10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

    Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 3, 2004.

or

    Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from [        ] to [        ]

Commission file number 1-5224

THE STANLEY WORKS

(Exact name of registrant as specified in its charter)

CONNECTICUT				06-0548860
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification Number)
1000 Stanley Drive New Britain, Connecticut				06053
(Address of principal executive offices)				(Zip Code)

            (860) 225-5111            
(Registrant's telephone number)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

81,903,702 shares of the registrant's common stock were outstanding as of July 30, 2004.

PART I — FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 3, 2004 AND JUNE 28, 2003
(Unaudited, Millions of Dollars, Except Per Share Amounts)

				Second Quarter								Year to Date
				2004				2003				2004				2003
Net sales				$	794.7			$	652.6			$	1,573.3			$	1,284.8
Costs and expenses:
Cost of sales					511.8				432.2				1,011.0				851.0
Selling, general and administrative					175.1				156.2				345.4				308.6
Provision for doubtful accounts					2.4				12.8				4.6				28.2
Interest expense					9.5				8.1				18.3				17.0
Interest income					(0.9	)			(1.5	)			(1.7	)			(2.6	)
Other, net					10.3				10.1				24.4				17.5
Restructuring charges and asset impairments					—				21.9				—				25.0
					708.2				639.8				1,402.0				1,244.7
Earnings from continuing operations before income taxes					86.5				12.8				171.3				40.1
Income taxes					25.1				3.5				51.4				11.8
Net earnings from continuing operations					61.4				9.3				119.9				28.3
Earnings from discontinued operations before income taxes (including gain on disposition of $142.7 million in 2004)					—				5.1				142.6				5.3
Income taxes on discontinued operations					—				2.0				47.6				2.0
Net earnings from discontinued operations					—				3.1				95.0				3.3
Net earnings				$	61.4			$	12.4			$	214.9			$	31.6
Net earnings per share of common stock:
Basic:
Continuing operations				$	0.75			$	0.11			$	1.47			$	0.33
Discontinued operations					—				0.04				1.16				0.04
Total basic earnings per common share				$	0.75			$	0.14			$	2.63			$	0.37
Diluted:
Continuing operations				$	0.73			$	0.11			$	1.43			$	0.33
Discontinued operations					—				0.04				1.13				0.04
Total diluted earnings per common share				$	0.73			$	0.14			$	2.57			$	0.36
Dividends per share of common stock				$	0.26			$	0.26			$	0.52			$	0.51
Average shares outstanding (in thousands):
Basic					81,940				85,555				81,777				86,407
Diluted					84,112				86,002				83,763				86,988

See notes to condensed consolidated financial statements.

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THE STANLEY WORKS AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 3, 2004 AND JANUARY 3, 2004
(Unaudited, Millions of Dollars)

				2004				2003
ASSETS
Current assets:
Cash and cash equivalents				$	235.7			$	204.4
Accounts and notes receivable					571.7				482.4
Inventories					394.7				377.1
Other current assets					86.5				98.9
Assets held for sale					2.9				37.9
Total current assets					1,291.5				1,200.7
Property, plant and equipment					1,257.4				1,231.2
Less: accumulated depreciation					843.7				817.9
					413.7				413.3
Goodwill					600.6				432.8
Other intangible assets					291.0				210.5
Other assets					197.1				166.5
Total assets				$	2,793.9			$	2,423.8
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings				$	213.7			$	—
Current maturities of long-term debt					57.5				157.7
Accounts payable					285.0				240.2
Accrued income taxes					98.9				76.1
Accrued expenses					276.8				250.3
Liabilities held for sale					—				29.2
Total current liabilities					931.9				753.5
Long-term debt					516.6				534.5
Other liabilities					304.3				277.2
Commitments and contingencies (Note I)
Shareowners' equity:
Common stock, par value $2.50 per share					237.7				237.6
Retained earnings					1,376.8				1,202.1
Accumulated other comprehensive loss					(96.5	)			(84.2	)
ESOP debt					(170.4	)			(173.8	)
					1,347.6				1,181.7
Less: cost of common stock in treasury					306.5				323.1
Total shareowners' equity					1,041.1				858.6
Total liabilities and shareowners' equity				$	2,793.9			$	2,423.8

See notes to condensed consolidated financial statements.

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THE STANLEY WORKS AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JULY 3, 2004 AND JUNE 28, 2003
(Unaudited, Millions of Dollars)

				Second Quarter								Year to Date
				2004				2003				2004				2003
Operating activities:
Net earnings				$	61.4			$	12.4			$	214.9			$	31.6
Depreciation and amortization					22.7				21.9				47.1				44.5
Restructuring charges and asset impairments					—				21.9				—				25.0
Reclassify taxes paid (proceeds) from sale of business to investing					21.9				—				(140.0	)			—
Changes in working capital					2.9				(25.6	)			(13.0	)			(46.1	)
Changes in other assets and liabilities					(18.0	)			33.5				34.0				60.8
Cash provided by operating activities					90.9				64.1				143.0				115.8
Investing activities:
Capital expenditures					(12.9	)			(7.8	)			(21.1	)			(15.3	)
Proceeds (taxes paid) from sale of business					(21.9	)			—				140.0				—
Business acquisitions					(4.4	)			—				(254.5	)			(16.4	)
Other investing activities					1.4				1.3				1.3				2.1
Cash used in investing activities					(37.8	)			(6.5	)			(134.3	)			(29.6	)
Financing activities:
Payments on long-term debt					(9.5	)			(1.1	)			(136.8	)			(2.0	)
Net short-term borrowings					12.5				38.3				187.0				68.0
Cash dividends on common stock					(21.2	)			(21.8	)			(42.4	)			(44.0	)
Equity hedge settlement					—				(101.0	)			—				(101.0	)
Other financing activities					5.9				1.8				15.8				3.7
Cash (used in) provided by financing activities					(12.3	)			(83.8	)			23.6				(75.3	)
Effect of exchange rate changes on cash					2.4				(2.1	)			(1.0	)			(4.9	)
Change in cash and cash equivalents					43.2				(28.3	)			31.3				6.0
Cash and cash equivalents, beginning of period					192.5				156.0				204.4				121.7
Cash and cash equivalents, end of period				$	235.7			$	127.7			$	235.7			$	127.7

See notes to condensed consolidated financial statements.

4

THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
THREE AND SIX MONTHS ENDED JULY 3, 2004 AND JUNE 28, 2003
(Unaudited, Millions of Dollars)

				Second Quarter								Year to Date
				2004				2003				2004				2003
BUSINESS SEGMENTS
Net sales:
Consumer products				$	298.3			$	259.7			$	604.3			$	512.9
Industrial tools					321.5				276.4				637.5				547.9
Security solutions					174.9				116.5				331.5				224.0
Total				$	794.7			$	652.6			$	1,573.3			$	1,284.8
Segment Operating Profit (Loss):
Consumer products				$	40.5			$	27.6			$	88.5			$	59.4
Industrial tools					36.5				1.7				66.6				(1.0	)
Security solutions					28.4				22.1				57.2				38.6
Total					105.4				51.4				212.3				97.0
Interest expense					9.5				8.1				18.3				17.0
Interest income					(0.9	)			(1.5	)			(1.7	)			(2.6	)
Other, net					10.3				10.1				24.4				17.5
Restructuring charges and asset impairments					—				21.9				—				25.0
Earnings from continuing operations before income taxes				$	86.5			$	12.8			$	171.3			$	40.1

See notes to condensed consolidated financial statements.

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THE STANLEY WORKS AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 2004

A.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (hereafter referred to as "generally accepted accounting principles") for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the interim periods have been included, and are of a normal recurring nature.

