Snap-on Incorporated (SNA) Q4 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today's Snap-on 2012 Fourth Quarter and Full Year Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference to Ms. Leslie Kratcoski, Vice President of Investor Relations. Please go ahead, ma'am.

Thanks, Augusta, and good morning, everyone. Thank you for joining us today to review our fourth quarter 2012 results, which are detailed in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer; and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we have provided slides to supplement our discussion. You can find a copy of these slides on our website next to the audio icon for this call. These slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates or beliefs or otherwise state management's or the company's outlook, plans or projections are forward-looking statements, and actual results may differ materially from those made in such statements. Additional information on the factors that could cause our results to differ materially are contained in our SEC filings. With that said, I'll now turn the call over to Nick Pinchuk. Nick?

Thanks, Leslie. Good morning, everyone. We're going to follow the usual agenda for these calls. I'll provide my perspective on our results on our various markets, as well as on the progress we made during the fourth quarter and the year, then Aldo will provide a detailed review of all the financials. I believe the results in the quarter and throughout all of 2012 were encouraging and provide abundant evidence of advancements along our runways for growth and improvement. Our EPS in the fourth quarter was $1.43, up from $1.27 in 2011. That rise reflects an OpCo operating margin that improved to 14.8%, along with a strong increase in operating income from financial services, which rose to $29.3 million. It all added up to a consolidated operating margin of 17.7%, which compares to 16.3% in the prior year. Sales in the quarter were $753.2 million, a 2.5% organic increase before a slight offset of, I guess, about 20 basis points due to unfavorable foreign currency. That gain does include a continuation of the generally favorable trends we've seen in our automotive repair sector and the Tools Group and in the Repair Systems & Information Group. So we've seen the automotive repair sector strong. Now the 2.5% was somewhat less than what we've seen in the past periods. That's reflective primarily of the increased headwinds from restricted military spending in the Commercial & Industrial Group. I think everybody's well aware of the situation that existed as we approached the year end and the fiscal cliff, which, by the way, remains an overhang going forward. We're still dealing with potential sequestration. That uncertainty, along with the generally reduced spending from the wind down of the troop deployments, are what's behind the military weakness. The fourth quarter did highlight the fluid and fragile…

Thanks, Nick. So our fourth quarter consolidated operating results is summarized on Slide 6. Net sales of $753.2 million in the quarter increased 2.5% organically. Continued higher sales in the Snap-on Tools Group and in the emerging markets of Asia, along with higher sales of diagnostics and repair information products, more than offset lower sales in the military and continued weakness in Europe. For the full year, 2012 net sales increased 4.6% organically. Consolidated gross profit of $352 million increased $16.2 million from 2011 levels, and gross margin of 46.7% improved 110 basis points from 45.6% last year, largely due to savings from ongoing RCI initiatives and lower restructuring cost. Operating expenses of $240.6 million were up $8.6 million from last year, primarily due to higher volume-related and other expenses. The operating expense margin of 39.1% in the quarter increased 40 basis points from 2011 levels. Restructuring costs in the fourth quarter of last year totaled $4.4 million. No restructuring costs were incurred in the fourth quarter of 2012. For the full year, however, restructuring costs of $16.5 million were up $4.3 million year-over-year. Operating earnings before Financial Services of $111.4 million in the quarter increased $7.6 million, and as a percentage of sales improved 70 basis points, from 14.1% last year to 14.8% this year. Operating earnings from Financial Services of $29.3 million increased $7.2 million or 32.6% over prior year levels. Consolidated operating earnings of $140.7 million in the quarter increased $14.8 million over 2011 levels, and the operating margin of 17.7% improved 140 basis points from 16.3% a year ago. Our fourth quarter effective income tax rate of 32% compared with 33% last year. For the full year, our effective income tax rate was 32.8% as compared with 33% for full year 2011. Finally, net earnings of…

