Stanley Black & Decker, Inc. (SWK) Q1 2012 Earnings Report, Transcript and Summary

Kathryn H. White Vanek - Vice President of Investor Relations John F. Lundgren - Chief Executive Officer, President, Director and Chairman of Executive Committee James M. Loree - Chief Operating Officer and Executive Vice President Donald Allan - Chief Financial Officer and Senior Vice President

Jason Feldman - UBS Investment Bank, Research Division Stephen Kim - Barclays Capital, Research Division Michael Rehaut - JP Morgan Chase & Co, Research Division Mike Wood - Macquarie Research Daniel Oppenheim - Crédit Suisse AG, Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division Eric Bosshard - Cleveland Research Company Sam Darkatsh - Raymond James & Associates, Inc., Research Division Nicole DeBlase - Morgan Stanley, Research Division Richard M. Kwas - Wells Fargo Securities, LLC, Research Division David S. MacGregor - Longbow Research LLC Joshua K. Chan - Robert W. Baird & Co. Incorporated, Research Division Michael Kim - Imperial Capital, LLC, Research Division

Welcome to the Q1 2012 Stanley Black & Decker Inc. Earnings Conference Call. My name is Sandra, and I'll 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 Vice President of Investor Relations, Kate Vanek. Ms. Vanek, you may begin.

Thank you so much Sandra, and good morning, everybody. Thank you all so much for joining us for the Stanley Black & Decker first quarter 2012 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. Our earnings release, which was issued after yesterday's close and a supplemental presentation which we will refer to during the call, are available on the IR portion of our website as well as on our iPhone and iPad app. This morning, John, Jim and Don will review Stanley's 2012 first quarter results and various other topical matters followed by a Q&A session. We encourage you to make one question. You can have one follow up after that. As always, please feel free to contact me with any follow-up questions after today's call. And as I normally have to do, 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 risk and uncertainty. 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 that we filed with our press release and in our most recent '34 Act. With that, I will now turn our call over to our CEO, John Lundgren.