For further information, refer to the consolidated financial statements and footnotes included in
The Stanley Works and Subsidiaries' (collectively, the "Company") Form 10-K for the year ended January 3, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

Certain prior years' amounts have been reclassified to conform to the current year presentation. In addition the assets and liabilities of the discontinued operation have been reclassified as held for sale in the Consolidated Balance Sheets, and the earnings from discontinued operations have been reclassified within the Consolidated Statement of Operations.

B.    Stock-based Compensation

The Company accounts for its stock-based compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost is recognized for stock-based compensation unless the quoted market price of the stock at the grant date is in excess of the amount the employee must pay to acquire the stock.

If compensation cost for the Company's stock-based compensation plans had been determined based on the fair value at the grant dates consistent with the method prescribed by Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," net earnings and earnings per share for the three and six months ended July 3, 2004 and June 28, 2003 would have been the pro forma amounts that follow (in millions, except per share amounts):

				Second Quarter								Year to Date
				2004				2003				2004				2003
Net earnings, as reported				$	61.4			$	12.4			$	214.9			$	31.6
Stock-based employee compensation expense determined under fair value method, net of related tax effects					(2.8	)			(2.1	)			(4.4	)			(4.0	)
Pro forma net earnings, fair value method				$	58.6			$	10.3			$	210.5			$	27.6
Earnings per share:
Basic, as reported				$	0.75			$	0.14			$	2.63			$	0.37
Basic, pro forma				$	0.71			$	0.12			$	2.57			$	0.32
Diluted, as reported				$	0.73			$	0.14			$	2.57			$	0.36
Diluted, pro forma				$	0.70			$	0.12			$	2.51			$	0.32

C.    Earnings Per Share

The following table reconciles the weighted average shares outstanding used to calculate basic and diluted earnings per share for the three and six months ended July 3, 2004 and June 28, 2003 (in millions, except shares):

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				Second Quarter								Year to Date
				2004				2003				2004				2003
Numerator (in millions):
Net earnings — basic and diluted				$	61.4			$	12.4			$	214.9			$	31.6
Denominator (in thousands):
Basic earnings per share — weighted average shares					81,940				85,555				81,777				86,407
Dilutive effect of stock options and awards					2,172				447				1,986				581
Diluted earnings per share — weighted average shares					84,112				86,002				83,763				86,988
Earnings per share of common stock:
Basic				$	0.75			$	0.14			$	2.63			$	0.37
Diluted				$	0.73			$	0.14			$	2.57			$	0.36

D.    Comprehensive (Loss) Income

Comprehensive (loss) income for the three and six months ended July 3, 2004 and June 28, 2003 is as follows (in millions):

				Second Quarter								Year to Date
				2004				2003				2004				2003
Net earnings				$	61.4			$	12.4			$	214.9			$	31.6
Other comprehensive (loss) income, net of tax					(13.8	)			13.5				(12.4	)			11.3
Comprehensive income				$	47.6			$	25.9			$	202.5			$	42.9

Other comprehensive (loss) income is primarily the impact of foreign currency translation.

E.    Inventories

The components of inventories at July 3, 2004 and January 3, 2004 are as follows (in millions):

				2004				2003
Finished products				$	296.1			$	293.7
Work in process					38.9				35.8
Raw materials					59.7				47.6
Total inventories				$	394.7			$	377.1

F.    Acquisitions, Goodwill and Other Intangible Assets

During fiscal year 2003, the Company acquired several small businesses at a total cost of $23.4 million. Purchase accounting for all of these acquisitions is substantially complete.

During the first quarter of 2004, the Company completed the acquisitions of Blick plc ("Blick"), Chicago Steel Tape Co. and affiliates ("CST / Berger") and Frisco Bay Industries Ltd. ("Frisco Bay"), although a small number of Frisco Bay shares remained outstanding at the end of the first quarter. All Frisco Bay shares were acquired by July 3, 2004. Blick is a leading U.K. integrator of security systems, communication and time management solutions for the commercial and industrial sectors. CST / Berger is a leading designer and manufacturer of laser and optical leveling and measuring equipment. Frisco Bay is a leading Canadian provider of security systems and equipment for financial institutions, government agencies and major industrial corporations. The Company acquired these businesses pursuant to its growth strategy and stated objectives to expand its Tools and Security growth platforms and to reduce the risk associated with large customer concentrations. Results of these acquisitions are included in the Company's consolidated operating results from the respective acquisition dates.

The acquisitions were accounted for as purchases in accordance with Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." The total purchase price of

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$277.4 million for the 2004 acquisitions noted above was allocated to the assets acquired and liabilities assumed based on a preliminary estimate of fair value. Purchase accounting adjustments to reflect the fair value of the assets acquired and liabilities assumed are preliminary, with respect to identification and valuation of intangibles and associated deferred taxes, appraisals to be performed on property, plant and equipment, and certain other less significant matters. The purchase accounting related to Blick identifiable intangible assets and appraisals of property is complete. Preliminary identifiable intangible reports prepared by outside valuation experts form the basis for such assets reported by CST / Berger and Frisco Bay, but these reports require further review internally and by the Company's independent registered public accountants. As of July 3, 2004, the preliminary allocation of the purchase price for all first quarter acquisitions was to the following major opening balance sheet categories (in millions):

Current assets (primarily accounts receivable and inventories)				$	125.4
Property, plant and equipment					19.6
Goodwill and other intangible assets					264.9
Total assets				$	409.9
Current liabilities				$	97.0
Other liabilities (primarily deferred taxes)					35.5
Total liabilities				$	132.5

Pre-Acquisition Pro-Forma Earnings

Net sales, net earnings and diluted earnings per share would have been adjusted by the amounts below if the acquired companies had been included in the Consolidated Statements of Operations for the entire first quarter of 2004 and the three and six months ended June 28, 2003 (in millions):

				Q1 2004				Q2 2003				YTD 2003
Net sales				$	11.0			$	47.0			$	96.9
Net (loss) earnings				$	(3.2	)		$	3.1			$	6.8
Diluted (loss) earnings per share				$	(0.04	)		$	0.04			$	0.08

Operating results for the acquisitions during these pre-acquisition periods are not necessarily indicative of future operating results.

Goodwill

The changes in the carrying amount of goodwill by segment are as follows (in millions):

				Consumer				Industrial				Security				Total
Balance January 3, 2004				$	122.4			$	113.5			$	196.9			$	432.8
Goodwill acquired as of April 3, 2004					—				23.9				124.4				148.3
Purchase accounting adjustments and foreign currency translation					(0.4	)			(4.6	)			24.5				19.5
Balance July 3, 2004				$	122.0			$	132.8			$	345.8			$	600.6

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Other Intangible Assets

In connection with the first quarter 2004 acquisitions, the Company recorded intangible assets. The purchase accounting, including amounts attributable to the fair value of identifiable intangible assets, is preliminary. When the purchase accounting is finalized these amounts may be adjusted. The amounts currently allocated to intangible assets are as follows (in millions):

				Gross Carrying Amount				Accumulated Amortization				Weighted Average Useful Life (Years)
Amortized Intangible Assets — Definite lives
Customer relationships				$	47.9			$	(2.1	)			9
Patents and copyrights					21.6				(1.6	)			6
Tradenames					5.4				(0.5	)			5
Other intangible assets					10.8				(2.3	)			5
Total				$	85.7			$	(6.5	)
Unamortized Intangible Assets — Indefinite lives
Tradenames and trademarks				$	9.1

G.    Debt and Other Financing Arrangements

In the first quarter of 2004, the Company repaid $120 million of long-term debt which matured on March 1, 2004 with commercial paper borrowings. CST/Berger, Blick and Frisco Bay were acquired using a combination of cash on hand, commercial paper borrowings, and proceeds from the sale of the entry door business (see Notes F and M). The Company assumed $29 million of debt in the Blick and Frisco Bay acquisitions. In addition, as of June 2004, the remaining $22 million Blick purchase price obligation is reflected in current portion of long-term debt and payments on this debt are expected to be made starting in 2005. In total, the Company's debt increased $96 million in the first half of 2004.

