Stanley Black & Decker, Inc. (SWK) Q3 2011 Earnings Report, Transcript and Summary

Welcome to the Q3 2011 Stanley Black & Decker Inc. Earnings Conference Call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Kate White Vanek, Vice President of Investor Relations. Ms. White Vanek, you may begin.

Thanks so much, Kim. Good morning, everybody, and thank you, all, for joining us for the Stanley Black & Decker's Third Quarter 2011 Conference Call. On the call in addition to myself is John Lundgren, President and CEO; Jim Loree, Executive Vice President and COO; and Don Allan, Senior Vice President and CFO. I'd like to point out that our earnings release, which was issued yesterday after the close and a supplemental presentation, which we will certainly refer to during the call are on the Investor Relations portion of our website, stanleyblackanddecker.com. This morning, John, Jim and Don will review Stanley's third quarter results and various other topical matters, followed by a Q&A session. There is some helpful information in the appendix of the slide deck as it relates to your models. If you have questions, please contact me directly after the call. In addition, you'll note on the cover of our PowerPoint presentation for this quarter, you'll see a barcode on the cover. You can access our DEWALT Hand Tools mobile site by downloading the free scan app available on your App Store, and you'll be able to access the site by clicking on the code from there. A replay of the call will be available beginning at 2:00 today. Replay number and access code are on the release. And as always, you can download the earnings replay as a podcast from iTunes as well, should you be interested. We will be making some forward-looking statements during this call. Such statements are based on assumptions of future events that may not prove to be accurate. And as such, they involve risks and uncertainties. It is therefore possible that actual results may differ materially from any forward-looking statements that we might make today. And we direct you to the cautionary statements in the 8-K, which we filed with the press release and in our most recent '34 Act. With that, I will now turn the call over to our CEO, John Lundgren.

Thanks, Kate, and good morning, everyone. If we could focus on the first slide, I think the greatest highlight of the third quarter '11 is in the earnings number itself, which excluding merger-related charges, increased almost 40% versus the prior year. Revenues were up 11%, $2.6 billion, organically up 4% in what you'll hear is a relatively soft market. By segment, CDIY grew 5% organically, excluding Pfister and previously announced divestitures such as the Delta business. Within CDIY, our Professional Power Tools sales rose over 20% on the strengths of some very exciting and very well-received new product introductions that Jim is going to talk to you a little bit about in the segment analysis. 10% organic growth in our Industrial segment. We're seeing great strength there, both in IAR, as well as some of our Infrastructure segments. Security was flat versus prior year. There are a lot of puts and calls within Security in general and within the Mechanical Access portion of Security in particular. But despite the flat volume, our margins as you'll see in a second, were very strong in Security. Dilutive GAAP earnings were $0.92 a share, $1.34 excluding the M&A-related charges, and repeat that, that is plus 38% versus third quarter 2010. 13.9% operating margin. That excludes Niscayah, which is included for about 3.5 weeks in our results. That's up 130 basis points from the same period a year ago. Strong margins in Security as I have suggested earlier, 20.2%. And that was within Security, our Convergent Security Solutions business posted record profitability. SFS continues to be embraced. And as a consequence, working capital turns increased 24% to 5.7. Again, excluding Niscayah, which was only part of the company for 3 weeks in September. As Don will point out in our outlook and as he looks at our balance sheet and cash flow, working capital turns and the improvement in turns and many other things as a result of the embedding of the Stanley Fulfillment System across the larger company, is a tremendous ongoing source of cash. Niscayah closed on September 9. We've made really good progress in the first 5 weeks. And per our announcement, and I'll talk about it a little bit later, we're expecting $0.20 of accretion next year, $80 million in synergies by 2013, resulting in even further accretion. $350 million share repurchase took place during the third quarter, and that's about $100 million more than we previously communicated. We bought in a total of 5.6 million shares. So the earnings was driven by a lot of things: healthy organic growth relative to the market and cost synergies from the ongoing success of the Black & Decker integration. We've had a lot of conversation on various geographies, and it is a mixed bag around the world, but generally positive as this chart will show. Organic revenues, as I mentioned, were up 4%. But if we start on the middle left in our largest market, plus 3% in the U.S. That represents more than 55% of Stanley Black & Decker's total revenue. Canada was flat, represents 7% of our total revenue. And Europe, our second largest market, was plus 3%, again with very strong performance in the Industrial segment, relative softness in CDIY, but healthy performance nonetheless relative to the market and some good, relatively good early results in Security from a margin perspective and relatively flat from a volume perspective. Looking at Latin America. Our revenue synergies are really beginning to gain traction in Latin America. It represents 9% of our combined revenues and we had 23% organic growth in Latin America during the third quarter. Asia grew 9% organically and is becoming an increasingly large part of our portfolio. But if you see the bubble that we've highlighted, if you exclude Engineered Fastening, our Emhart business, organic sales growth in Asia was 19%, a tremendous achievement, not dissimilar to Latin America. Engineered Fastening grew sequentially. It had a very good quarter, but it's still feeling the aftereffect of the second quarter tragedies in Japan that had a tremendous effect on the automotive industry, coming back nicely but still not back to pre-tsunami and earthquake levels. And last and arguably least, representing 1% of our volume, organic sales were down 8% in Australia. We think that's a quarterly aberration rather than an ongoing trend. Australia remains a very important market for us despite its small size. So Europe is steady and emerging markets, Asia, Latin America, continuing to expand at a tremendous rate. Looking at the sources of growth. As I suggested earlier, Professional Power Tools and the Industrial business posted really, really strong organic growth, despite relatively subdued end markets. Volume, 4%, as I've said. Price was flat. Jim and Don will come onto that a little bit. We had some positive list price increases and some greater-than-expected promotional activity on some of our older-generation products to enhance and help the sell-through. But all-in, flat price during the quarter, with organic volume up 4%. Currency helped us, 3%, and the impact of acquisitions, 4%, for your total top line growth of 11%. If you're looking within the businesses, Professional Power Tools & Accessories, 17%; industrial, 10%; Security, excluding the automatic door business, or Stanley Access Technologies, was plus 2%; Consumer Power Tools were flat; Hand Tools and Fasteners, most of which is the legacy Stanley Hand Tool business, was down 6% with relative softness in the U.S. and Europe and strong strength everywhere else. Access Technologies, as Jim will talk about in the segments, our automatic door business down 9%. It's rare for them to have a down quarter. Some retrofit business with large customers was delayed. The business remains very strong. And Pfister down 22%, not dissimilar to last quarter as that reflects the impact of lost SKUs at a major customer that's been in place since the first of the year. And we'll have one more quarter of that type of comparison before we've reach, if you will, steady state on the Pfister business. So it gives you a little more granularity inside the segment. And Jim will give you some of the cause and effects in just a minute. Finally, integration, first and foremost on many of our minds, certainly mine, in the senior management team. I'll talk about 2 different programs running in parallel. First, the Black & Decker integration within Stanley to become one company remains on track. We're projected to achieve $450 million in cost synergies by 2013 and enter 2014 at a $485 million annualized basis. We're getting into the major project implementation phase. We've consolidated 2 major distribution centers, 3 plants, they are progress on time and on budget. We're tracking these very, very closely because the interdependency of these projects and the resulting increased complexity is very, very important and it's as important as ever that we stay on top of these. We are as part of our, I'd say, rigorous and, I think, well understood integration process. Senior management and the relevant project managers meet regularly with our normal dashboard format to ensure that these programs stay on track. We have $115 million in incremental cost synergies this year. That's going to drive about $0.50 in earnings accretion. And something that we're very excited about is our revenue synergy projects. They're beginning to yield strong results. They're still on track for $300 million to $400 million in incremental revenue and $0.35 to $0.50 EPS accretion by the end of 2013. The biggest opportunities, it's already showing up in the numbers, are in CDIY and IAR in Latin America, both Argentina and Brazil, and it's really encouraging to see these results. Niscayah, as I mentioned, closed on September 9. It was a publicly traded company. The first 4, now 5 weeks of the integration, confirmed our ability to achieve the stated cost synergies of $80 million. It's more than just a European business. I think it's important to understand there is overlap in the U.S., about 15% of Niscayah's business is in the U.S. and about 15% of the legacy Stanley Convergent Security business was in the U.K. and France. So there's really good opportunity in those 3 geographies, as well as an opportunity to drive some synergies through improved practices across the rest of the system. The management team is in place. Massimo Grassi, one of our most senior executives in Europe, has been named to head Security Europe. He brings global experience and a lot of experience managing cross cultures, cross integrations. We very much like what we found with Niscayah. Tremendous field organization, quite decentralized relative to the Stanley model. We will get everything that can be done in one place done in one place, and Massimo has been overseeing that for about 4 years with our company. And anything that touches a customer and end user will continue to be done locally because that's the way we do it in Europe. That's our model for success and we're quite encouraged by the prospects for Niscayah 5 to 6 weeks into it. The pro forma financial impact is, per our information release, we're expecting $45 million of cost synergies and $0.20 accretion next year, another $35 million in the following year, which will ultimately result in $0.45 of accretion. Both the incremental accretion from Black & Decker and next year's accretion from Niscayah are included in the 2012 preliminary outlook that Don provided. But let me turn it over to Jim to give you some more granularity on our 3 reporting segments for the third quarter and going forward.