Thanks, Kate, and good morning, everybody. Thanks for being with us. An excellent turn out on the call. And with the first quarter in the rear view mirror, we remain well positioned, we think, for whatever faces us in terms of the macroeconomic environment. Solid results across the majority of our businesses, and we'll get into each and every one in a little -- in more specifics in just a second. Revenues per the release were up 12% year-on-year to $2.7 billion, organically up 3%. Our largest segment, CDIY shipments, grew 3% organically. POS is currently outpacing shipments, up significantly and Jim will talk about that a little bit more when we get into the segment detail. Industrial, the bright spot clearly in the quarter, grew 7% organically with strength in all geographies. Security grew 39% due primarily to the Niscayah acquisition, minus 1% organically with a series of low single-digit puts and calls. Again, Jim will provide more detail on that in our segment breakdown. So from an earnings perspective, x charges, $1.09. EBITDA was up 11% on a GAAP basis, $0.72 on a fully diluted GAAP basis; that, of course, includes all the restructuring charges. About a month ago, March 12 marked the 2-year anniversary of closing the Stanley Black & Decker combination. All aspects remain on track. We're significantly exceeding our initial targets and reaching our revised targets, providing further validation, as is the Niscayah integration, of a successful, scalable, global integration process. I'll touch a bit on Niscayah and a bit more detail. It's progressing well. We're slightly beyond the 6-month mark, all systems go. And as Don will discuss in more detail at the end of our short presentation, we are reiterating our guidance for 10% to 15% earnings growth and 20% cash flow growth for 2012. Looking at the sources of growth. Steady organic growth trajectory was established during the quarter. As you can see, volume was up 2%. We did get a percent of price, which was primarily carryover of previously implemented price increases later in the year, so 3% organically. Acquisitions, overwhelmingly Niscayah, contributed another 10% and currency was minus 1% unfavorable for a total of 12% growth. Looking at some of the specific businesses as mentioned. Industrial, strong plus 7% globally, organically. Our Professional Power Tools and Accessories business, new product-driven grew 6%. Our Residential and Mechanical Access business grew -- Mechanical Security business grew 6%. Consumer Power Tools, which does include outdoor, shipments were up 2%. Hand Tools and Fasteners up 1%. Convergent Security, down 3%, that's pro forma. With Niscayah and MAS Commercial down 4%, with the declines focused on our Access business and commercial locks and national accounts with some strong competitive activity, and Jim will talk a little bit about that and our feelings towards those businesses going forward, we still feel they're in -- they're high-margin businesses in very good shape. Let's look geographically at the first quarter versus prior year. Middle left if we start with the U.S., which represents 40% of our revenue. It grew 1% in total organically. Moving to the right, EMEA, Europe, Middle East and Africa, our second-largest geography, was flat organically. It was really a tale of 2 geographies with strong growth in the North, where the majority of our business sits offset by some significant declines, primarily macroeconomic driven in Southern Europe. But all in, Europe was flat, which was slightly ahead of our expectations for the first quarter on a global basis. Looking at our emerging markets. Latin America, up 19%, continuing to show strong growth across all businesses; Asia, up 10%, representing 5% of our revenue, 13% if we exclude Engineered Fastening in the quarter; and finally, 2 small but well-established geographies were down low-single digits, Canada and Australia. Lots of competition in CDIY and IAR in both those markets and some conscious business withdrawal of security in Australia. Just a brief update on Niscayah, as we've just passed the 6-month mark since closing that acquisition. So far, so good. I think is the best way to summarize Niscayah. But just a little more insight than we've provided in the past that we think will be helpful. No change in our target for $45 million in cost synergies and about $0.20 of accretion this year, $0.45 of accretion on a cumulative basis by 2014. We are managing this process the exact same way we manage all significant acquisitions, with a fully dedicated integration team and regular rhythms reporting to [ph] senior management, that includes Don Allan, Jim, myself and several of our key staff officers. All regions and functions are on track to meet or exceed their synergies. We do have a leadership team that's now focused on embedding disciplined operating rigor, as well as driving growth initiatives for this business. And importantly, 85% of Niscayah is in Europe. We recognized and included a weak European market environment in our original projections and commitments on EPS. And to date, our volumes in Europe are actually down slightly less than we anticipated when we put the deal together. Jim will talk a little bit about that as he discusses Convergent Security. Just one last point on Niscayah. 15% or only 15% of the businesses in the U.S., but a disproportionately larger percentage of our synergies are coming in the U.S. due to overlap. Those are 90% complete in terms of field office location consolidations, management consolidations. We have -- very capable commercial and vertical market expertise has been added to Stanley's Convergent Security team via Niscayah. And Europe remains on track as well, but as you all know, it's at a slightly slower pace due to the regulatory environment in Europe. So at this stage, at the 6-month juncture, good feelings about Niscayah, both strategically and from an integration perspective. Let me turn it over to Jim, who's going to take you with some more granularity through our 3 segments.