The Company terminated two interest rate swap arrangements in March 2004. These interest rate swaps were fixed to floating rate arrangements and the notional values were $75 million and $100 million with termination dates of November 2007, and November 2012, respectively. They were fair value hedges for a portion of the $150 million five year and $200 million ten year notes issued in November 2002. The effect of the termination of these swaps amounted to a $0.3 million gain which will be amortized over the remaining lives of the five year and ten year notes issued in November 2002.

H.    Restructuring and Other Charges

In the first quarter of 2003, the Company recorded $3.1 million in restructuring reserves for new initiatives, pertaining to the further reduction of its cost structure, primarily for severance-related obligations. These reserves were fully expended by the end of 2003.

The Company recorded $21.9 million in restructuring and asset impairment charges in the second quarter of 2003. Of this charge, $4.6 million related to the Consumer segment, $14.0 million related to the Industrial segment and the remaining $3.3 million related to centralized corporate functions. These charges consisted of $5.1 million of asset impairments and $5.0 million of other exit costs related to the exit of the Company's Mac Direct retail channel; $9.0 million for severance and related benefits for Operation 15 initiative headcount reductions; and $2.8 million for asset impairments pertaining to other Operation 15 initiatives. The $7.9 million of asset impairments generally relates to assets designated as held for use which are idle as a result of Operation 15 initiatives and accordingly their book value has been written off. The second quarter 2003 charge for headcount reductions resulted in a net employment reduction of approximately 700 manufacturing, selling and administrative people.

The exit of MacDirect required the liquidation of certain assets and lease obligations. In the first two quarters of 2003, the Company recognized $23.8 million of receivable losses and $7.0 million of inventory losses associated with the MacDirect exit.

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In 2004, $4.7 million of restructuring reserves were established in purchase accounting for the Blick and Frisco Bay acquisitions primarily pertaining to headcount reductions associated with the integration of these businesses.

At July 3, 2004, the restructuring and asset impairment reserve balance was $10.7 million. A summary of the Company's restructuring reserve activity from January 3, 2004 to July 3, 2004 is as follows (in millions):

				01/03/2004				Acquisitions				Usage				07/03/04
Acquisitions
Severance				$	—			$	4.5			$	(3.6	)		$	0.9
Other					—				0.2				(0.1	)			0.1
Operation 15
Severance					3.1				—				(2.7	)			0.4
Asset impairments					8.7				—				(0.6	)			8.1
Other					2.8				—				(1.8	)			1.0
Prior to 2003
Other					1.5				—				(1.3	)			0.2
				$	16.1			$	4.7			$	(10.1	)		$	10.7

The Company expects the above restructuring and asset reserve balances to be fully expended by the end of 2004.

In the second quarter of 2003, the Company recognized $7.5 million in charges related to compensation payable to its former Chairman and Chief Executive Officer, John Trani, who announced his retirement effective December 31, 2003. Such retirement expenses were comprised of severance and pension as specified in an employment contract entered into in 2000.

I.    Commitments and Contingencies

The Company is involved in various legal proceedings relating to environmental issues, employment, product liability and workers' compensation claims and other matters. The Company periodically reviews the status of these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management believes that the ultimate disposition of these matters will not have a material adverse effect on operations or financial condition taken as a whole.

The Company's policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. As of July 3, 2004, the Company had reserves of $12.9 million, primarily for remediation activities associated with Company-owned properties as well as for Superfund sites.

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J.    Guarantees

The Company's financial guarantees at July 3, 2004 are as follows (in millions):

				Term				Maximum Potential Payment				Liability Carrying Amount
Guarantees on the residual values of leased properties				Up to 6 years				$	53.4			$	—
Commercial customer financing arrangements				Up to 5 years					1.1				—
Standby letters of credit				Generally 1 year					26.5				—
Guarantee on the external Employee Stock Ownership Plan borrowings				Through 2009					10.7				10.7
Government guarantees on employees				Up to 3 years from date of hire					0.1				—
Guarantee on active facility lease				Through 2012					0.6				—
Guarantees on leases for divested business which are subleased				Up to 36 months					0.5				0.2
								$	92.9			$	10.9

The Company has sold various businesses and properties over many years and provided standard indemnification to the purchasers with respect to any unknown liabilities, such as environmental, which may arise in the future that are attributable to the time of Stanley's ownership. There are no material identified exposures associated with these general indemnifications.

The Company provides product and service warranties which vary across its businesses. The types of warranties offered generally range from one year to limited lifetime, while certain products carry no warranty. Further, the Company incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available.

The changes in the carrying amount of product and service warranties for the six months ended July 3, 2004 are as follows (in millions):

Balance January 3, 2004				$	7.3
Warranties and guarantees issued					7.2
Warranty payments					(5.8	)
Adjustments					5.5
Acquisitions					0.9
Balance July 3, 2004				$	15.1

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K.    Net Periodic Benefit Cost — Defined Benefit Plans

Following are the components of net periodic benefit cost for the three and six months ended July 3, 2004 and June 28, 2003 (in millions):

				Second Quarter
				Pension Benefits																Other Benefits
				U.S. Plans								Non-U.S. Plans								U.S. Plans
				2004				2003				2004				2003				2004				2003
Service cost				$	0.6			$	0.6			$	1.5			$	1.3			$	0.2			$	0.2
Interest cost					0.6				0.7				2.3				2.4				0.2				0.2
Expected return on plan assets					(0.1	)			(0.3	)			(3.3	)			(3.0	)			—				—
Amortization of transition (asset) liability					—				—				—				(0.1	)			—				—
Amortization of prior service cost (credit)					0.5				0.5				0.1				0.1				(0.1	)			—
Amortization of net loss					0.1				0.6				0.3				—				0.1				0.1
Net periodic benefit cost				$	1.7			$	2.1			$	0.9			$	0.7			$	0.4			$	0.5

				Year to Date
				Pension Benefits																Other Benefits
				U.S. Plans								Non-U.S. Plans								U.S. Plans
				2004				2003				2004				2003				2004				2003
Service cost				$	1.3			$	1.2			$	3.1			$	2.6			$	0.3			$	0.5
Interest cost					1.2				1.5				4.6				4.7				0.5				0.5
Expected return on plan assets					(0.2	)			(0.6	)			(6.7	)			(6.1	)			—				—
Amortization of transition (asset) liability					—				—				—				(0.1	)			—				—
Amortization of prior service cost (credit)					0.9				0.9				0.3				0.3				(0.1	)			(0.1	)
Amortization of net loss					0.2				1.3				0.6				—				0.1				0.1
Settlement / curtailment gain					—				—				(0.2	)			—				—				—
Net periodic benefit cost				$	3.4			$	4.3			$	1.7			$	1.4			$	0.8			$	1.0

L.    Segments

The Company changed its segment reporting to align with the portfolio changes resulting from the divesture and acquisitions in the first quarter of 2004. 2003 segment information has been restated for comparability. The Company now reports the following three segments: Consumer Products, Industrial Tools and Security Solutions. The Consumer Products segment includes hand tools, consumer mechanic tools and storage units, hardware and home décor. Industrial Tools is comprised of Mac Tools, Proto mechanic tools, pneumatic tools, storage systems, specialty tools, assembly technologies, hydraulic tools and CST/Berger (measuring tools). The Security Solutions segment includes access technologies, Best Access, Blick and Frisco Bay; these businesses manufacture and install automatic doors, and related hardware and products, as well as mechanical and electronic lock sets and access controls. The Company's reportable segments are an aggregation of businesses that have similar products and services, among other factors.