Okay, thank you, John. In light of the continued difficult global construction market, CDIY delivered a very solid performance. Total sales were $1.338 billion, up 6% from the third quarter '10. Segment profit of $170 million was also up 6% and the profit rate held nicely in the 13% range. Organic sales were plus 3% but up 5%, as John said, excluding Pfister and the divestitures. And the Professional Power Tools & Accessories business was overwhelmingly positive with 17% organic growth on the strength of its lithium-ion share gains, as well as increased promotional activity on older-generation power tool products. Consumer Power Tools was flat organically with a weak backdrop in the U.S. and Europe, offsetting double-digit gains in Asia and Latin America, and Hand Tools and Fastening was down 6%, of which 2 points of that erosion was due to a business model change with the Bostitch industrial business, which shifted over from a direct to a distributor model. But broad POS pressure in the U.S. and Europe was really at the core here. And it more than offset DEWALT Hand Tools share gains, listing gains and strong emerging market -- and a strong emerging market performance. As you can see, CDIY revenues in Latin America grew 19%, with above-average operating margin rates. But the highlight really was in Professional Power Tools, which grew over 20% due to the success of the 18- and 20-volt Max lithium-ion line and continued strength from the 12v lithium-ion line that was introduced a year ago. And Power Tool Accessories were strong as well, up 6%, which is a continued focus for us to grow that highly profitable recurring abrasives and accessories line. Let's talk about pricing. And I know that's on a lot of people's minds. But pricing actions were successful in CDIY during the quarter. We locked in the final increases that were out there hanging, and we now have successfully achieved our goals in terms of list price increases to offset inflation. But during the quarter, we chose to offset the benefit from that with higher promotional discounts on NiCad and other older-generation products. And you can understand with limited store traffic and increasing dichotomy between the pros who simply want the best power tool out there, i.e. our new lithium-ion, and those who are more interested in good performance at a lower price point, we felt that this was the best gambit available to us to affect the phase in, phase out and maximize revenue and profit. And we think it did. So all in all, a decent showing for CDIY. Revenue growth, profit growth and share gain all against a tough market backdrop. Security also had strong profit growth in a weak environment. Total sales were $656 million, up 17%, with acquisitions contributing 15 of the 17 points. Organic sales growth was flat. Segment profit was $110 million, up a very strong 26%, a nice operating leverage. And synergies from the Black & Decker and other acquisitions, price and productivity more than offsetting inflation, and ex acquisition charges, the segment profit rate was 18.4% and ex the temporary margin dilution from the new acquisitions, Security OM percent was actually 20.2%, certainly a very good place for that to be and we haven't seen that in a long, long time. As the businesses went, CSS or Convergent Security, was up 1%, with 4% growth in RMR, recurring revenue, monthly revenue, and install volume was down 2%. But healthy order flow from both national accounts and core commercial accounts left us with an increasing backlog and orders were up 10% in the U.S., U.K. during the quarter and up 4% overall in this subsegment. Also notable, CSS France, the home of the ADT France acquisition, which we made a year ago, really progressed quite smoothly and now we've gotten that operating margin rate into the mid-teens as we promised and are now ready to digest the Niscayah activities as well in France. So that's definitely another highlight. And then in addition, a business that we will be featuring in the future as a growth engine in the coming years, Healthcare Solutions was up 12% organically, indicating some of the power and potential of that unit due to strong sales in both patient security and RFID-enabled storage systems. Turning to Mechanical. Excluding the Access business, organic growth was up 2%, which we think was an excellent performance, given the very difficult market conditions, especially in residential that we and our competitors have been encountering. The story there was clearly share gain, specifically Kwikset, which comported itself quite well at retail during the quarter. Now turning to Access. John mentioned down 9%, continued to fight market headwinds. In this case, Access does have some significant customer concentration and its largest customer elected to delay remodels during the quarter. The rest of the business was quite healthy. But that delay with that large customer resulted in a 9% overall decrease, so we expect that to be a temporary phenomenon. They also maintained their strong profitability, right around 20% operating margin in Access despite that setback. And overall, Mechanical Access operating margin percent was greater than 19%, with 300 basis points of year-over-year expansion, reflecting synergy realization, strong productivity and successful pricing actions. So for 4Q, you can expect another solid quarter for Security, with 3% to 4% organic growth, we think, characterized by very strong Electronic Security and continued market headwinds for MAS and Access. Niscayah will also be accretive to OM dollars but certainly not to the rate. Turning to Industrial. Once again, Industrial had a great quarter. Revenues were up $642 million, up 19% over the third quarter. Segment profit was $106 million, up 31% and the operating margin rate expanded to 16.5%. All 3 of the subsegments had healthy organic growth during the quarter, leading to a 10% organic growth performance for Industrial overall. IAR was up 6% organically as industrial and mobile distribution, as well as Engineered Storage benefited from strong customer demand and market share gains. And for the old-time Mac aficionados, Mac had its third consecutive quarter of double-digit growth and is operating at record operating margin rate levels as we go. Solid revenue growth for the entire North American segment of Industrial & Automotive Repair, it was up 12% organically. And in emerging market, volume was up 20%, more than offsetting a modestly softer Europe. New products, particularly in the mid-price point range, as the market has shifted slightly, gained traction globally with strong results in emerging markets and the operating margin rate expanded 350 basis points, driven by operating leverage cost synergies and successful price inflation recovery. Engineered Fastening had a terrific showing, with organic revenues up 14%, 3x the growth in global light vehicle production, as new products such as the T-Series Stud Welding, which debuted at Volkswagen during the quarter, and increased platform and penetration market share gains, and as John mentioned, production in Japan rebounded sequentially as we expected. And that is now on the road to recovery, well on the road to recovery. Infrastructure was the star of the quarter in terms of organic growth, up 19% in the segment and pro forma revenues for CRC were up in the mid-single-digits on stronger international product sales. And operating margin rate for that acquisition topped 18%. Hydraulic sales were up 30% on continued market strength in that small but very, very successful business. On balance, another strong quarter for Industrial, really complementing the other units and helping us drive a pretty good performance for the total company. Now as we move to working capital. On working capital, we made excellent progress during the quarter and we have started the multiyear trek to drive legacy Black & Decker to 8 to 9 turns, thus enabling us to extract, over time, a $0.5 billion of cash from unproductive assets. This quarter, the highlights were accounts receivable and accounts payable. And as you can see, accounts receivable drove $96 million of cash vis-à-vis the prior year. That was in the face of 11% sales growth. So very difficult to do, but that obviously was a very nice improvement in days. Payables drove $118 million of cash flow versus the prior year and took its days from 60 to 74, a 14-day increase. Inventories, on the other hand, I would look for a significant inventory turns increase in the fourth quarter. Inventory takes a little bit longer when you make the process improvements to get the results. But from where I sit, I can see excellent progress in the business units across the company. We have solid plans in place to affect this improvement in the fourth quarter. I think that's going to go a long ways towards contributing to the $1.1 billion of cash flow that we expect to drive this year. Working capital through SFS is a momentum gain and we are gaining momentum. So more to come and stay tuned. Now I'll turn it over to Don Allan, who'll take you through the financial aspects.