Okay. Thanks, John. Let's start with CDIY. CDIY had an in-line quarter and continues to build momentum. Revenues totaled $1.228 billion, up 1%. Operating margin was $171 million, also up a point. Organic growth was up 3%, all attributable to volume growth, and price was neutral. The OM rate held flat despite a severe 230-basis-point inflation headwind, as productivity projects and synergies offset that issue. Along geographic axes the midteens organic growth in Latin America offset EMEA, which was down 2% organically, driven by weak market conditions, especially in Southern Europe. The all-important North American region was up 3%, but the encouraging developing story is POS performance. In North America, aggregate POS at our 9 largest customers was up 12%, with 6 of the 9 in high double-digit territory and 1 of the remaining 3 around 10%. POS for Professional Power Tools and consumer products were each up approximately 20%, while Hand Tools and Fastening was up in the low-single digits. Now conversely, organic sales by product line were mixed, as Professional Power Tools and Accessories were up 6%; consumer, up 2%; and Tools and Fastening was up 1%. Clearly, inventories of retail are lean and below normal levels going into the Fathers' Day and spring season. Looking forward, we remain positive on 2012 CDIY growth prospects for both revenue and operating margin, despite the European weakness and the timing of U.S. home improvement-related sales. It shouldn't come as a surprise to anyone that sell in to the channel lags sell-through at POS by a quarter or so when the first quarter POS gains occurred to abruptly and the market seemed to firm up so abruptly at POS. In our guidance, we've assumed continued sluggishness in the U.S., but based on first quarter point-of-sale the market now clearly appears to be firming for housing and home improvement. If that continues, it bodes very well for performance versus expectations as we go forward. Europe will continue to be a headwind, but it will be offset by strong new product initiatives, as well as revenue, synergies, gaining momentum in the third year of the BDK merger, and we're bullish on CDIY margin rates for the remainder of 2012 as ongoing productivity initiatives will deliver 2% to 3% productivity. We'll have very limited unrecovered inflation for the year. All the detail was in issue in the first quarter, this is behind us now. Thirdly, a boost from incremental cost synergies related to the merger, plus CDIY share of the company's previously announced $150 million cost reduction will impact the next several quarters. And finally, we are mixing into both emerging markets and new products, both of which have higher-than-line average margins. Our new Brushless DC and 20v cordless product introductions are now underway in a lineup of new Black & Decker branded products, and outdoor and home products is the most impressive in several years. So let's move to Security. Security achieved excellent revenue on margin growth, as the Niscayah integration proceeded in accordance with our expectations. Security revenues totaled $763 million, up 39%. They were powered by Niscayah, which closed last September and put $1.2 billion of idle cash to work. Operating margin was $92 million, up 25%. The profit rate was 13.4%, as Niscayah mixed it down from 14.2% last year. Excluding acquisitions, the profit rate was 15.5%, a healthy 130-basis-point increase over the first quarter '11. The increase was driven by strong price inflation recovery, as well as ongoing productivity initiatives. We saw some early analyst notes lamenting low security margins, however, those of you covering us for some time know that first quarter security margins are seasonally low. So it's important to focus on the year-over-year performance and not the sequential change in rate. Moving to Niscayah. Europe now represents about 40% of Security revenues, and given the European market conditions, this causes some short-term revenue pressures. However, our announced EPS commitment already assumes significant downward pressure, as I mentioned last quarter, up to a 10% pro forma organic growth downdraft can be absorbed with no negative impact to committed EPS accretion. And notably, the Niscayah pro forma organic growth was minus 4% in the fourth quarter and slightly more favorable in the first quarter. It was a mixed quarter for organic growth in the overall Security segment, which was down 1% in total. Resi mechanical was a standout for the quarter at plus 6%, benefiting from strong market conditions and share gains. Total CSS, including Niscayah, was minus 3% with legacy CSS down 5%. The latter was driven primarily by legacy international activities, the U.K., France and Canada specifically, as well as the wind down of a leasing program implemented in the U.S. during the capital crunch a couple of years ago. RMR was slightly up in the first quarter and new installs were flat. CSS backlog increased significantly in the quarter as orders were up 6%. Commercial and mechanical revenues were down 5% due to weakness in the contract construction channel, which was exacerbated by a shift or continuing shift to midprice point products. In summary, a big sales and profit growth quarter for Security, with most of the benefit coming from the Niscayah acquisition and Resi mechanical organic growth performance. The overall security organic growth picture is more promising for 2Q, with a growing CSS backlog in the U.S. and strong first quarter order activity. Europe will remain tepid, but Niscayah will continue to perform in-line with our commitment. And now onto Industrial. Once again, Industrial delivered a strong performance. Revenues were $662 million, up 7% organically. Operating margin was $124 million, up 19%. Profit rate was a record 19%, up 150 basis points from a year ago. Volume leverage, productivity and solid price inflation recovery all contribute to the expansion. Performance was strong across the businesses with IAR, Engineered Fastening, and Infrastructure all hitting their stride. The Industrial businesses continue to be on a great run, with 10 consecutive quarters of margin expansion, cooperative markets in most regions of the world, good organic growth momentum and above-line average profitability levels across the segment. And now I'll turn it over to Don Allan.