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				Net sales and operating profit results for the year ended January 3, 2004
				Net Sales				Operating profit
Consumer products				$	1,106.8			$	145.3
Industrial tools					1,097.6				24.9
Security solutions					473.7				84.8
Total				$	2,678.1			$	255.0

				Total Assets
				July 3, 2004				January 3, 2004
Consumer products				$	765.9			$	792.5
Industrial tools					879.5				814.5
Security solutions					889.1				554.4
Discontinued operations					—				33.0
Corporate assets					259.4				229.4
Total				$	2,793.9			$	2,423.8

The Company assesses the performance of its reportable segments using operating profit and return on capital. Segment operating profit excludes interest income, interest expense, other-net, restructuring charges and asset impairments, as well as income tax expense. There were no significant inter-segment transactions for the periods presented.

Approximately 21% of the Company's long-lived assets at July 3, 2004, are concentrated in the United Kingdom. Prior to the acquisition of Blick in early 2004, assets in the United Kingdom were less significant.

M.    Discontinued Operations

On December 8, 2003, the Company entered into a definitive agreement to sell its entry door business to Masonite International Corporation. The $162 million cash sale transaction closed on March 2, 2004 and resulted in an after-tax gain of $95 million, which is subject to final procedures pursuant to the sale agreement in the third quarter of 2004. In accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the results of operations of the entry door business for the periods presented have been reported as discontinued operations. In addition, the assets and liabilities of the business were classified as held for sale in the Condensed Consolidated Balance Sheet at January 3, 2004.

The entry door business manufactured and distributed steel and fiberglass entry doors and components, throughout North America. Operating results of the entry door business, for the period ended March 2, 2004 and for the three and six months ended June 28, 2003, are summarized as follows (in millions):

				March 2, 2004				Second Quarter 2003				Year to Date 2003
Net sales				$	26.0			$	47.1			$	81.1
Pretax (loss) earnings					(0.1	)			5.1				5.3
Income taxes					—				2.0				2.0
Net (loss) earnings from discontinued operations				$	(0.1	)		$	3.1			$	3.3

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Assets and liabilities of the entry door business as of March 2, 2004 and January 3, 2004 were as follows (in millions):

				2004				2003
Accounts receivable				$	9.5			$	5.7
Inventories					10.0				6.9
Other current assets					0.8				1.0
Property, plant and equipment					19.0				19.4
Total assets				$	39.3			$	33.0
Accounts payable				$	21.9			$	22.9
Accrued expenses					4.4				4.7
Other liabilities					1.6				1.6
Total liabilities				$	27.9			$	29.2

N.    New Accounting Standards

During December 2003, the FASB issued a revision to SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This revision requires that public companies disclose the components of net periodic defined benefit cost on an interim basis, and provide updates for significant changes to expected and actual current year cash contributions to such plans. The new disclosure requirements are effective for interim and fiscal periods ending after December 15, 2003 and are reflected in Note K, Net Periodic Benefit Cost — Defined Benefit Plans, of the Notes to the Condensed Consolidated Financial Statements.

During April 2004, the FASB issued FSP FAS 129-1, "Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital Structure, Relating to Contingently Convertible Securities". The purpose of this Staff Position is to interpret how the disclosure provisions of Statement 129 apply to contingently convertible securities and to their potentially dilutive effects on EPS. This FSP is effective immediately and had no impact on the Company.

In May 2004, the FASB issued Staff Position 106-2 (FSP 106-2), its final position on FSP 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). FSP 106-2 supercedes FSP 106-1 and is effective for the first interim or annual period beginning after June 15, 2004. The Company has concluded through consultation with its outside actuaries that the implementation of FSP 106-2 is not considered a "significant event" pursuant to paragraph 73 of FASB Statement 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Therefore, as permitted by FSP 106-2, the effects of the Act shall be incorporated in the next measurement of plan assets and obligations, which will occur in the second half of 2004. When incorporated, the effects of the Act are not expected to have a material impact on the Company.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company has embarked on a growth strategy and continues to alter its portfolio of businesses. This growth strategy encompasses acquisitions and the reduction of risk associated with certain large customer concentrations. The Company believes this strategy will improve the overall profitability of operations. In the first quarter of 2004, the Company completed the sale of its entry door business and the acquisitions of Chicago Steel Tape Co. ("CST/Berger"), Blick plc ("Blick") and Frisco Bay Industries Ltd ("Frisco Bay"). The entry doors business has been reported as a discontinued operation for all periods presented and the year to date 2004 net earnings from discontinued operations are $95 million, or $1.13 per fully diluted share, which consists primarily of the after-tax gain from the sale.

RESULTS OF OPERATIONS

Net sales from continuing operations were $795 million in the second quarter of 2004 as compared to $653 million in the second quarter of 2003, representing an increase of 22%. Excluding the $59 million net sales from acquisitions, organic sales increased 13% driven primarily by 8% volume growth as strong demand continued from home center and mass merchant customers; industrial tool demand benefited from favorable market conditions and improved execution in several businesses; Security Solutions revenues increased primarily due to share gains in the access door business; and both Europe and Asia benefited from currency translations. Favorable foreign currency translation, primarily European and Asian, increased net sales by 2%. The impact of pricing resulted in a net sales increase of 3%. Double-digit percentage organic sales growth was achieved in all three business segments – Consumer Products, Industrial Tools and Security Solutions. Year to date net sales from continuing operations in 2004 were $1,573 million as compared to $1,285 million in 2003, an increase of 22%. Acquisitions contributed $107 million, or an 8% increase, of net sales. Organic sales increased due to volume increases of 9%, favorable foreign currency translation which increased sales by 3%, and pricing increases of 2%. The factors resulting in the Company's six month performance are primarily the same items discussed previously pertaining to the second quarter results.

The Company reported gross profit from continuing operations of $283 million, or 36% of net sales, in the second quarter of 2004, compared to $220 million, or 34% of net sales, in the prior year. The businesses acquired increased gross profit by $27 million. The remaining increase was primarily attributed to increased sales volume and gross profit rate improvement. The gross profit rate improvement was attributable to the carryover benefit of 2003 restructuring programs, volume leverage, inventory losses in the second quarter of 2003 related to the termination of the Mac Direct distribution model, favorable pricing and improved product mix. These benefits were partially offset by higher steel costs and other inflation. The Company continued to experience a significant impact from unusually high levels of commodity price inflation (particularly steel) in the first six months of 2004. The Company continues to actively pursue price increases in many business channels to partially offset this negative impact. Steel cost and other inflation increases will continue to have a substantial impact on the Company in the third quarter and beyond while several partially offsetting price increases will phase in during the third quarter. The effect of commodity inflation, including freight increases, is now expected to total $70-80 million in the year 2004, of which approximately two-thirds is projected to be offset with related price increases. Year to date gross profit from continuing operations in 2004 was $562 million, or 36% of net sales, compared to $434 million, or 34% of net sales through the comparable period in 2003. Excluding the favorable impact of acquisitions, gross profit improved $79 million as compared with the six months ended June 2003 due to the same factors as in the second quarter.

Selling, general and administrative expenses (SG&A) from continuing operations, inclusive of the provision for doubtful accounts, were $178 million, or 22% of net sales in the second quarter of 2004, compared to $169 million, or 26% of net sales, in the prior year. The increase of $9 million was primarily attributed to: acquired businesses that increased costs by $16 million; receivable losses in

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2003 which related to the exiting of the Mac Direct distribution model of $11 million; $8 million of 2003 costs related to the retirement of the Company's former CEO; increased business portfolio SG&A spending levels by 8% in connection with the 13% organic sales increase; and increased funding for brand support. Year to date SG&A from continuing operations was $350 million, or 22% of net sales, compared to $337 million, or 26% of net sales. The factors resulting in the Company's six month performance are primarily the same items discussed previously pertaining to the second quarter results, however, the incremental costs of acquisitions was $28 million and Mac Tools accounts receivable losses in 2003 were $21 million.