Thank you, Jim. So we start on Page 12. I'd like to spend a little bit of time talking about our free cash flow performance. As a reminder, this does exclude M&A charges, the numbers on the page. Specifically, if we start with working capital, as Jim mentioned on the previous page, we had a very nice performance year-over-year. But sequentially, we had a little bit of a retraction of working capital, which is why you see a $45 million negative. Very much a seasonality phenomena, where we tend to see a great deal of our working capital benefit occur in the fourth quarter, of both legacy companies for Stanley and Black & Decker. And so throughout the year, we've had a slight negative performance in working capital, as you see $121 million. We would expect that to turn positive in the fourth quarter, closer to $100 million and $150 million of a positive. That will drive a lot of the strong cash flow performance that we'll see next quarter and will allow us to feel that we've achieved our $1.1 billion of free cash flow for the year. A couple of other items of note on the page. If you look at other large negative in there, and we talked about this throughout the year, as I mentioned in the July earnings call, we had a significant tax settlement in the first and the second quarter that was noncash of about $70 million. We also have a large pension payment that's occurring throughout the year, which will be about $80 million by the end of the year, $60 million through 3 quarters. And then a few other items that make up that $233 million of a negative. Even with that though, we feel that we'll be able to achieve our $1.1 billion free cash flow by the end of the year. Another item of note is CapEx. In line with our projections, it's about 2.1% of revenue. And this will be CapEx excluding any M&A-related capital activities. But it's on track for our expectations. So why would we feel comfortable that we can achieve $1.1 billion in free cash flow for the year? Well, one of the big items is what I've mentioned, working capital will swing to a positive of about $100 million to $150 million for the full year after the fourth quarter has been completed. And that's really due to the phenomena of seasonality, as well as the SFS activities that Jim was describing on the previous page. Additionally, if you look at history of the 2 legacy companies over the past 2 years, anywhere from 50% to 60% of the free cash flow is achieved in the fourth quarter. If you utilize both types of analytical statistics it gets you to $1 billion, $1.1 billion of a projection for the year, hence why we feel comfortable that we can achieve the free cash flow performance by the end of 2011. Moving to the next page, spending a little bit of time on 2011 outlook. The first item I want to talk about is net organic sales. Our current projection for the year is 3.5% organic sales, which is down from the 4% to 5% we provided in July. I'll remind everyone that our guidance throughout the year has really been predicated on very little market growth in the mature markets in Europe and in the United States. But what we have seen in the third quarter, and we expect to continue in the fourth quarter, is a bit of a retraction in the U.S. hand tool volumes, as Jim discussed, on the segment slides earlier. We would imagine that likely will continue in the fourth quarter. We're also seeing modest softness in Europe. We discussed softness in CDIY back in July. We're also seeing a little bit of softness in our Industrial & Automotive Repair tool business and a flat performance in our Security business in Europe. Offsetting that is a great performance in our Engineered Fastening business, as both John and Jim had discussed earlier this morning. But we'd expect those trends to continue. Hence, why we believe we'll have a lower organic growth performance in revenue this year. What that means to EPS is that we still believe we'll be able to achieve our EPS range, where we communicated in July a range of $5.15 to $5.40, although we would be at the lower end of the range and the Q4 EPS will be $1.30. A few items embedded in our forecast for the year. They're more nonoperational in nature, as you can see on the last bullet on the left-hand side of this page. We certainly did a buyback of $350 million or 5.6 million shares, which drove our share count down and our average for the year will now be approximately $167 million versus $170 million we communicated in July. The tax benefits that we had in the third quarter, where our tax rate was around 20%, in the third quarter, we would expect this for the year, the tax rate will be between 17% and 18%. So lower than we communicated in July. So those 2 items together, about an $0.18 EPS positive for the entire year. Offsetting that, though, is what's been happening with foreign currency, and we see a significant decline in the euro versus the dollar. Primarily that's the main driver. And that's having a negative impact of $0.13 cents on our forecast as well. So the net impact of that is about a $0.05 positive on the outlook for 2011. Moving to the right side of the page, we believe the total revenue growth performance will be about 12.5%. I mentioned the organic piece of 3.5% and then we believe acquisitions, which a large part of that will be Niscayah as well as currency, will add an additional 9% for the year. And then a little bit of housekeeping related to interest, other net and restructuring. We still expect that to be approximately $330 million as we're definitely having lower non-M&A restructuring this year. However, we have higher amortization that's coming from Niscayah that pretty much offsets that, so a net mutual versus what we were seeing in July. We're reiterating a few items. We expect $200 million in cost synergies in 2011. We believe that even with the promotional discounting that Jim described around pricing, we still will achieve price inflation recovery of between 33% and 50%, closer to the bottom end of that range. And then our free cash flow, I mentioned earlier, of $1.1 billion being achieved. So we're still achieving our lower end of our guidance range that we started with earlier in the year, despite very turbulent market conditions and a few unforeseen headwinds. So looking ahead to 2012. We thought it was important to give various folks some insight into what are thoughts were related to 2012. If we assume economic conditions remain as is, so we have a little bit of softness in parts of Europe and in some of the U.S. hand tool markets, we have strength in some of our Industrial businesses, expecting modest growth in Security, et cetera, we believe $6 EPS for 2012 appears achievable, and here's why. If you start with 2011 as a base, if you're utilizing the $1.30 guidance I just provided for the fourth quarter and adding that to our year-to-date EPS performance of $3.89, gets you to a $5.19 EPS for 2011. John mentioned that we have $115 million of cost synergies related to Black & Decker in 2012, which is about $0.50 EPS earnings accretion. We also have the Niscayah transaction that John discussed. That will be $0.20 accretion in 2012. So those are 2 items that we can execute upon and perform, which will drive accretion of a significant nature. Additionally, if we just take an assumption around volume and revenue synergies that will have a consistent performance to what we've seen this year, which is in essence driving growth in emerging markets, both market growth and revenue synergy base, gaining market share, as well as a relatively flat performance in the mature markets of Europe and the United States, you could see that we would have a relatively consistent performance with 2011. Offsetting those 3 positives will be a tax kind of clawback, where we had a 17.5% tax rate in 2011. I would imagine that would return back into the 20s for 2012. That will be a bit of a negative as we walk to 2012 $6 EPS. A few items that are not shown here that offset each other would be general productivity as we drive productivity through our supply chain. That will be a positive. But we will have a bit of an overhang, especially in the first and part of the second quarter of inflation versus price that will carry over into next year. And then if currency rates stay where they are today, we will have a bit of a negative drag from FX. Those 3 items will offset each other at this point in time, which is why we feel comfortable that the $6 is achievable. So to summarize the call this morning, the integrations of both Black & Decker and Niscayah are progressing very well. We're comfortable with the Niscayah leadership and the integration teams are in place. As Jim and John touched on the market share gains, they're very evident across all 3 of our segments. Professional Power Tools are up 20% despite no increase in housing starts. The Engineered Fastening business, up 14%, which is approximately 3x global light vehicle production around the world. Our Security hardware business, up 10%, in a declining market. The ongoing global company-wide SFS implementation is definitely gaining traction. You saw the numbers that Jim presented. Working capital turns have increased 24% versus the prior year. It's really demonstrating the organizational agility and the effectiveness of integrating Black & Decker and assimilating them into the Stanley Fulfillment System. This powerful accretion from both cost and revenue synergies that have existed in 2011, that will carry over into 2012, which is why we believe we can drive an EPS performance of $6. With that, we'll open it up to Q&A.