Thanks, Aldo. Our fourth quarter was encouraging again. Progress in the midst of European and military headwinds. Results that bear the hallmarks of advancement along our runways for growth and improvement. We recognize that this is a period of turbulence, but we believe in the strength of our businesses and in the potential of our runways. Enhancing the van network, the health of our franchisees are reaching new levels and sales in that channel were up 9.3% in the quarter. Extending to critical industries, there are some strong headwinds in this space, but we believe our strategic position is on the rise. Expanding with repair shop owners and managers, increases in diagnostics and information products and RS&I OI margin up 210 basis points. And building in emerging markets, stronger physical presence, another factory in China, more products, more distribution, more sales. And our Snap-on Value Creation Processes are driving improvements, with OpCo OI margin reaching 14.8% in the quarter and coming in at 13.9% for the year, both representing improved performance. The fourth quarter and the full year are testimony to the capability of our team to execute and to the abundant opportunity for the growth inherent in Snap-on's fundamental strategic strengths. And we believe that those advantages will continue to author ongoing positive trends as we go forward. Before I close, it's appropriate that I recognize Snap-on associates and franchisees around the world. As usual, many of you are listening to this call. The positive performance of the fourth quarter and of the full year is a reflection of your capability and your dedication. For your contributions to our past, for your participation in our present and your commitment to our future, you have my admiration and you have my thanks. Now I'll turn it over to Augusta for questions. Augusta?

[Operator Instructions] Our first question will come from David MacGregor of Longbow Research.

This is actually Rachel Huber on for David. Just in regard to the RS&I margins, was there something in particular, or just the higher mix that contributed to the higher print this quarter, and is that something that you guys are expecting to be repeatable in 2013?

Actually, the mix is -- 210 basis points, the mix only contributed about 15 to 20 points. The rest was a couple other things, but RCI, our Rapid Continuous Improvement Snap-on Value Creation Processes, was the big winner there, contributed 150, 160 of those basis points. That's straight improvement.

And is that something that you expect to continue into '13, then?

Well -- and of course, there was -- on top of that, there was 50 basis points of restructuring, that's what I -- so let me recap. It was 15 points of -- 15 to 20 points of mix, 50 of restructuring, of lower restructuring, then the 150 of RCI. We expect RCI each and every quarter the amounts that are going to roll through by division, by quarter are -- change and vary from place to place. But we do consider that we will have good, strong contributions every quarter from RCI.

Okay. And then -- yes, just going on to C&I. I don't know if you had broken this out at all. How much of the decline did you attribute to military versus just general European weakness?

Well, military was the big piece, the biggest piece of that. So we haven't really broken it out in total, but I think you can conclude that it was the lion's share of that -- European weakness was a piece of that. And there were a couple of other divisions in there that go up and down from quarter to quarter, but the military was the big mover. In the quarter -- what happens in the military, the fourth quarter is the strongest quarter of all. Military fiscal year ends in, for us anyway, military ends in the third quarter -- military fiscal year ends in the third quarter. People book business in the third quarter and right up to the end, and then it comes out in the fourth quarter. This year, this didn't happen to as great an extent, so there was a pretty big variance.

Our next question will come from David Leiker of Baird. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: I guess I want to start off just to follow-up on the comments on the military, just to make sure I heard something correctly here. I think you said that your total corporate organic growth of 2.5% would have been in line with what you've seen in recent quarters, excluding the military decline?

That's what we said. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: Did I hear that?

Yes, that's correct, David. If you took out the military, you're looking sort of the same thing, the same kind of quarter. The military was just a big changer... David Leiker - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then on the Snap-on Credit, I know it's not a big number, it's not a big move, but the delinquencies have been inching up here a little bit. One of you give just a little color on that? And second, have you done anything in terms of changing your reserving on that?

I don't think there's anything in that regard. It has inched up, but you look at -- it's a kind of seasonal thing, the fourth quarter, people run into the holidays. They tend to roll it up. We look back at the last 4 years, it inched up every period, every quarter like this. Maybe this is a little bit more. I don't think it's anything significant. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then lastly, Nick and Aldo, you guys, you've got several years under your belts here of pretty significant business model improvement, margin improvement. If you take those 2 items, what inning do you think we're in, in terms of where you think you can take the business model, and then secondly, where you think margins can go?

Well, look, I still think there's a lot of opportunity at Snap-on. I think I've said this to you and many others, when you walk around here, you can see a lot of things that can be improved. So I would say we're now in like the fourth inning or something like that. We have a lot more runway in terms of Rapid Continuous Improvement and the Snap-on Value Creation Processes. And we have said -- we have targeted that we will be at the mid-double digits, which I think we define as mid-teens. We're almost there. I don't see a point in setting a new target, but I also have said that I believe strongly, I think our management team believes strongly in the quality, the inherent strength of our position in terms of the brands we have, the product we have, the legions of loyal customers and the possibilities for coherent growth. So we would be disappointed if we did not march ourselves to be among the highest rank of industrial companies in terms of profitability. I allow you experts to figure out where that would be. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: Great. And then if you look at the business model improvement, you've found ways of selling more products through the van channel. It looks like on RS&I, you're expanding beyond the traditional auto repair to other end markets. In terms of driving that business model to new levels, where do you think you are in that process?