Interest-net from continuing operations in the second quarter was $9 million, an increase of $2 million over the second quarter of 2003. Year to date interest-net from continuing operations was $17 million in 2004, an increase of $2 million over the same period in 2003. The increase was from higher borrowings primarily for acquisitions.

The Company's effective income tax rate from continuing operations was 29% in the second quarter this year compared to 27% in the prior year's quarter, reflecting a favorable impact from refunds of prior year tax assessments in the 2003 rate. Year to date, the income tax rate for 2004 was 30% as compared to 29% during the same time period in 2003. The sequential decline in the second quarter of 2004 reflects a reduction in the year-to-date tax rate to 30%, from 31% in the first quarter of 2004, due to increased earnings in foreign locations with lower tax rates, a recent favorable tax law change in a foreign country and other tax planning activities.

Business Segment Results

In April 2004, the Company announced a change to its segment reporting to align with the portfolio changes resulting from the divestiture and acquisitions in the first quarter of 2004. The Company reports the following three segments: Consumer Products, Industrial Tools and Security Solutions. The Consumer Products segment includes hand tools, consumer mechanic tools and storage units, hardware, and home décor. Industrial Tools is comprised of Mac Tools, Proto mechanic tools, pneumatic tools, storage systems, specialty tools, assembly technologies, hydraulic tools and CST/Berger. The Security Solutions segment includes access technologies, Best Access, and newly acquired Blick and Frisco Bay. The Company's reportable segments are an aggregation of businesses that have similar products and services, among other factors. The Company assesses the performance of its reportable segments using operating profit and return on capital. Segment operating profit excludes interest income, interest expense, other-net, restructuring charges and asset impairments, as well as income tax expense.

Consumer Products sales of $298 million in the second quarter of 2004 represented a 15% increase from $260 million in the second quarter of 2003, driven by the aforementioned strength in home center and mass merchant channels in the U.S. and favorable currency impacts in Europe. Pricing represented 2% of the sales increase, currency 3% and volume 10%. Operating profit was $41 million, or 14% of net sales, for the second quarter of 2004, compared to $28 million, or 11% of net sales, in 2003. The improvement in operating profit is primarily attributable to favorable price and product mix combined with operating leverage from higher sales volumes and the absence of $4 million in 2003 Operation 15 charges. On a year to date basis, Consumer Products net sales in 2004 were $604 million, an 18% increase from $513 million in 2003. Year to date operating profit in 2004 was $89 million, or 15% of net sales, compared to $59 million, or 12% of net sales in 2003. The improvement in sales and operating profit for the six month period is primarily attributable to the same factors discussed previously pertaining to the second quarter results.

Industrial Tools sales of $322 million in the second quarter of 2004 represented a 16% increase from $276 million in the second quarter of 2003. Excluding the CST/Berger acquisition, organic sales increased 11% to $306 million. This organic improvement was the result of improved economic conditions in the fastening systems, industrial mechanics tools, and hydraulic tools businesses. Mac Tools revenues were essentially flat, a strong performance as traditional distributor additions and higher route average sales offset the decline from last year's MacDirect exit. Operating profit was $37 million, or 11% of net sales, for the second quarter of 2004. In the second quarter of 2003, the

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Industrial Tools segment reported a $2 million operating profit due to $18 million of charges for receivable and inventory losses associated with the MacDirect exit and an allocated portion of the costs associated with the retirement of the Company's former CEO. The remaining increase in the second quarter 2004 operating profit and margin rate was due to higher sales volume, substantial improvement in the margin performances of Mac Tools and industrial mechanics tools (i.e. Proto) as a result of the carryover benefits from prior year restructuring programs, as well as the inclusion of CST/Berger. On a year to date basis, Industrial Tools net sales in 2004 were $638 million, a 16% increase from $548 million in 2003. Year to date operating profit in 2004 was $67 million, or 10% of net sales. In the first half of 2003, the Industrial Tools segment reported a $1 million operating loss due to $32 million of charges mainly from receivable and inventory losses associated with the MacDirect exit. The improvement in operating profit is primarily attributable to the same factors discussed previously pertaining to the second quarter results.

Security Solutions sales increased 50% to $175 million in the second quarter of 2004. Excluding Blick and Frisco Bay Industries, acquired in the first quarter, Security Solutions organic sales increased 15% to $134 million, on strength in the supply and service of automatic commercial door systems in access technologies. In addition, Best Access delivered 5% organic sales volume growth. Operating margin decreased to 16% versus 19% last year, due to high commodity inflation, acquisition related severance, business mix, and negative field productivity related partially to a temporary change in the geographic mix of the business. On a year to date basis, Security Solutions net sales in 2004 were $331 million, a 48% increase from $224 million in 2003. Year to date operating profit in 2004 was $57 million, or 17% of net sales, compared to $39 million, or 17% of net sales in 2003. The improvement in sales and operating profit for the six month period is primarily attributable to the same factors discussed previously pertaining to the second quarter results.

Restructuring and Other Charges

In the first quarter of 2003, the Company recorded $3 million in restructuring reserves for new initiatives, pertaining to the further reduction of its cost structure, primarily for severance-related obligations. These reserves were fully expended by the end of 2003.

The Company recorded $22 million in restructuring and asset impairment charges in the second quarter of 2003. Of this charge, $5 million related to the Consumer Products segment, $14 million related to the Industrial Tools segment and the remaining $3 million related to centralized corporate functions. These charges consisted of $5 million of asset impairments and $5 million of other exit costs related to the exit of the Company's Mac Direct retail channel; $9 million for severance and related benefits for Operation 15 initiative headcount reductions; and $3 million for asset impairments pertaining to other Operation 15 initiatives. The $8 million of asset impairments generally relates to assets designated as held for use, which are idle as a result of Operation 15 initiatives, and accordingly their book value has been written-off. The second quarter charge for headcount reductions resulted in a net employment reduction of approximately 700 manufacturing, selling and administrative personnel.

The exit of MacDirect required the liquidation of certain assets and lease obligations. In the first two quarters of 2003, the Company recognized $24 million of receivable losses and $7 million of inventory losses associated with the MacDirect exit.

In 2004, $5 million of restructuring reserves were established in purchase accounting for the Blick and Frisco Bay acquisitions primarily pertaining to headcount reductions associated with the integration of these businesses.

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At July 3, 2004, the restructuring and asset impairment reserve balance was $11 million. A summary of the Company's restructuring reserve activity from January 3, 2004 to July 3, 2004 is as follows (in millions):

				01/03/2004				Acquisitions				Usage				07/03/04
Acquisitions
Severance				$	—			$	5			$	(4	)		$	1
Other					—				—				—				—
Operation 15
Severance					3				—				(2	)			1
Asset impairments					9				—				(1	)			8
Other					3				—				(2	)			1
Prior to 2003
Other					1				—				(1	)			—
				$	16			$	5			$	(10	)		$	11

The Company expects the above restructuring and asset reserve balances to be fully expended by the end of 2004.

In the second quarter of 2003, the Company recognized $8 million in charges related to compensation payable to its former Chairman and Chief Executive Officer, John Trani, who announced his retirement effective December 31, 2003. Such retirement expenses were comprised of severance and pension as specified in an employment contract entered into in 2000.

FINANCIAL CONDITION

Liquidity and Sources of Capital

Operating cash flow of $91 million in the second quarter of 2004 increased $27 million from the prior year's second quarter principally as a result of working capital levels being closely managed during this period of strong sales volume growth, as well as lower cash outflows related to restructuring. On a year to date basis, operating cash flow of $143 million in 2004 increased by $27 million from 2003 due primarily to the same factors discussed previously pertaining to the second quarter results.