Great. Kim, we'd like to open up and begin our Q&A. As always, we're going to follow the one question, one follow-up model going forward.

[Operator Instructions] And at this time, we have a question from Dan Oppenheim from Credit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: Just wondering if you -- you talked a lot about the thoughts going to the $6 earnings for 2012. Can you give any sort of quick thoughts in terms of your cash flow and thought on what you can do to SFS next year for cash flow generation but also thinking about any potential contributions to the pension?

Yes, Dan, it's Don. I would say that the pension -- just to deal with that last part, the pension contribution will be consistent with 2011, so there wouldn't be any significant increase there. As far as the free cash flow performance, we do believe we will exceed $1.1 billion next year as well, and we will have a nice working capital performance embedded in that. And I would imagine you'd see working capital turns improve about 0.5 turn in 2012 versus 2011. Daniel Oppenheim - Crédit Suisse AG, Research Division: Okay. And then also, I guess, the follow-up would be just really into hand tools in terms of the promotional activity, in terms of pricing there. As you look forward to the coming year, assuming sort of a challenging environment here, are you assuming that there is continued pressure in terms of pricing and margins in that area?

Yes, this is Jim. The way we constructed the promotional activity, it was essentially a one-quarter phenomenon. Now we also have some promotional activity in the fourth quarter. This time, it will be in the Consumer Power Tools business and much more so than the Professional as you get into the seasonal aspects of Consumer Power Tools and the gifts and so forth, that tends to be more in their fairway. Beyond that, it really remains to be seen what happens with the competitive backdrop in terms of pricing. All our competitors have, like we have, faced significant price inflation. We raised our prices, they didn't for the most part. So we're going to be just kind of stepping back and observing, and we'll see what happens with respect to that and we will do what we have to do to maximize our share and our profitability.

Our next question comes from Jim Lucas from Janney Capital Markets.

First question, regarding the M&A pipeline. With Niscayah now closed and the share repurchase largely completed this year, could you talk a little bit about the appetite for deals as well as what you're seeing in the pipeline these days?