Thank you, Jim. We start on Page 11 and walk through the working capital performance for the first quarter. You can see that the Stanley Fulfillment System continues to drive progress in working capital, where our turns went from 5.6 in the first quarter of 2011 to 6.0 in the first quarter of this year. Obviously, I'll remind everybody of the seasonality effect that we experienced with working capital from the fourth quarter through the first quarter every year, primarily due to our CDIY business, as we see a significant shift in the timing around receivables and inventories in the fourth quarter as they wind down in the later stages of December. And then in the first quarter with a slow first 2 months and then March volume accelerating in manufacturing activity for the spring season. Really drives that dynamic. So we saw a retraction of our working capital turns from 7 turns in the fourth quarter to 6 in the first quarter, but I would expect by Q2 that we'd be bouncing back very close to where we were in Q4 and then we'll continue to make progress throughout the remainder of the year. And I'll touch on that in a little more detail when I get into guidance later on. Looking at the different pieces of working capital, you can see that we continue to make improvements in the area of accounts payable with term changes, process improvements, centralizing sourcing, et cetera have really driven significant benefit in that particular area. It's an area of focus, as many of you know, in the early stages of implementing the Stanley Fulfillment System. We've made great progress in receivables due to the timing issue. You don't see it necessarily in the first quarter, but you definitely will see that continue as the year progresses. And then inventory continues to be our big opportunity. We've made nice progress in that in 2011, but 2012 is another opportunity for us to reduce days in inventory levels and continue to make progression around process improvements. We definitely feel like we're on our journey to 10 working capital turns by the middle of this decade. So with that, we'll move to Page 12. I would just like to remind various folks about how our performance has been versus our peer group over the last 3 years. The Stanley Fulfillment System really is a proven competitive advantage for us. As you can see on Page 12, for 2009, 2010 and '11, our working capital turns significantly outpaced our peers in many ways. In 2009, we were close to 8 turns, well above the peer averages. If we look at -- in 2 different peer groups: Industrial and Tool peers and then our Security peers. And you can see that we significantly outpace their performance in that time frame. Same thing in 2010, when you look at Legacy Stanley at 8.6 turns. And then as we integrated Black & Decker, we were at 5.7, so we kind of had a bit of a restart around the Stanley Fulfillment System and we made a lot of significant progress. As you know, in 2011, we got the total combined company up to 7 working capital turns. Again, significantly outpacing our peer groups, which were approximately at 6 turns at the end of 2011. But even more importantly, if you look at the free cash flow conversion, and again, free cash flow for us is before dividends but includes capital expenditures, our free cash flow conversion has significantly outpaced our peer group as well. And you can see 187% in 2009, 150% in 2010, and then 102% in 2011. These are GAAP numbers, and they do include restructuring charges associated with M&A activity. For 2011, if you exclude that, we were actually at 115% free cash flow conversion in that time frame. Again, significantly outpacing our peer group. So we really feel like we've illustrated our continued ability to outperform in this particular area. And many of you are aware how significant the Stanley Fulfillment System is in our culture, and our processes within our company. So with that, I'd like to turn to 2012 outlook. We are reiterating our outlook for 2012. We believe our earnings per share will grow 10% to 15%, and that's $5.75 to $6 as John mentioned earlier on. And just a few key operating assumptions embedded in there. As we indicated back in January, we believe our organic net sales will increase 1% to 2% on a pro-forma basis, so when you include Niscayah in our revenue base for 2011, it should be approximately $11 billion. This also includes the impact of the BDK revenue synergies, as we continue to make progress in that area. We have cost synergies related to the BDK and Stanley merger of $115 million or $0.50. This year, that's incremental year-over-year, and then $45 million due to the Niscayah acquisition that John touched on, which is $0.20 in EPS. The cost reductions we embarked on that we completed in the first quarter, that are behind us now, of $150 million of an impact in 2012. Results in $0.70 earnings accretion for 2012. As a reminder, we also gave an indication of geographic organic revenue performance for