Well, actually, in terms of, I think, in terms of the Tools Group, in terms of the van business, we're hitting on all cylinders. Those guys are doing very well. Now I want to quickly give a caveat here like I do every call, that I think that double-digit growth is probably not going to go on forever. Well, in fact, it didn't. It was 9.3% this quarter. But we've said that the Tools Group will be on a 4% to 6% range. I think that's more likely to be the long-term future of the Tools Group, but still, they are understanding how to reach more customers through productivity and how to sell more through different marketing. They're doing that pretty well, and I think they really know how to do it now. And so it's just a matter of keeping it going. In the RS&I group, as in the C&I group, we're focusing on a different customer base, changing from a product focus to a customer focus, and I would say, in there, we're like in the bottom of the second. We still have a long way to go in both of those businesses.

Our next question will come from Liam Burke of Janney Capital Markets.

Nick, you talked about the finance driving the growth in the franchisee channel and how you would draw in more big-ticket items. Could give us a little more detail on some of the other things that are driving this high-single digit, low-double digit revenue growth here?

Well, sure. Look, you've got good growth in the big-ticket items like tool storage and the bigger -- when I say big-ticket, Liam, just to be clear, I include high ticket diagnostic units like SOLUS Ultra and the VERUS PRO that I mentioned, and then you've got hand tools, which were up quite a bit in the quarter. And so those, that troika of products are doing pretty well in this group. And that's this quarter. In other quarters, we've seen Power Tools come in there and be a big factor. So maybe that quartet of product lines have moved forward, and yes, it's some of the special marketing like we talk about the past, the Rock 'n Roll Express mobile display unit for tool storage has helped, but other things about training programs for diagnostics and innovation around exciting hand tools that solve special problems that people get on the van and get very excited about. I was just on a van ride in Burlington, actually in a snowstorm, and it's very interesting about the -- I ran into this one young guy who was just out of school, and he said, "I've become almost the senior tech in the house," And I said, "Why?" And he said, "Because I bought a SOLUS Ultra, Snap-on SOLUS Ultra, which is a diagnostic unit." And what he said was they had a shop unit there which was a competitor's. It was shared by all the technicians, and they had spent 4 days trying to solve a transmission problem in this house with one of these competitor units. This guy bought one himself, he invested in a Snap-on, like a mid-range Snap-on unit. He said, "I plugged it into the car, it told me what was wrong, it told me how to fix it and it gave me the part number to order to fix it." He said he raised his status in the shop immensely. And so that's the kind of thing that those kind of products are adding to the marketing that's driving some of our sales.

Great. Aldo, on the cash flow statement this year, if I took net operating -- cash from operating activities, backed out your CapEx and then netted your additions and collections of finance receivables, you generated about $125 million in free cash compared to roughly negative cash flow of $95 million a year ago. Is this a trend of positive cash flow generation now that most of the credit business has been bought in-house?

Yes, Liam. Well, one thing I just want to call your attention to because you're a little bit newer to the story. Last year, we did have, in Q2 of 2011, an $89 million repayment in regard to settlement of a CIT arbitration matter. So when you're looking at the full year cash flow, that's something that impacted 2011 that we didn't have this year. So it's one thing if you're looking at the full year column. But now to answer your question, the on-book portfolio, as I mentioned earlier, we expect will still grow $80 million, $90 million in terms of 2013. And though we don't provide guidance, we'd like to call that out because we know that people have followed us and are trying to model the transition of the formerly-owned CIT portfolio to Snap-on. That is largely behind us. If you look at the chart, you'll see that, I believe, there was about $53 million left at the end of the year that was owned by CIT, and $11 million to $12 million of that is extended credit. That is about the remainder of what transitions over to us. So that is largely behind us. Snap-on Credit will continue to use cash in 2013, but not nearly to the same rate as what it did in 2012 and 2011.

Our next question will come from Gary Prestopino of Barrington Research.