In the first quarter of 2004 the Company received $162 million in cash from the sale of the entry door business. In the second quarter of 2004 $22 million of related income taxes were paid, and approximately $28 million of the remaining income taxes will be disbursed in later quarters. Cash payments for acquisitions amounted to $255 million year-to-date. Thus, the net cash outflow pertaining to acquisition and divestiture activity was $115 million, about half of which was paid with existing cash resources and the remainder was financed with commercial paper borrowings. Aside from normal debt service payments, the Company repaid $120 million of long-term debt which matured on March 1, 2004, and cash inflows from short-term borrowings, principally commercial paper, amounted to $187 million. Overall net cash inflows of $50 million from borrowing activities were realized in the first half of 2004.

The Company assumed $29 million of debt in the Blick and Frisco Bay acquisitions. In addition the remaining $22 million Blick purchase price obligation is reflected in current portion of long-term debt. In total debt increased $96 million in the first half of 2004.

In December 2003, the Company announced that it was evaluating the sale of as much as $175 million of equity-linked securities as a possible longer-term funding alternative for recent acquisitions. As a result of the Company's recent cash flow levels and a continued commitment to the near-term divestiture of certain small non-core activities, management announced on July 26, 2004 the sale of equity-linked securities will not be required at this time. Changing circumstances could lead to a re-evaluation of the need for equity-linked securities or other forms of financing.

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ITEM 4.    CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, under the supervision and with the participation of management, including the Company's Chairman and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chairman and Chief Executive Officer and its Executive Vice President and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic Securities Exchange Commission filings. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

PART 2 – OTHER INFORMATION

ITEM 2.	CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Period				(a) Total Number of Shares Purchased				Average Price Paid per Share
January 4 – February 7, 2004					3,558			$	39.08
February 8 – March 6, 2004					97				38.95
March 7 – April 3, 2004					9,034				42.92
April 4 – May 8, 2004					8,645				44.58
May 9 – June 5, 2004					—				—
June 6 – July 3, 2004					—				—
Total for period ended July 3, 2004					21,334			$	42.94

(a)	This column includes repurchasing of shares for the deemed surrender to the Company by plan participants of shares of common stock to satisfy the exercise price or taxes related to the exercise of employee stock options and delivery of restricted shares.

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

The Company's Annual Meeting was held on April 23, 2004.

(i)	The following directors were elected at the meeting:

					Shares Voted For				Shares Withheld				Broker Non-Votes
	John G. Breen					66,361,370				10,032,281				0
	Virgis W. Colbert					70,386,986				6,006,665				0
	John F. Lundgren					70,888,879				5,504,772				0

(ii)	Ernst & Young LLP was approved as the Company's independent auditors by the following vote:

	FOR:					66,609,018			AGAINST:				8,929,902
	ABSTAIN:					854,731			BROKER NON VOTES:				0

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(iii)	A shareholder proposal urging the Board of Directors to take the necessary steps to require that all members of the Board of Directors be elected annually was approved by the following vote:

	FOR:					46,588,846			AGAINST:					16,316,235
	ABSTAIN:					1,238,200			BROKER NON VOTES:					12,250,370

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits

(10)    (iii)	The Stanley Works Restricted Stock Unit Plan for Non-Employee Directors*

(31)    (i)	Certification by Chairman and Chief Executive Officer pursuant to Rule 13a-14(a)

(ii)	Certification by Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a)

(32)    (i)	Certification by Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(ii)	Certification by Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Compensation plan or arrangement

(b)    Reports on Form 8-K

(i)	The Company filed a current report on Form 8-K dated April 5, 2004 publishing additional information the Company was asked to provide to Institutional Shareholder Services ("ISS") about tax fees that the Company reported in its March 29, 2004 Proxy Statement for its 2004 Annual Meeting of Shareholders.

(ii)	The Company filed a current report on Form 8-K dated April 9, 2004 with respect to the Company's press release announcing the completion of its acquisition of Frisco Bay Industries Ltd.

(iii)	The Company filed a current report on Form 8-K dated April 26, 2004 with respect to the Company's press release reporting the Company's results for the first quarter of 2004 and providing guidance for the second quarter and full year 2004.

CAUTIONARY STATEMENT

Certain statements contained in this Quarterly Report on Form 10-Q, including the statements regarding the Company's ability (i) to improve the overall profitability of the Company's operations; (ii) to limit the effect of commodity inflation, including freight increases, to approximately $70-80 million; (iii) to offset approximately two-thirds of anticipated commodity price inflation with price increases; (iv) to complete restructuring activities within existing restructuring and asset impairment reserves by the end of 2004; and (v) to maintain cash flow levels and divest certain small non-core activities such that the sale of equity-linked securities is not required are forward looking and are based on current expectations and involve inherent risks and uncertainties, including factors listed below and other factors that could delay, divert or change any of them, and could cause actual outcomes and results to differ materially from current expectations.

The Company's ability to achieve the results described above is dependent on; (i) the success of the Company's efforts in integrating its recently announced acquisitions; (ii) the success of the Company's efforts to raise prices in order to, among other things, offset the impact of steel and other commodity and material price inflation, including freight charges; (iii) the need to respond to significant changes in product demand due to economic and other changes; (iv) continued improvements in productivity and cost reductions; (v) the continued success of the Company's marketing and sales efforts, including

20

the Company's ability to recruit and retain an adequate sales force; (vi) the continued success of The Home Depot, Lowe's and Wal-Mart sales initiatives as well as other programs to stimulate demand for Company products; (vii) the success of recruiting programs and other efforts to maintain or expand overall Mac Tools truck count versus prior years; (viii) the ability of the Company to fulfill increasing demand for its products; (ix) the ability to continue successfully managing and defending claims and litigation; (x) the absence or mitigation of increased pricing pressures from customers and competitors and the ability to defend market share in the face of price competition; and (xi) the continued ability of the Company to access credit markets under satisfactory terms.

The Company's ability to achieve the objectives discussed above will also be affected by external factors. These external factors may include pricing pressure and other changes within competitive markets, the continued consolidation of customers in consumer channels, inventory management pressures on the Company's customers, increasing competition, changes in trade, monetary, tax and fiscal policies and laws, inflation, currency exchange fluctuations, the impact of dollar/foreign currency exchange and interest rates on the competitiveness of products and the Company's debt program, the strength of the U.S. economy and the impact of events that cause or may cause disruption in the Company's distribution, financial and sales networks such as war, terrorist activities, political unrest and recessionary or expansive trends in the economies of the world in which the Company operates.

Unless required by applicable federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date hereof.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE STANLEY WORKS

Date: August 4, 2004 By: /s/ James M. Loree

James M. Loree
Executive Vice President
and Chief Financial Officer

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EX-10.(III)

Exhibit 10(iii)

THE STANLEY WORKS
RESTRICTED STOCK UNIT PLAN
FOR NON-EMPLOYEE DIRECTORS

ARTICLE I

PURPOSE

The purpose of the Plan is to provide non-employee directors of the Company with compensation tied to the value of the Company's Common Stock thereby motivating such directors to perform their duties and responsibilities to the best of their professional ability and to further align the interests of such directors with the interests of the Company and its shareholders.

ARTICLE II

DEFINITIONS

As used in the Plan, the following terms shall have the meanings specified in this Article 2, except to the extent provided otherwise in an applicable Award Certificate.

2.1    Adjustment Event:    a stock split, reverse stock split, combination or exchange of shares, recapitalization, subdivision, merger, consolidation, reclassification, reorganization, spin-off or other distribution of stock or property of the Company, partial or complete liquidation of the Company or any similar transaction affecting the outstanding Common Stock or the capitalization of the Company; provided that, when used with respect to in-kind dividends credited to a Participant's Dividend Equivalent Account, the term Adjustment Event shall relate to the property subject to such in-kind dividend.

2.2    Affiliate:    any Person controlling, controlled by or under common control with the Company.

2.3    Award:    a cash-settled, restricted stock unit representing the right, subject to the timing of payment, distribution, adjustment and other provisions of the Plan, to receive the future cash value of one share of Common Stock and the amount credited under the related Dividend Equivalent Account as of the date of settlement.