this year back in January, and we are reiterating those items as well in this particular outlook. North America, we believe, will still be up by 1%, so it's reflecting modest market share gains and no U.S. residential construction rebounds. Performance is consistent with what we saw in Q1. But as Jim indicated as he reviewed CDIY, there's clearly indicators that POS is getting stronger and may be the potential for stronger performance, but we'll continue to monitor that as we move forward. Europe, we have down 3% in the first quarter. They were relatively flat as John touched on. But we still have concerns about certain areas of Europe, in particular, Southern Europe, where they're showing significant declines. And we believe that Europe, for the year, will be down 3% given those conditions. Emerging markets, up 10% to 15%, so that would be a slightly slower growth than what we experienced in 2011. And Q1 was slightly better than 15%, closer to 16% to 17%. So we continue to monitor that to see what types of activities are occurring within the different emerging markets. The end result from a free cash flow perspective is that we do believe we'll be at $1.2 billion free cash flow before various M&A charges and payments, and that does assume a modest working capital benefit within there, as we continue to make progress with the implementation of Stanley Fulfillment System versus our achieving 7 working capital turns in 2011. On Page 14, a little more color on our thoughts around outlook associated with the different segments. CDIY, for revenue, we believe, we're still looking at a low single-digit organic revenue growth performance. At this stage, we continue to monitor POS to see if that will change in the second quarter. We feel very good about the successful launch of our 18 to 20v cordless products that occurred last year that continue carry over into the first half of 2012. And there'll be various new products launched later in the year for the back-half performance that allow us to continue to gain share in different channels. We do believe weakness in Europe will continue, but it will be more than offset by a modest growth in North America and then continued strength in both Latin America and Asia. In Security, we're looking at low single-digit organic revenue growth performance, so even though we had a slight revenue decline Q1, we expect that to change in Q2, as Jim indicated, and continue through the remainder of the year. We have embedded a negative retraction for Niscayah revenue within our earnings, or EPS accretion, estimate of $0.20 up to a 10% decline, as Jim also stated. Despite the drag on the segment margin due to Niscayah, due to the various cost synergies and cost containment actions, we do expect the operating margin rate to improve significantly in Q2 and continue to perform better throughout the second half of this year. The Industrial segment, really strong performance in Q1 from a revenue perspective. We do expect that to slow down slightly as the year continues, as the comps get more difficult as the year progresses. Our IAR business continues to be strong in emerging markets, so we expect that strength to continue. Although it will begin to slow down a little bit from a growth perspective in North America, although we will continue to see growth. But we do expect to see some weakness and slight retraction in Europe in that particular business. Our Engineered Fastening business, mid-single digit organic growth for the year as the recovery in Japan continued, and that continues to be a strong performer for us. But we do expect to see slower auto production in Europe, although it will result in growth it will be a much less growth than what we experienced in 2011. So to summarize the presentation portion of the call this morning, we continue to be focused on margin accretion and top line growth. They are our top priorities for 2012, along with focusing on the integration of various acquisitions, primarily Niscayah. We've taking proactive cost actions. We're prepared to respond to market growth if it's greater than what we're anticipating. We're also rolling out new products. We try to gain as much share as possible in all our different businesses. Our long-term capital allocation strategy continues to be the same. We indicated back in January that we were evaluating a meaningful dividend increase. In 2012, we believe that we will have a significant meaningful dividend increase that will be anticipated in the second half and it most likely will be in July, as we want to get back to our normal timing around dividend increases that we had before the merger. The Stanley Fulfillment System, as I touched on, continues to drive great improvement and we're focused on our mid-decade goal of the 10 working capital turns. And as a result, we believe we'll have $1.2 billion in free cash flow for 2012, which will be a 20% increase from 2011. That concludes the presentation portion of the call.