In terms of -- and I always ask this with Europe. In terms of the headwinds there, it's been constant for quite a while. But Europe's kind of moved out of the headlines here?

Yes.

And just wondering, is it at least a stable decline or is it continuing to decline for you?

Yes. No, it's pretty much -- I tried to have that come through in the remarks. It's pretty much stable. It's down a little bit. The landscape in Europe is sort of -- to go back to a geometric concept, it's not congruent, but it's similar to what it was in the third quarter. South is down double digits, strong double digits, the core is down single digits and the Eastern Europe is up. Now that's the same in this quarter. The difference in this quarter was the core was down a little bit more. I think, look, France was down, Denmark -- for us, anyway, France was down, Denmark was down, the U.K. was down, Norway was down, so a few of those -- and when you look at the GDPs, why? The U.K. flattened out, France is now negative, Denmark is negative, and so you can see it reflected in the GDP, so it's kind of not surprising. But when you're looking at saying, well, the third quarter versus the fourth quarter, Europe was a headwind in both quarters, but only slightly bigger in the fourth quarter. So it's kind of stabilized as just one continuing pain.

One continuing pain. Okay. And did you mention just what, year-over-year, your emerging market revenue growth was?

We did not mention that. We said double digits, actually, but we didn't mention exactly -- we did -- it's double digits. So we grow faster than the GDPs of the region. We said that -- actually, we got some -- normally, we don't talk about places like Thailand and Indonesia, but they were pretty good. So we kind of highlighted them there. Everybody always talks about India, which was up nice, and China and so on. But really, really, we're getting -- we saw some nice broad growth there this year. And like I said, we opened a new factory, so we can see our strength building stronger. And if you were at the Reseller's Meetings, which is like the Distributor's with several hundred resellers, you would have been, I think, impressed with the enthusiasm they have there for our product because they see the repair wave rising. It hasn't started yet because the installation of product is just starting. Everything is new there and the repair is starting, so they see themselves getting in on a ground floor something good.

Did you -- could you give us an idea of what percentage of your sales were coming from emerging markets?

It's getting upwards close to 10%, that kind of thing, right now. And like I said, that's why I think that's -- they're underrepresented in our number now because our business really -- and when I say business, I mean the broad industry, that what we do hasn't really taken off in importance yet in that region. I expect it to be a much bigger percentage of our total pie when that wave starts to rise.

That was my next question. Like, say, on a 5-year basis, what are your expectations for what percentage of sales would be coming from these emerging markets?

Geez, I don't know. I don't want to do that. I think you guys can figure that out. We're growing faster than GDP. We think we can continue that for a while.

[Operator Instructions] We'll go next to Adam Brooks of Sidoti & Company. Adam Brooks - Sidoti & Company, LLC: Just a few questions here. You mentioned in the Tools Group that eventually you trail down to that 4% to 6% range, but it sounds like you could stay above that range for the next year. So is that reasonable to assume?

I did not say that. I said that I expect it to be 4% to 6%. I think they are managing the business superbly. I think they are -- I whisper, I think they are gaining position, if not share. But I would say that we still see it in that range. When that happens, I'm not going to speculate. Adam Brooks - Sidoti & Company, LLC: Okay. Fair enough. But, two, on the military side, can you give us a sense, as a percentage of C&I, what that business is?

Well, I can give you a percentage. Look, we don't give -- I have resisted over the years giving out numbers for segments. But I'll just do this. Look, they're part of the critical industries division, the industrial division. This is a $420 million business. We've mentioned 5 or 6 segments in that business. You can kind of split them up. This is -- because we started the focus on military first, this is one of the bigger ones, and then you have to understand that the fourth quarter is the biggest of the quarters for that business. You start to do that, you can start to triangulate to roughly how big it is. Adam Brooks - Sidoti & Company, LLC: Okay. And then real quickly, just maybe a comment on cash flow for 2013, expectations as far as working capital?

So working capital tends to be about 25%. It was a little bit higher than that in terms of the sales revenue. I think it was more like 25.9% in the quarter. But it tends to be up and around that area. Certainly, there's always opportunities to improve working capital performance, but I would suggest that I would use that ratio still going forward.

We'll go next to Richard Hilgert of MorningStar.