2.4    Award Certificate:    a written certificate evidencing each Award to a Participant under the Plan and setting forth certain of the terms and conditions applicable thereto, which certificate shall be in a form approved by the Committee from time to time.

2.5    Beneficiary:    the Person(s) designated in accordance with Article 8 below.

2.6    Board:    the Board of Directors of the Company.

2.7    Committee:    the Corporate Governance Committee of the Board or, if there is no such committee, the Board, provided that no Participant shall be permitted to act in the capacity of a director with respect to any matters pertaining directly to any of such Participant's Awards.

2.8    Common Stock:    the common stock of the Company, par value $2.50 per share, subject to adjustment pursuant to Article 7.

2.9    Company:    The Stanley Works, a Connecticut corporation.

2.10    Dividend Equivalent Account:    a notional account established on the books and records of the Company to record any dividend equivalent amounts accrued and payable in respect of any outstanding Awards and any earnings or losses on such dividend equivalent amounts.

2.11    Effective Date:    April 26, 2004.

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2.12    Grant Date:    with respect to an Award, the date as of which such Award is granted to a Participant and set forth in the Award Certificate evidencing such Award.

2.13    Market Value:    the average of the high and low price on the New York Stock Exchange for a share of Common Stock on the last trading day prior to the day as of which Market Value is to be determined.

2.14    Participant:    a non-employee director of the Company who is granted an Award under the Plan.

2.15    Person:    any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity.

2.16    Plan:    The Stanley Works Restricted Stock Unit Plan for Non-Employee Directors, as set forth herein and as the same may be amended and in effect from time to time.

2.17    Secretary:    the individual holding the position of corporate secretary of the Company from time to time or his or her delegate.

2.18    Termination Date:    the date on which a Participant ceases to serve as a director of the Company for any reason.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

Non-employee directors of the Company who are selected by the Committee to receive an Award shall become Participants in the Plan. Selection for participation in the Plan shall not entitle any Participant to continue to serve as a director of the Company for any period or to receive or be eligible to receive any subsequent or additional Awards.

ARTICLE IV

TERMS OF AWARDS

4.1     Grant of Awards.

The Committee may grant Awards to eligible non-employee directors described in Article 3 at such times, in such amounts and subject to such terms and conditions not inconsistent with the Plan as it shall determine. Each Award shall be evidenced by an Award Certificate.

4.2    Vesting of Awards.

Each Award shall be fully vested and nonforfeitable immediately upon grant to a Participant.

4.3    Dividend Equivalent Rights.

(A)    Cash Dividends.    In the event that the Company declares and pays a cash dividend in respect of the Common Stock as of a record date occurring after the Grant Date of an Award and prior to the satisfaction of such Award as provided in Article 4.4, the Company shall credit an amount to the Participant's Dividend Equivalent Account, as of the payment date for such dividend, equal to the product of (i) the cash dividend amount per share of Common Stock declared and paid, multiplied by the number of Awards held by such Participant. Cash amounts credited from time to time to a Participant's Dividend Equivalent Account shall be deemed to earn interest, compounded quarterly, at an annual rate equal to the rate of interest applicable from time to time under the Company's Deferred Compensation Plan for Non-Employee Directors for the period from the date such cash amount is credited to the Participant's Dividend Equivalent Account to the date of distribution of such amount, as so adjusted, in accordance with Article 5.

(B)    Dividends In Kind.    In the event that the Company declares and pays a dividend in kind in respect of the Common Stock as of a record date occurring after the Grant Date of an

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Award and prior to the satisfaction of such Award as provided in Article 4.4, the Company shall credit an amount to each Participant's Dividend Equivalent Account, as of the payment date for such dividend, equal to the product of (i) the then-current fair market value, as determined by the Committee in its sole discretion, assigned to the property paid in kind in respect of one share of Common Stock, multiplied by the number of Awards held by such Participant. Amounts credited from time to time to a Participant's Dividend Equivalent Account in respect of in-kind dividends shall be adjusted from time to time to reflect changes in the fair market value of, or Adjustment Events with respect to, the property subject to such in kind dividend, as determined by the Company, during the period from the date such amount is credited to the Participant's Dividend Equivalent Account to the date of distribution, as so adjusted, in accordance with Article 5.

4.4    Elections with respect to Method and Timing of Settlement.    Within 90 days following written notice to a Participant of the grant of an Award, such Participant may elect for such Award to be settled in one of the following methods (each, a "Settlement Method"): (i) in one lump sum payment, which payment shall be made within twelve months following such Participant's Termination Date on the Settlement Date elected by the Participant , or (ii) in a number of approximately equal annual installments over a period of up to ten years, with the first installment to be paid on within twelve months following such Participant's Termination Date on the Settlement Date elected by the Participant and each subsequent installment to be paid on the first business day of each succeeding calendar year during the installment period. For this purpose, the term "Settlement Date" means the date (day and month) elected by the Participant to receive or begin receiving payments in settlement of his or her Award[s], provided, however, that in the event such day and month fall on a weekend or holiday, the Settlement Date shall mean the first business day following such date.

Election of the Settlement Method and Settlement Date shall be made in writing, on such form as may be approved from time to time by the Secretary. In the absence of a Participant's effective election with respect to the Settlement Method and/or Settlement Date of an Award, such Award shall be settled in one lump sum as of the Participant's Termination Date.

4.5    Modification of Settlement Elections.    A Participant may elect to change the Settlement Date and/or Settlement Method then in effect with respect to all or a designated portion of his or her Awards to another Settlement Date and/or Settlement Method permitted under Section 4.4 by filing an election with the Secretary, in such form as the Secretary may prescribe from time to time, at least 12 months prior to the Settlement Date in the current calendar year then applicable to the Award[s] subject to such election and otherwise in accordance with any procedures specified by the Committee from time to time; provided that, (i) without the prior written approval of the Committee, a Participant may not change a Settlement Date and/or Settlement Method for an Award more than one time in any three year period and (ii) no such election may have the effect of accelerating the settlement of any portion of an Award.

ARTICLE V

SETTLEMENT OF AWARDS

5.1    Settlement.    In the case of an Award payable in one lump sum, on the Settlement Date, the Company shall pay to the Participant, in full settlement of such Award, an amount, in cash, equal to the sum, determined as of the Settlement Date, of (i) the Market Value of a share of Common Stock plus (ii) the aggregate amount then credited to the portion of the Participant's Dividend Equivalent Account corresponding to such Award. In the case of an Award payable in installments, on the Settlement Date applicable to such Award and on each subsequent installment payment date, the Company shall pay to the Participant, in partial settlement of such Award, the applicable installment amount, in cash. The amount of each installment shall be based on the Market Value of a share of Common Stock plus the aggregate amount credited to the portion of the Participant's Dividend Equivalent Account corresponding to such Award, in each case, as of the date immediately prior to the installment payment date, and shall be determined by multiplying such amount by a fraction, the numerator of which shall be one and the denominator of which shall be the number of annual installments (including the current installment) remaining to be paid.

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5.2    Settlement on Death.    If a Participant should die before all Awards have been paid in accordance with Section 5.1, the balance of such Awards shall be paid to the Participant's Beneficiary in a lump sum payment as of the first business day of the calendar year following the year of the Participant's death.

ARTICLE VI

ADMINISTRATION

6.1    Authority of the Committee.    The Committee shall be responsible for the administration and interpretation of the Plan and all Award Certificates. Subject to any guidelines established for the Committee, as approved in writing by the Board, the Committee shall have full discretionary authority to exercise its duties and powers under the Plan and the Award Certificates, including with respect to the administration and interpretation of the Plan and the Award Certificates. Subject to the terms of the Plan and the Award Certificates, the Committee is authorized to prescribe, amend and rescind rules and regulations relating to the administration and interpretation of the Plan and the Award Certificates, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan and the Award Certificates or to carry out its or their provisions and purposes. All determinations, calculations, interpretations and other actions made or taken by the Committee pursuant to the provisions of the Plan or any Award Certificate or otherwise in connection with the administration, operation or interpretation thereof shall be final, binding and conclusive for all purposes and upon all persons and shall be made in the sole and absolute discretion of the Committee.