Great. Sandra, if we could open up for Q&A now?

[Operator Instructions] And our first question is from Jason Feldman from UBS.

So if we use the historical 18% to 19% of annual earnings for the first quarter -- the first quarter seems consistent with your full year guidance, but you seem to be very confident that Security margins will kind of progress over the course of the year and improve from the Niscayah synergies, kind of better than normal seasonality. What's the offset in the other direction? Why shouldn't the first quarter actually be smaller than that 18% to 19% or the full year number be higher?

Well, I think, Jason, the -- I think the 18%, 19% clearly, as you indicated, represents the historical view of the 2 different companies, primarily driven by a lot less volume in the first quarter versus the other 3 quarters. We tend to have $250 million to $300 million less volume in the first quarter as a result of that seasonality, primarily in CDIY, but also in our Security business. It drives a lot of that. So we do expect continued operating margin rate expansion and additional growth in our Security segment as the year progresses, so we do expect that to improve significantly versus the first quarter. I wouldn't necessarily expect that our Industrial segment would continue with a 19% operating margin rate that we saw in the first quarter. We're really pleased with that performance, but as we look at the investments we're making in that area as well as a slightly lower volume growth as the year progresses, I would expect that, that will return back to levels that are closer to 17%.

Jason, this is John. Just to -- to be very specific, because of a lot of those on the call have not followed the company for 10 years, as Jim alluded to. The 2 specific seasonality items, to which Don referred, and CDIY, as it’s been quite evident over the years. January is always a very soft month in terms of shipments as the big-box retailers wind down their inventory in the anticipation of their year-end close in January. It does ramp up in Feb, March, but first quarter for CDIY is always a relatively soft quarter, as Don suggested. And then within Security, there is the seasonality to which you referenced, but for -- I guess, for others' benefit, normally that's in Access and in MAS, Commercial MAS. Within Access, there's often weather-related delays in terms of snow, rain, flooding. Far less of that this year than in the past, but most of that's focused on national accounts and a lot of our retrofits aren't scheduled until the second quarter so they don't face weather delays. And on the MAS business, we do a tremendous amount of business on university campuses, also, albeit [ph] more and more business with our Convergent Security Solutions and it stands to reason the overwhelming majority of that business happens in June, July and August when there are fewer students on the campus. So second and third quarters for years have been better quarters than first and fourth for Security. So I hope that, that adds just a little more color to what I think is fairly well understood, but if not, it's an important clarification.

Yes, that's very helpful. And then lastly, I think kind of given positive commentary from some of the big retailers in first quarter construction activity. I think some people may have thought the CDIY, from a revenue perspective, could have been a little bit stronger. Can you elaborate on, I guess, 2 points, how much of a difference was there, how much of an impact did the difference between POS and your shipments make in the quarter? And also, how much of a lag -- I think you've talked about this before, but if you can kind of refresh our memory on how much of a lag there is between any pickup in construction activity and when you actually start to see the benefit for CDIY sales, [indiscernible] in the quarters typically?

Jim, can you [indiscernible]...

I mean I think I covered a lot of the POS versus shipments, but I'll hit the numbers again very quickly. The POS was up 12% for the quarter, and as you know, organic growth was up about 3%. So clearly, there was a significant lag in terms of the sell in to the channel. It is not surprising to me at all. When you think about how the quarter unfolded in the sense that the fourth quarter POS was probably in the neighborhood of 1% positive, and then all of a sudden in January, it's up 10% and it's up 10% all quarter, it didn't get stronger, it didn't get weaker, it just stayed up 10%. So it's almost like a switch was flipped and POS was up 10%. And given that, if I were a retailer and given the warm weather, I would be sitting there saying it's a weather-related pull-in at first. I certainly don't want to bet a bunch of inventory on the fact that, that might not be the -- or that might be the case -- not the case. And then so, normally, we would have a lag of probably about 60 to 90 days anyway, so -- and if you listen to some of the commentary from the retailers, they were clearly citing the weather as a factor. Now whether that was just an attempt to kind of tamp down expectations or whether that was a real issue or how much they attributed that in reality to that phenomenon, I think it's up for discussion or debate. But there was clearly -- that piece of it had a big impact, and I think they were maintaining a cautious stance in terms of -- throughout the quarter, with regard to buying additional product and building their inventories and we know that they ended the quarter with some of the leanest inventories we've seen in a long, long time at retail.

And the next question is from Stephen Kim from Barclays Capital.

So I wanted to just follow up, Jim, on what you were just talking about. I thought I heard you say in your opening remarks that in your view, given the POS data, that it seems like U.S. housing is, I think you used the phrase "clearly recovering," but I might have misheard you. I guess, my question relates, given the strong POS that you've seen here, I was wondering if you could give us a sense for why you're still sort of waiting for Q2 to shape up and if you -- and if there's something that maybe you haven't mentioned that gives you pause and makes you think, perhaps there is, let's say, a weather-related effect or something about the mix of what kinds of products you're seeing very strong POS versus what kinds of products you're not or -- if there's something like that.

Yes. Well, look, the POS was very strong in Power Tools and in Consumer Products, including Power Tools and Outdoor products. So Outdoor, while it may have been weak last year, if you recall the weather was extremely unfavorable last year, it certainly reversed itself this year, and the POS and Outdoor was up, close to 30%. But Power Tools was up about 20% in the aggregate, a little bit less if you take Accessories and put them into the equation. Now I think some of that is clearly share gain. I don't think you're going to see a home improvement POS numbers around 20% for the Tool category. Some of that was clearly weather. There's no doubt in my mind. We had a somewhat weaker POS last year in the first quarter and I could attribute that to some very, very cold and negative weather conditions. However, I think it would be foolish to assume that all of it is weather or even the preponderance is weather. I think that clearly if you look at almost any housing-related statistic in the country, you'll see some modest improvement. And I think people are going back to work gradually in construction projects. I think, maybe even a bigger part of it, home improvement projects, where you had several years of deferral of do-it-yourself projects. We clearly have heard from some of the retailers that they believe that is a factor. So I think it's a mixed bag of things, but general economic conditions are better, confidence is higher. I mean, it's a -- there is, in my opinion, a clear indication that the home improvement market is getting better and it's not just due to weather. Now some of it is absolutely due to weather.