Just wanted to follow up on the delinquencies, wanted to talk a little bit about C&I and also a little bit about the military spending. On the delinquencies, the fourth quarter, on the extended credit side in the U.S., actually went up a little bit versus the fourth quarter of 2011. Conversely, on the internationals, it went down a little bit in the fourth quarter versus the fourth quarter of 2011. So I'm wondering -- that kind of seems counterintuitive given what's happening in Europe versus the recovery that's been going on for the last 3 years here in the U.S. On the C&I margin stuff in conjunction with the RCI initiatives, C&I has historically had the lowest margins of the group, and I'm wondering if the increases that we've seen bringing it more closer to the hand tools business, the traditional Snap-on Tools business, I'm wondering if RCI is the factor here or if it's the mix of product or if it's a combination of both? And if that's the case, if RCI actually gets the C&I group closer to the hand tools margin. And then the third issue, the military spending. I'm assuming, obviously, with all of the different budget talks and sequestration and everything in D.C. that this was the impact there. So I'm wondering, if we get past the sequestration here over the next couple of months, is there some pent-up demand maybe there in the military? And we might see second or third quarter actually doing better than expectations?

Well, I'll answer 2 of those, and I'll let Aldo deal with the delinquency question. Look, well, who knows what's going to happen in Washington. And so I don't think anybody can speculate there. We have -- our military business is biggest in the fourth quarter, and the first quarter has historically been sort of the second biggest quarter in that regard. So if we don't get this sequestration, if it doesn't break loose, we'll have a comparison that's not as tough as the fourth quarter, but easier than the -- more difficult than the second or third quarters, going out there. But I don't know about pent-up demand. We're in a funny time in the military, and I don't think you can speculate there. That's one possible future. I suppose it's one possible future that everything gets solved and the floodgates open and things happen. I'm not sure. I think it's a you pick them type thing. You can't really forecast that. But that's a possibility. It's a possibility. I think the other thing you have to think about, though, is the sequestration, and then on top of that, there is the longer-term sort of bias associated with the troop wind down. So you have some of that on top of it. So you have those 2 things in play. The military business is not dead, though. There is a future for it, and we think it will be a good business going long-term. That's certainly the big question. Now in terms of the margins associated with the C&I, there's -- any quarter, there's goes ins and goes outs, and there's more profitable businesses and less profitable business, so there can be a mix effect, but you can generally -- if you're talking about long-term trajectory in C&I, you are talking pretty much about the idea of RCI and the question of volume leverage. We say generally that our Snap-on value creation systems allow us to make more money at flat sales. And then we get leverage on top of that. So that helps the situation. For example, in Europe, we've been lowering the breakeven. So if we get more volume, we get some leverage on that. That drives up those numbers. But I guess you would come back to saying lowering the breakeven is RCI-driven. So the long -- the short answer to this is C&I rises through RCI drive, and we expect to, over time, to do just that. Aldo will talk about the [indiscernible].

Yes, Richard, briefly on the portfolio performance. As we said, it's well in line with our expectations. Generally speaking, if you look at the -- a little bit of seasonality, they tend to run up the 60-day delinquencies as they get closer to the Christmas holidays, and payments slow a bit. And you're correct, it was 1.5% this year. It was 1.4% last year. If you go the year back, it was 1.6%. However, we like to look at the allowance for doubtful accounts, as we call it, and that we look more at the life cycle of these loans because they tend to run 36, 37 months. And if you look of that, it actually nominally improved. It's still about 3%, and that's the number that we've been talking about as we go on the road over the past year, but actually slightly improves. So the performance characteristics in the U.S. portfolio are well within the range of our expectations. As you point out, on the international side, we're still learning how to grow at risk-based analytics. So we're a little bit more selective historically on the credit risk that we take in the international markets. We're trying to flex and leverage some of the learnings we have in the United States. However, the United States is not the same as the United Kingdom or Australia. There are differences, but we're trying to introduce some of those lessons learned based on our years of experience here in the U.S. We'll probably get a little bit more aggressive on some of our credit positions and grow sales, but that will be a nominal effect on the gross portfolio in total. So I hope that answers your question.

Yes, that's very helpful. Just one follow-up, if I could, please, on the Financial Services portfolio. Now that you've had a good couple of years of experience with this, have you been able to roll out any particular programs or special financing deals that you wouldn't have been able to do having outsourced this in the past?

