                     1/3/09          Accrual          Additions        Usage       Currency       7/4/09

Acquisitions
Severance and related costs          $  10.8      $        (0.9 )    $         -      $  (1.9 )    $       -      $   8.0
Facility closure                         1.8                1.7                -         (0.3 )            -          3.2

Subtotal acquisitions                   12.6                0.8                -         (2.2 )            -         11.2

2009 Actions
Severance and related costs                -                  -             23.0         (4.3 )          0.1         18.8
Asset impairments                          -                  -              1.0         (1.0 )            -            -
Facility closure                           -                  -              0.7         (0.7 )            -            -

Subtotal 2009 actions                      -                  -             24.7         (6.0 )          0.1         18.8

Pre-2009 Actions
Severance and related costs             54.1                  -             (5.7 )      (17.2 )          0.5         31.7
Other                                    1.2                  -                -         (1.2 )            -            -

Subtotal Pre-2009 actions               55.3                  -             (5.7 )      (18.4 )          0.5         31.7

Total                                $  67.9      $         0.8      $      19.0      $ (26.6 )    $     0.6      $  61.7

. . .