Okay. That's really -- okay, that was really great. I appreciate that. I guess, as a follow-up, can you give us an indication for how you're Bostitch business or your Fastenings business did, and specific I'm talking about the Bostitch type business. And you had -- and Accessories. You had mentioned -- I think you just mentioned that Accessories POS was not up as much as 20%, but I just want to make sure I heard you. I'm really interested in how Accessories and Bostitch, particularly the nail sales, performed in the quarter.

I mean the Accessories business was -- POS was up about 8% in the quarter, so not the stunningly positive performance that you saw in Power Tools. But still a very respectable performance at plus 8%. And then the Bostitch business was down in the low-single digits. I couldn't give you the exact number, but it was probably in the 1% to 2%, 3% kind of a range. The Bostitch business and the nails in particular will be much more tied to home construction as opposed to doing improvement projects than, say, the Power Tools. And I think that's probably why we got some increase in home construction, but it wasn't as notable as I think in the home improvement area.

Yes, Steve, because you'll get cut off, I mean, just 2 specifics that we have shared and we're happy to, the largest single use, as Jim suggests, above the trends that are the structured housing, the second largest use is pallet repair. So to the extent that the economy is good and industry is good and product is moving on pallets, a very large use of Bostitch or a large consumption of Bostitch products is in pallet. More pallet repair than pallet making, but it's very important in that vertical market.

And the next question is from Michael Rehaut from JPMorgan Chase. Michael Rehaut - JP Morgan Chase & Co, Research Division: Just to -- sorry, I don't want to necessarily beat a dead horse and I have my follow-ups on a different topic, but just to understand CDIY and the POS lag, which is helpful to point out, we did notice that you aren't necessarily at the same time raising your full year guidance and to the extent that a 12%-type number comes through or of a similar type of magnitude comes through in the second quarter that could certainly drive some upside to the overall guidance for the full year. Is that just kind of initial caution and you want to see how things continue because I think, Jim, you had just mentioned that you think there's something more than just weather at work.

Michael, it's Don. I -- if you think about it from the perspective of how Jim described it, POS is a fantastic statistic for us to look at. It helps us as an indicator of where we see what's happening in our major customers. But we also have to look at order trends, and if order trends are not exactly in sync with that, which they're not yet, then it's not necessarily prudent and intelligent to raise your guidance based on an indicator that, although very positive and we feel good about it, we want it to continue, we want it to translate into orders and ultimately into revenues. And if that trend does continue at that pace, then we clearly anticipate that the revenue performance would be stronger in the second quarter than currently anticipated. But it's something that we believe in our philosophy and our approach that we actually need to see it translated into orders versus POS.

Yes, and as I mentioned last year or last quarter on the call, the -- I guess, it was -- well, it was January, but in any event, we really wanted to position the company to outperform in the event that we had a construction market or a home improvement market recovery. And the reason being that the -- first all, it's a good stock to be in for that type of a recovery. And what happened was the European cloud that was hanging over Europe was causing some dissonance in that respect, so people -- investors couldn't really feel comfortable with betting on a housing recovery by putting their money in the stock because of the European issue. So we felt that we would simply take the recovery off the table and then the cost reductions were really put in place to make sure that we could cover the European issues, and so now the company is still positioned to outperform in the event that this home improvement and housing recovery issue or opportunity is real. And that's where we are today. Michael Rehaut - JP Morgan Chase & Co, Research Division: Okay. Just as a follow-up to that, maybe just so I can better understand. With the inventories -- it's a kind of 2 part, if I could cheat a little bit, but just to -- clarifying the first and then second. The inventories, you did note, are fairly lean, so I was surprised that you didn't see at least some level of an increase in order trends given the strong POS. So that's kind of the follow-up. The second thing is, on the Hand Tools and Fasteners, I was wondering if you could remind us about your percent of Hand Tools, how that is in terms of total CDIY, the rough sense of the magnitude. And we've heard that there's a -- Home Depot is doing a private label on Hand Tools that might kind of alter dynamics or competitive or pricing dynamics in that category, if you had any thoughts around that.