Sure, Jim, this is John. We always have an appetite, as those who follow the company know, because historically, between 50% and 2/3 of our free cash has gone to acquisitions. That being said, those who follow us will also know we're very disciplined in terms of our credit rating, financial hurdles for acquisitions and our organizational capacity, all of which will come into play. Our 5 strategic growth platforms remain the same. We've been pretty public with what they are: Convergent, Mechanical, Security, Engineered Fastening, Healthcare and Infrastructure. There is a good pipeline. I think the important thing to know is the majority of that pipeline is outside the U.S., number one, and in very high-growth emerging markets, number two. But 2 things importantly there, those do take longer to incubate, many are private companies and we need to be quite comfortable that we have both the financial and organizational capacity with the cash we generate, as well as with the people we can put on the field before we pursue one. So our strategy remains the same. Our financial discipline remains the same. Organizational capacity remains a discipline. The focus is on those 5 areas. And from a geographic perspective, it's in very high-growth markets. And I guess, I'd go so far to say it won't be in the first half of the year where you see something game-changing and that we don't feel that we have either the organizational or financial capacity to do that.

Yes. And I would just like to follow up, and this is Jim, to say that as we look at an acquisition at this point in time, we're looking at trading that up against a share repurchase. And as you saw in the quarter, we bought $100 million more than we had previously planned because of the opportunistic price that we felt was on the table. And we will continue to make that evaluation on an ongoing basis. When you're trading for 6x EBITDA, it's hard to get your head around paying 11x or 12x or 10x or 9x even for something, unless the synergies are so rich that after the implementation, you get to a point where you're at or near the market multiple of the company. So it's a tougher decision. It's a more thoughtful decision right now as it relates to whether we buy our own stock or whether we buy another company. Now in this case of international acquisitions, as John mentioned, that will probably be our focus. The pipeline is certainly strong there and the obvious benefit from that strategically is there. But you also have the opportunity to use international cash that otherwise could not be deployed in favor of share repurchase. So it's the U.S. acquisitions that really get the tough scrutiny as to whether we should do them or not in the face of what I just described.

Okay, very helpful. And as a follow-up, you gave us some color on the initial revenue synergies that you've captured using Latin America as an example. Could you talk a little bit more about some of the early successes of any standout, as well as you're looking at it, are others beginning to emerge that you didn't identify initially?

Sure. I'll take it, and Jim should feel free to follow up. Couple 3 that are in the marketplace, so we're quite comfortable talking about it. I'll start with Latin America first. The fact that we're producing and selling Stanley-branded Hand Tools in Uberaba. That's our plant in Brazil, our legacy BDK plant, with a tremendous adjacent distribution center, where historically Stanley ran a very high-priced import model. It was subject to 18% plus tariff. So Stanley Hand Tools produced in Latin America, sold in Latin America through a well-established Black & Decker distribution channel, jumps right out as probably the biggest one, Jim. The second one bring to mind is things like DEWALT Hand Tools at a large domestic customer, which of course could not have been done under the previous regime. DEWALT is an incredibly powerful brand name, but Black & Decker didn't have the capability to produce or source hand tools that would merit the quality and performance that would merit the DEWALT name or they would've done that on their own a long time ago. That's the second example. Third, just in distribution. Jim mentioned the Mac aficionados. I think most people on the phone understand how the Mac model works. They're essentially franchisees. And while they drive Mac trucks, everything on their truck isn't Mac. The fact that a Mac distributor has DEWALT power tools on his truck, you can only imagine the competitive advantage that gives them and the opportunity that is for the Mac sales folks, which has really helped improve their top line as well as their bottom line. So those are 3 that are in the marketplace, more to come. But we're really pleased with the traction it's gaining and the results that those synergies are generating.

Our next question comes from Michael Rehaut from JPMorgan. Michael Rehaut - JP Morgan Chase & Co, Research Division: First question, if I could just go back to 2012 guidance and the positive impact that you expect from volume and revenue synergies. Obviously, we're still a couple of quarters away, but -- or at least a quarter away rather, but I was wondering if you could parse out kind of, of the positive impact, how much incremental -- you've been talking about a 50 bps of positive top line growth from revenue this year, what that might be next year? And of the core volume, let's say, how much from developed markets versus emerging markets?

Michael, it's Don. I would -- we're certainly not giving specific guidance yet, but to give you a little bit of an indication of our thought process. Certainly, we've seen about 3.5% organic growth in 2011 and about 50 basis points of that is coming from revenue synergies. As we go into 2012, we would expect that the revenue synergy number to increase a little bit from a percentage point as we go into the year, so somewhere between 50 and 100 basis points coming from revenue synergies. Combining that, we do expect emerging markets around the world to grow from a market growth perspective and gaining share, not really duplicating what I'm describing around revenue synergies. So that's going to give us some growth. And then our belief right now is we're going to continue to see some of the softness that we've seen in Europe continue next year. So maybe a little bit of a retraction for the first part of the year and a stabilization and flat performance in the back half. And then the U.S. will be similar, I think, in that regard. What we've seen this year will continue or what we've seen in the back half will continue into next year. So the mature markets, we wouldn't expect much growth, in some cases, a little bit of a retraction. And then a lot of our growth is going to come from emerging markets and revenue synergies. And that's our current thought process. Michael Rehaut - JP Morgan Chase & Co, Research Division: That's really helpful. I appreciate it. Second question, if we could just go back to the promotions in the power tools, if you could just kind of give us a sense. You said Professional grew over 20%. How much you might think came from the promotions themselves? And I guess, conceptually speaking, you put through the price increase, yet you also had these promotions. What's your view in terms of the stability of that price increase? And is it just something that, I guess, like you said before, you're going to have to take on a quarter-by-quarter basis?

Sure, Mike, a fair question. I think I fear you misinterpreted Jim's comments. And I'm really glad you asked the question to give us a chance to clarify. Essentially, none of that growth came from promotion. Let me break the power tools. The overwhelming majority of that increase came because we had tremendous sell-through on the 12-volt lithium-ion Max product and tremendous pipeline and sell-in on the really, really well-accepted 18- and 20-volt. That's where the overwhelming majority of the lift came. It's where we got the pricing. And of course, we have to announce pricing -- not have to, but we chose to announce pricing across the entire Professional Power Tool line and sell-in and sell-through of those at higher prices was terrific. The promotion that we talked about, recall that's still a very large part of our franchises in the older nickel cadmium technology. And the point Jim made is a very important one. It's a high-performing product, but the reason lithium-ion is growing so much is the charge lasts longer and it is greener. It's also a lot more expensive. So there are folks who are looking at good performance for a good price, who want the NiCad but we're required to promote it more heavily than the lithium-ion product. And then the last point that Jim raised, remember the Black & Decker brand, which is very powerful, is less focused at the professional user as opposed to the DIYer, and it's also a very, very important gift item. It's one of the few brands and products in our line that has any seasonality at all. They are very popular Christmas gifts for dad, for granddad, for the child with a new apartment or a new home. And so there is some fourth quarter seasonality historically promoting of the Black & Decker Consumer Power Tool brand. Having said all that, we will maintain or continue to grow share. We will not be at a price disadvantage or premium to our competitors. We are the market leader and as a consequence, behave like the price leader. And if we're out there alone, we'll promote to get back to competitive market prices. And if we're not, we will continue to gain share at higher prices. And I think that's the best guidance we can provide you. We look at this daily, not quarter-to-quarter or in the rearview mirror. I think, so you don't get cut off, another very important point to make, we've talked about this on previous calls, our pricing center of excellence works very closely with our global sourcing organization to see inflationary increases long before they show up in product costs, so our SBU managers know they're coming, can either reengineer or condition the sales force for the need to take a price increase, so we get out ahead of it. The result, at the end of the day, we're in an industry where historically, real prices have declined 1% to 2% a year for the last 10 years. Gross margins are about 35%. If you didn't somehow, between productivity and price, get 3% a year, your margins would decline. Our margins are not declining. In fact, they're growing. So it suggests a combination of price and productivity has historically and will continue to deliver well above industry average margins. And we think we have the programs and processes in place and look at it closely enough to carry that forward for the next 12 months.