6.2    Delegation by the Committee; Authority of the Board.    The Committee may appoint in writing such person or persons as it may deem necessary or desirable to carry out any of the duties or responsibilities of the Committee hereunder and may delegate to such person or persons in writing such duties, and confer upon such person or persons in writing, such powers, discretionary or otherwise, as the Committee may deem appropriate. The Committee may employ one or more persons to render advice with regard to any of the duties or responsibilities of the Committee under the Plan. Any and all rights, duties and responsibilities of the Committee hereunder may be exercised by the Board in lieu of the Committee, in the Board's discretion.

6.3    Reliance.    The Committee shall be entitled to rely upon all determinations, certificates and reports made by any financial officer of the Company or any actuary or independent public accountant and upon all opinions of law given by any counsel selected by it (who may be counsel to the Company), and shall be fully protected in respect of any act done or omitted to be done or any determination made in good faith in reliance upon any such determination, certificate, report or opinion. No member of the Committee shall be liable for any act done or omitted to be done or determination made in the performance of its duties under this Plan or for any act done or omitted to be done by any agent or representative of such Committee so long as such person acted in good faith.

6.4    Indemnification.    Each person who is or shall have been a member of the Committee or otherwise delegated any administrative duties or responsibilities hereunder shall be indemnified and held harmless by the Company to the fullest extent permitted by law from and against any and all losses, costs, liabilities and expenses (including any related attorneys' fees and advances thereof) in connection with, based upon or arising or resulting from any claim, action, suit or proceeding to which such person may be made a party or in which such person may be involved by reason of any action taken or failure to act under or in connection with the Plan and from and against any and all amounts paid by such person in settlement thereof, with the Company's approval, or paid by such person in satisfaction of any judgment in any such action, suit or proceeding against him, provided that such person shall give the Company an opportunity, at its own expense, to defend the same before such person undertakes to defend it on his own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or By-laws, by contract, as a matter of law or otherwise.

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ARTICLE VII

ADJUSTMENTS IN CAPITALIZATION

In the event of any change in the number, class or type of shares of Common Stock outstanding or other change in the capitalization of the Company by reason of an Adjustment Event, the Committee may make such adjustments as it determines are appropriate to the number of shares of Common Stock and/or the class or type of shares of capital stock covered by the Awards. In the event of any adjustment made pursuant to this Article 7, references herein and in any applicable Award Certificate will be deemed to refer to such different class or type of shares of common stock or other equity securities.

ARTICLE VIII

GENERAL PROVISIONS

8.1    Right to Payment Unsecured.    The right of a Participant to receive payments under the Plan shall be only that of an unsecured creditor against the assets of the Company and payments under the Plan shall be made solely from the assets of the Company. No Participant shall have any right to any specific assets of the Company by virtue of the Plan, any Award Certificate or any Award hereunder or thereunder.

8.2    Nontransferability of Awards.    Neither Awards granted under the Plan nor interests in Dividend Equivalent Accounts may be transferred, sold, assigned, pledged, encumbered, hypothecated, alienated or otherwise disposed of, other than by will or by the laws of descent and distribution upon the death of the Participant.

8.3    Amendment or Termination.    The Plan and any outstanding Award Certificate may be amended, modified or terminated by the Board at any time or from time to time, provided that no such amendment, modification or termination shall, without the consent of the affected Participant, materially and adversely affect the rights of such Participant in respect of outstanding Awards held at the time of such amendment, modification or termination, as determined by the Committee. Notwithstanding the foregoing, the Board may amend the Plan and any Award Certificate to the extent necessary to comply with applicable securities laws, without the consent of the affected Participant.

8.4    Limitation on Participants' Rights.     The Plan shall not be construed as conferring upon any Participant any legal right to continue to serve as a director of the Company.

8.5    Facility of Payments.    In the event that the Committee shall find that any Participant to whom any benefit is payable under the Plan is unable to care for his or her affairs because of illness, accident or otherwise, the Committee may direct that any benefit due shall be paid to the duly appointed legal representative of such Participant, or if there is no duly appointed legal representative, to the Participant's spouse or child of majority age, and the payment of any such benefits shall be in complete discharge of the liabilities of the Company under the Plan.

8.6    Beneficiary Designation.    Each Participant may from time to time name any Beneficiary or Beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Secretary (which form may be the form used generally for other benefit plan purposes) and will be effective only when filed by the Participant in writing with the Secretary during his or her lifetime. In the absence of any such designation, or in the event the designated beneficiary shall have predeceased the Participant, the Participant's Beneficiary shall be deemed to be to the Participant's surviving spouse, if any, or otherwise his or her estate.

8.7    Rights as a Stockholder.    A Participant shall not have any rights of a stockholder with respect to any Award, including any in-kind dividend amount credited to his or her Dividend Equivalent Account, including, but not limited to, the right of a stockholder to vote or receive dividends, except for the right to receive dividend equivalent amounts pursuant to Section 4.3.

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8.8    No Limitation on Compensation.    Nothing in the Plan shall be construed as limiting the right of the Company to establish other plans, or to pay compensation to its directors in cash or property, in a manner that is not expressly authorized under the Plan.

8.9    Requirements of Law.    The granting of Awards and the satisfaction thereof shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or, as may be appropriate or required, as determined by the Committee.

8.10    Notices.    Each Participant shall be responsible for furnishing the Secretary with the current and proper address for the mailing of notices and delivery of agreements or other property. Any notices required or permitted to be given shall be deemed given by the Company if directed to the Participant to whom addressed at such address and mailed by regular United States mail, first-class and prepaid. If any item mailed by the Company to such address is returned as undeliverable to the addressee, mailing will be suspended until the Participant furnishes the proper address.

8.11    Severability of Provisions.    If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provision had not been included.

8.12    Applicable Law.    This Plan and all Award Certificates in all respects shall be construed and interpreted in accordance with the laws of the State of Connecticut, without regard to the principles of conflicts of law thereof.

8.13    Number and Gender.    To the extent appropriate in the context, each term used in this Plan in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or neuter gender shall include the masculine, feminine and neuter.

8.14    Headings and Captions.    Headings and captions in this Plan are inserted for convenience of reference only and the Plan is not to be construed by the interpretation thereof.

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EX-31.(I)

EXHIBIT 31 (i)

CERTIFICATIONS

I, John F. Lundgren, certify that:

1.    I have reviewed this report on Form 10-Q of The Stanley Works and subsidiaries;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2004				/s/ John F. Lundgren
				John F. Lundgren
				Chairman and Chief Executive Officer

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EX-31.(II)

EXHIBIT 31 (ii)

CERTIFICATIONS

I, James M. Loree, certify that:

1.    I have reviewed this report on Form 10-Q of The Stanley Works and subsidiaries;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2004				/s/ James M. Loree
				James M. Loree
				Executive Vice President
				and Chief Financial Officer

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EX-32.(I)

EXHIBIT 32 (i)

THE STANLEY WORKS

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Stanley Works (the "Company") on Form 10-Q for the period ending July 3, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Lundgren, Chairman and Chief Executive Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John F. Lundgren
John F. Lundgren
Chairman and Chief Executive Officer
August 4, 2004

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EX-32.(II)

EXHIBIT 32 (ii)

THE STANLEY WORKS

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Stanley Works (the "Company") on Form 10-Q for the period ending July 3, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Loree, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James M. Loree
James M. Loree
Executive Vice President and Chief Financial Officer
August 4, 2004

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