Not really. I'll say that in 2 ways. One is we always have new programs, but they're within the confines of working hand and glove with the Tools Group. It always was that way before. There's a little bit more energy and positive alignment because it's a wholly-owned operation, yes. But I'd say we're still working within the bounds of how we did it before.

Let me add to that. I think having -- when you run businesses, there's a big difference between having a wholly-owned business and a 50-50 joint venture. As close as we worked with the 50-50 joint venture with Snap-on Credit, we worked much closer with them when they became wholly-owned. And so what Aldo says is correct. From a financial structure point of view, from a strictly financial antiseptic point of view, we haven't changed really anything in terms of how we deal with the franchisees. But the Tools Group is very cooperative with the -- I mean, the credit company is very cooperative with the Tools Group to kind of package programs and time them and present them in ways which will excite the franchisees. That kind of cooperation has increased at an extraordinary level, and it's part of what is driving some of this success.

We'll go next to Dax Vlassis of Gates Capital Management.

So I'm just kind of wondering with -- basically, you're at the finish line with bringing on the CIT portfolio. You had the best -- one of the best free cash flow generation quarters in years in this last quarter. The cash flow uses for CapEx and the CIT portfolio look low, relatively speaking. Are you contemplating, now that you've sort of gotten past most of the bringing on the CIT business, are you looking more strategically at acquisitions now? Is there any more of a focus on this from management? And also, what about -- as far as the dividend policy goes, can you discuss your current thinking on the current dividend? I know it was raised recently, but looking at the stock price and looking at the yield, it's sort of low relative to where you've been historically, and given all the cash you're generating, can you talk about rewarding shareholders by giving us more of it?

Look, I think our priorities for -- just let me state probably what I've said on another call, that our priorities for use of cash are organic growth around capital expenditures. I'm not married to the -- necessarily the capital expenditure numbers. It can go up over the years. Secondly, the idea of organic growth around capital expenditures and those things, working capital, which Aldo talked about, then things like M&A, which you are quite correct that we are kind of passing through the period where we've managed through the largest acquisition this company has ever made. And so we have more energy to focus on things like acquisitions. And so you can talk about that. And then the dividends, we raised the dividends 11.8% just in November, and you might remember that we have paid a dividend every quarter since 1939 and we have never reduced it. So our kind of dividend policy is make sure we can maintain perpetuity on the dividend, and that's what we do. And then finally, there's share buyback for dilution, and we think that matches our cash flow reasonably well. We think with all those of things, we can put our cash to work.

Yes, I understand that, but if you look at the OpCo sort of balance sheet, I mean, you're almost debt-free, net debt-free at that entity, and that's the way I look at it. I know there's other ways other people look at it. But if you look at that, I mean, you're woefully underleveraged, and I'm just wondering if you guys don't have the capacity to make acquisitions, you don't have a team, you don't understand the economics of it? Because, I mean, at some point, the lack of leverage on the OpCo, it starts to diminish equity returns.

Actually, actually...

I realize there's a point that it gets too much and it gets risky, but, I mean, it's -- I mean, you're not even at half a turn on the parent company cash flows, so can you just address that?

We understand that. I think we understand. I -- actually, I think we look at it in many ways, and one of the ways to look at it is that OpCo is debt-free, and that would say that we have substantial firepower for acquisitions, and I can assure you we know how to use such things. We have people here who would've been quite experienced in acquisitions. And so acquisitions...

Well, experienced, Nick, and actively looking and finding deals and putting the other deals, you haven't really proven the ability to do that. I mean, I haven't -- you haven't really done any. I mean, you could call CIT an acquisition, but you already knew the business. It was already -- you already managed it previously, so you kind of knew what you were getting there. I'm just wondering if you have the resources there and whether you're actively out in the marketplace looking, or whether this is just an exercise, if something comes along and somebody makes a phone call to you, that you'll respond to it?

Well, I'm not actually -- I can assure you that we are -- we have the resources, and it has our attention. I'm not going to detail what we actually do, how we're approaching this, to you, certainly. But I can assure you that it's getting our attention.

And it appears that's all the time we have for questions today. I'd like to turn the conference back to our presenters for any additional or closing remarks.

Thanks, Augusta. For everyone, a replay of the call will be available later today at snap-on.com. We thank you for joining us today and for your interest in Snap-on. Have a good day. Bye.

That does conclude today's conference. Thank you all for your participation.