And If I could just take it to a very tactical level, the impact from the promotions from a revenue perspective in CDIY might have been somewhere between 1% and 2% of sales in the quarter. And our estimation is that the market was probably slightly negative. And so that probably just got us right up to about flat. And anything beyond that was driven by new product introductions.

Our next question comes from Stephen Kim from Barclays Capital.

Guys, I was wondering if you could address the issue of inventory destocking. Obviously, as we're looking across the Industrial group, it's something that people -- as we look ahead into the fourth quarter and year end, people are a little concerned that we may see a wave of inventory destocking. Typically, I would think that your product mix isn't going to be particularly susceptible to that. However, we have in the past seen Black & Decker talk about that probably a little bit more than Stanley. So I was curious if you could talk about what you see from your customers in terms of vulnerability to an inventory destocking wave if one were to come.

Sure, Stephen, it's Don. I'd be happy to talk about that. Obviously, I think as you're aware and many folks are, we are monitoring POS and weeks on stocks on hand on a regular basis. So we get that information for our major customers, and we're always monitoring to make sure that we're not getting ahead of ourselves from an inventory perspective. Right now, where we are, we feel comfortable where inventory levels are. We tend to want them to be somewhere between on average, 10 to 12 weeks of inventory on hand in our major customers. And you may have small pieces that deviate from that range. But overall, if we're in that range, we feel reasonably comfortable with the levels of inventory. Additionally, we're always listening to any signals from our customers as to whether there's change in thought process of levels of inventory that they may want to maintain. At this stage, we're not aware of anything that would cause a concern in that light. Our inventories are at the right level based on the range I provided, as well as we're not hearing any signals from our customers that, that's a particular initiative or set of actions they may be considering or evaluating.

That's comforting to hear. Thanks a lot for that. Second question relates to the geographic breakdown that you provided on Page 5, where Latin America was up organic 23%. I was curious as to whether or not you could talk about what the margin profile looks like for your Latin American offering, whether it's generally higher margin or lower margin to your company average.

Yes, we actually put that in the presentation. And we'll say this much, it's a very fair question, and it's an important answer. It is above line average margin. We are not going to get more granular than that on this call for obvious reasons. But when it's growing that fast, a very logical and fair question is: Are you growing volume up at the expense of share and margin? We are really pleased due to a combination of premium products and a very competitive cost position due to a world-class manufacturing facility and a good local management team that the entire business in Latin America is above our line average for each specific segment.

And we can say the same thing for Asia as well. You grow into Asia, you grow into Latin America, you grow into mix and the higher margin.

Our next question comes from Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Most of my questions have been asked and answered. One small one, I guess, that's left for me, CRC-Evans, the margins look terrific, the sales being up only mid-single-digit. I would've thought that, that end market would have been a little bit more robust with pipeline CapEx where it is. I know it's a niche business for you. But what do you ascertain that the market share trends there for CRC? And is the integration perhaps affecting top line execution?

This is Jim. Certainly, we're very encouraged by what we have purchased. And what I will tell you is that if there's any governor on sales right now with CRC-Evans, it is the onshore business in North America. And the onshore business in North America has been characterized by -- especially at 48-inch pipeline in that segment, which is our sweet spot, has been characterized by bureaucratic, unnecessary delays that are related to environmentalists, government, et cetera. And it's incredibly frustrating. There are all sorts of opportunities, the Keystone Pipeline being the biggest that could really drive tens of millions of dollars of revenue and many jobs for this country. And unfortunately, it's delayed. Now it looks like it might be breaking loose. And if it does, it will be a great market for us. In the meantime, we're not sitting still. We have -- actually, I'd say the integration has helped these folks in terms of their product development strategy because where the action is today is in the less than 48-inch pipeline. We are completely redeveloping products that are suited for that particular market, but that's unfortunately a couple of quarters out before we really get the benefit of that. So the shale and those types of things, it's all going to be a narrow pipeline. So when we get prepared to serve that market, it's also going to be very strong for us. And then finally, the offshore business, which is really the outstanding part of this business that we have made so much progress in over the last year, winning accounts with the 2 major pipeline suppliers in the world on the offshore basis. We have a terrific value proposition with welding, coating, pipe laying, inspection and so forth. We've gained market share. We've had many, many wins around the world, and that will be coming next year in force. It's a $30 million business today. We expect it to be $100 million to $200 million within a couple of years, and next year will be a very significant growth from offshore. So no matter what happens in the onshore business, we're going to get great growth from the offshore. If we can get the products configured to the smaller diameter pipelines and if the government can get off dead center here and get going with the Keystone project and some other major projects, I think we'll be in great shape.

Sam, this is John. So you don't get cut off and you're able to ask a second question, I'll add 2 things. First of all, Jim Loree is not running for public office. He's too valuable as a senior executive at Stanley Black & Decker as much as we think he'd make a wonderful government official. Second, probably equally important point, simply for us, this is a very lumpy business that we're getting used to. You know our business well and in our Industrial platform, about 80% of what we do is made to stock. It comes out of a customer's maintenance budget. It's no less predictable than our CDIY business. Infrastructure, in general, but Hydraulics and CRC in particular, these are generally big numbers, big projects, and quite frankly, depending on when they're executed, when they're completed and when they hit the P&L, if we have $400 million business, it isn't $100 million a quarter. It's $70 million, one quarter and $130 million, the next. And I think it's important that as we look at it, that we understand that. And we're looking at longer-term trends because the orders, they tend to come in much bigger numbers and bigger chunks. And as a consequence, it's just a lumpier business than 80% of what we do. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: The other question is what's the latest plan and update for Pfister at this point?

Yes. Well, it's a business that needs to, like any and all of our businesses, needs to earn its cost of capital to remain a valuable part of our portfolio. And what I'm able to say at this stage, Sam, is it took a tremendous bowshot in the first quarter, lost 20-plus percent of its business. Since then, it's recovered very, very nicely. They've got a very sound strategy in place. We're looking at the business hard to can it, in fact, recover to the levels of profitability and ongoing strategic position that it can remain part of our portfolio. And if not, as you know, we're fairly dispassionate about these things. And if it can't and we make the decision long term that it won't, it will no longer be part of our portfolio. Jury's still out at this stage, but stay tuned and we'll keep you updated.

Our next question comes from Dennis McGill from Zelman & Associates.

I just wanted to talk about the CDIY margin as a whole segment. We talked a lot about power tools within that. But as we think about the fourth quarter and beyond, I think year-to-date, margins in that business are at 13.5% and you still have somewhere in the neighborhood of $75 million to $100 million of cost synergies to come. Is this a business that can do 15% to 16% type operating margins? Or because of the competitive nature of the peers and the end channel, do you have to start reinvesting that back into the business? I guess, just some help thinking about the fourth quarter rate as well as just longer-term.

Dennis, it's Don. As far as the fourth quarter rate goes, I mean, I think if you look at the third quarter, it's indicative of what you're going to probably see in the fourth quarter roughly. As far as long term, I believe that this can be a 15% segment from an operating margin perspective. It will require continued execution on the cost synergies. It will require price discipline around inflationary environments et cetera. And of course, the most important thing, it will definitely need to be able to provide continual new products into the marketplace like it's done over the last 12 to 18 months than frankly both companies have done over the last several decades. So those are the keys to being successful and being a market leader with the powerful brands that we have in that particular sector. And when economic market growth comes, and it will some day, I just don't know when, there's no doubt in my mind it will be above 15% operating margin.

Okay. The second question relates to just the overall business mix in Europe. I think most of the comments you made seems as though business held in pretty well during the third quarter and you noted maybe some modest softening into the early part of next year. How do you sort of think about the risk of what's going on over there, the risk of the recession, parts of your business that would maybe be most impacted or any red flags that you guys are on the lookout for that we also could be thinking about as it relates to the international exposure?

It's interesting when you look at what are the risks to our revenue line from a double dip, for example. Let's say that Europe were to drive a double dip in a global sense. The construction market today accounts for about 2/3 of our revenues when you take into account both resi, non-resi and I include DIY in that and commercial. I don't know how much less construction could go on. We're approaching very close to 0. So now could you have inventory corrections? Yes, but they tend to be temporary. So there could be some volatility in some quarters. On the Industrial side, if I go back to 2009 and think back to the implosion that we had in Industrial, driven primarily by inventories, our Industrial production globally was down 2 or 3, 4 points and volume in Industrial was down 20 to 30 points. And that was characteristic across the industrial universe. That could happen again. So as we look at it, we have a reasonable amount of confidence that they will get their act together in the EU, over time. I think most people have a reasonable level of confidence that they will. Nothing happens quickly because there's so much consensus that needs to be built. But if, for some reason, the wheels come off, this is a management team that took this company through the 2008, 2009 downturn, which was gut-wrenching successfully, and we will do it again. And we will use exactly the same approach, which is we will resize the cost structure to line up with the revenues that we will be looking at, at the time. And we will go on the offense during that timeframe and we will take actions to position the company for success, both within the downturn and as we come out of the downturn. Do we think that's going to happen? Absolutely not. Are we cognizant that it could happen and it's more than the de minimis probability? Absolutely, and we're ready for it.

Our next question comes from Jason Feldman from UBS.

So if we look at the 2012 guidance, the earnings guidance is up about 15%. Free cash guidance looks like its flat to up slightly. It's still pretty good free cash conversion. I think it's about 110%. But when I think about the discrepancy between the growth rates and earnings versus free cash flow for next year, is that primarily because the incremental working capital opportunities are lesser next year or that a big chunk of that work was already done this year? Or is there something else there?

Jason, it's Don. What I said was we expect to achieve $1.1 billion next year. So we didn't actually give a specific number. We just expect it to be higher. As we finalize our guidance in January and provide more detailed insight, we'll give more specifics about what we think that number is. But to your point about working capital, I think there -- and Jim mentioned it in his presentation, there's a great deal of opportunity to continue to drive working capital benefit. And Jim indicated $0.5 billion of assets that can be freed up from legacy Black & Decker over the next 2 to 3 years. We would expect a portion of that number to be achieved in 2012, and then the vast majority, the remainder of it in 2013 and maybe part of '14.

Yes, Jason, it's John. I mean, it's early days, I think, in fairness to be projecting cash flow. We had a lot of discussion as to what we wanted to say about 2012, but we thought it would help you and everybody on the phone. But I'm quite comfortable saying that remember, a meaningful percentage of the entire management team of Stanley Black & Decker's incentives in measurement is based on cash conversion. So you know it's a focal point for the company. But I think on the same token, taking $100 million or $200 million out of working capital, out of inventory specifically, year in, year out, is not a 2-foot putt straight uphill. There are a lot of moving pieces. And I'm very comfortable with SFS, the traction it's gaining. But the last thing anybody should do, including this management team or anybody on the phone is take it for granted that, that goes on in perpetuity. So there's arguably some thoughtful conservatism in the guidance that Don's giving. And we'll get more granular on that on our first quarter call, and obviously, on the fourth quarter results in January. But your question's a fair one. But I think we're where we need to be for the time being.

That's helpful. Also if we're thinking about 2012, I understand that none of us has a crystal ball. But if we assume the macro environment remains the same, which seems to be kind of the underlying premise behind the framework that you created for 2012, how should we think about some of the company-specific business situations that you had this year? And what the impact could be on growth rates? And specifically, you have the access business where you had some remodeling delays, so maybe there could be some catch-up there. Presumably next year, we won't have a headwind in fastening in Japan. The Pfister issues anniversary, I believe, next quarter, and kind of the alleviation of those headwinds. Does that wind up potentially having a material impact on the growth rate next year even if the macro environment is unchanged?

Jason, everything you mentioned and approximately 15 things you haven't, some of which are far greater impact, some of which are less, are what went into our thinking as we put our preliminary numbers together. It is really too early to talk about each and every one, not because we won't, it's because we don't think we have a better view than you do. Everything you said and everything we've thought about is baked into the 3.5% global organic growth that in mid-October 2011 is our best guess off a base from where we think we will depart 2011.

Our next question comes from Ken Zener from KeyBanc.

I wonder if you could talk about the strength in North America IAR, which is if Europe was down kind of -- soft, it would appear that you had a high single, low double-digit success in America. I know you're talking about the trucks channel penetration. Do you see that as really structural? And how much of that structural component is related to kind of key competitors, Apex Tools, not being as focused? Or could you kind of describe what's going on there because it contributed so much to the margin expansion?

Ken, we're not going to talk about specific competitors on our call. We never have and never will. But Jim can give you a very granular perspective on what's going on, and it's all good.

Yes. And I think we clearly are getting some help from the market, no question, a couple of points of help from the market. It's been in auto repair with the aging fleet in this country has been a good market, not spectacular but solid. And so that's helped. But I think underlying that, the industrial markets have been healthy as well. In certain segments, such as automotive OEM, for example, in aerospace and some other key segments for that business. So we've had some market tailwinds. But I think the biggest positive thing going on in IAR North America and around the globe is the emergence of that business as a global platform, being run as a global platform as opposed to a series of smaller business units that were not coordinated. And the single biggest benefit from that has been leveraging the product development from the FACOM group based in Europe and driving new products into Mac Tools. And then from a Proto perspective, I think we benefited greatly from its strength in some of the verticals such as petrochem and aerospace and some other verticals that have been strong around the globe. And taking the Black & Decker and Stanley-merged global distribution structure and leveraging Proto across the globe into the emerging markets in other areas around the world, that shows up in North America because it's Proto. And Proto shows up in North America today. I think that's helped as well. So it's been a combination of market strength, and at the same time, I think, improved execution in this business, deriving primarily from changing the business model to be a globally coordinated business with product development centered in Europe and driven into various markets around the world.

And this next question, just because we're going to be approaching the 3-year anniversary of Black & Decker, I wonder if you could just kind of have kind of a broader look back. Obviously, the $6 number which you guys came out early on in 2012, kind of coincides with that 3-year outlook. Could you kind of talk about how obviously there's different -- I think the top line has been pretty similar to what you guys expected at 2%. You guys obviously got more upside on the cost synergies, sales and you have Niscayah and some other things. Can you just kind of talk about the prospect of how that $6 that you came out with do appreciate early compares to kind of what you thought the business would be like 3 years ago? If that's a fair question.

Ken, it's Don. If you think about going back to November of 2009 when we announced the transaction, we had a view of the top line that was very little growth, about 2% or so, 2% or 3% and we had $350 million of cost synergies and we haven't provided any estimates of revenue synergies at that point. Subsequent to what's happened, since then and the last almost coming up on 2 years, I guess, of the announcement in the next month, we've increased our cost synergies to $485 million on an annualized basis for 2013. We've got revenue synergies of $300 million to $400 million. And frankly, the top line growth has been a little bit stronger than that 2% number that you were talking, not a lot. So you have a little bit of that going on as well. Offsetting some of those positive things, as we certainly didn't expect the commodity inflationary environment we had in 2011. We've been able to mitigate that partially with the price increases we talked about throughout the year and today. But we had a vision of being $5 EPS and $1 billion free cash flow in year 3. We're achieving over $1 billion free cash flow this year and we're over $5 EPS this year. So we're certainly well ahead of schedule based on the items that I kind of laid out and feel very pleased with where we are in the current state of the integration.

And Ken, I'll add because you'll get cut off. From a qualitative perspective, we're very pleased. It's as simple as that. Starting at the board level, the way the expertise from the 2 boards have come together. We just finished the board meeting and you have to stop and think who was the legacy Stanley director, who was the Black & Decker director. Corporate headquarters is in New Britain, Connecticut. Stanley was the prevailing company. That makes sense. We're running our CDIY business from Towson, Maryland, the entire CDIY-wide business, that's where Black & Decker Power Tools is headquartered. We run the entire Security business from Indianapolis. We run our IAR business, as Jim said, as a global platform from Brussels, Belgium in a neutral site. And if you sit in a meeting, whether it be a strategy review, a budget review or a quarterly review, we're at the stage where you have stop and think that the person presenting was legacy Stanley or legacy Black & Decker. I would tell you and Mark Mathieu, our Senior Vice President of Human Resources, would tell you that's the acid test beyond the numbers, how it's coming together. And less than 2 full years into it or exactly 2 years post-announcement, I feel very good as the CEO of this company where we are. That being said, I feel equally passionate that we need to continue at the same pace to truly differentiate this company from its competitors. And that's what we intend to do.

Our final question comes from David MacGregor from Longbow Research.

With respect to Europe, I know there's a lot of concern about Europe these days. Don, in your remarks, I think you mentioned that you expected Europe to be soft in the first half and stable in the second half. Can you help us calibrate the risk in the 2012 European story by giving us some kind of EPS sensitivity to a percentage change in your revenue or maybe an incremental margin?

David, this is John. In the interest of everybody, Don has done that and so maybe we could check the transcript that simply said, "We don't think it's going to get any worse." And when the global CDIY and construction market was down 75%, our unit volume was down 15%. So we just don't see step function changes due to a 2% or 3% softening in European GDP. It's 23% of our business. We've got meaningful platforms with all 3 businesses. I mean, round numbers. We've got $800 billion Security business, CDIY business and Industrial business. So it's a 3-legged stool. So I don't want to be cavalier and hopefully, I don't sound that way about the macroeconomic conditions in Europe. There's nothing we can do to control it. We spend our time worrying about the things and focusing on the things over which we do have some control and making sure we have contingency plans, as Jim described in great detail. Were it to get really bad, what we would do about it? So as a consequence that macroeconomic conditions in Europe had a more than 100 or 200 basis point negative impact on our top line, we would adjust our cost structure accordingly to deliver our earnings commitment.

Okay. I guess, just as a follow-up question. You're active on the share repurchase program this quarter. You've indicated in the past that you devote about 1/3 of your free cash flow back to the shareholders. On the $1.1 billion free cash flow look, it's, what, $350 million, $370 million of free cash, your dividend consumes about $280 million of that. I guess, the question is just how much more active you can be on the share repurchase front going forward?

I think Jim touched on this, and I believe he was answering a question earlier on. We will continue to evaluate if we're looking at a U.S. acquisition, the alternative of doing a share repurchase. That being said, our cash is all overseas. And so for us to do that, we have to pay a tax and that really makes it very difficult hurdle when you're measuring against the potential acquisition. I don't foresee a great deal of share repurchase in the short and medium-term, but that's something we continue to evaluate as market conditions, in particular the equity markets, seem to fluctuate and have volatility.

Kim, I believe that concludes our call today. I want to thank everybody for chiming in and joining us. As always, please contact me afterwards with questions. And thank you, all.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.