Yes, I think this is absolutely typical. I mean, there's nothing new. The private label thing has been going on as long as I've been around and long before I even arrived here in 1999. It comes in ebbs and waves. And ultimately, in Hand Tools -- Hand Tools, there's only one company in tools that has the brands in Hand Tools, that overarching brand that spans all the categories that we sink a lot of money into, has more brand equity than any other Hand Tool brand, and we support it and we have a great end-user demand for it. We back it up with innovation and we are not private label. We do not -- we do very little private label. So let the home centers and the MAS merchants do all the private label they want. What happens when private label grows, the marginal brands get squeezed, and ultimately, we're at the high price point, the midprice point. We don't really play at the opening price point. Private label plays at the opening price point, tries to come up into the midprice point, runs right up against the marginal brands and runs right up against us. We tend to win, so we don't -- we're not terribly concerned about private label. We focus on our value proposition, which really is all about what the brand stands for and we feed that brand and we feed the innovation and we're happy to participate. That's the life we live in Hand Tools. Hand Tools and Fastening is about 20% of CDIY.

The next question is from Mike Wood from Macquarie Capital.

Can you elaborate a bit more in terms of what changed with the organic decline in CSS in the order growth that you're seeing and what gives you the confidence that you'll have that organic growth going forward?

As Jim indicated, we clearly have seen different trends in the CSS, North America business in particular. And due to some timing of some of the larger projects, we did see a revenue of flat performance or slightly down performance in that particular business. But the order trends are positive. We had a build in our order book in the first quarter, so we just currently -- we believe it's a timing issue and it's not something that's necessarily reflective of economic or market conditions at this stage.

And just to elaborate a little bit, and obviously you don't get denied your follow-up. A logical conclusion, if orders are picking up, why wouldn't you jack up your organic revenue growth rate forecast? The issue, of course, particularly in Convergent Security where so much of it is first install and then ultimately, recurring revenue-related, it is really hard -- it's a much longer-cycle business than CDIY, where we have a POS that ultimately leads to orders, that ultimately leads to shipments. Quite often, we'll see the order backlog pick up, but it's for projects to be installed or things to be delivered 3, even 6 months in the future. So to translate that to a quarter, is very difficult for our Security team and obviously for Don's finance team to do. So we're encouraged by the order pickup, if not to suggest that it's all going to show up in the second quarter or even the third quarter as it relates to organic revenue growth.

Okay. And then in the Engineered Fastening side, are you hearing anything from customers given that resin shortage that was in the news recently about anything that might curtail auto production there?

Not really, nothing more than we read in the newspapers. It's -- I think they're scrambling -- they're all scrambling to make sure that they don't run into production issues, so we couldn't tell you one way or the other whether ultimately auto production is going to be impacted by that. But I will say that because we really didn't get a chance to talk about Engineered Fastening in the prepared remarks, that we're really pleased with the progress in that business and that the kind of growing content of aluminum-based cars in auto production is a huge positive for Engineered Fastening because of their self-piercing, riveting product line, and there's only one other competitor in the world that really has that and the content in aluminum vehicles is dramatically higher than in other types. So they've got great secular momentum in terms of penetration, and of course, the industry remains reasonably strong this year and perhaps not as strong as it was last year, but still pretty darn strong. I think the -- global auto production was up about 4%.

4% to 5%.

Yes, in the first quarter. And I think we're going to continue to see, notwithstanding some exogenous interruption like you referred to, we're going to continue to see good production in the auto industry, and therefore, good results from our Engineered Fastening friends.

The next question is from Dan Oppenheim from Credit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering in the COI [ph] business, you talked about the strong orders and the weather issues there in terms of holding back some of the order trends. But as you think about -- if you were to think about that improving, do you think we'll then see a slightly less promotional environment there as there's a bit more confidence that it's not just a weather issue, is that sort of what's driving the expectation that better margins will come through in COI through the rest of the year?

That's a significant factor, yes. You'd said orders, Don was very specific. We have not seen the orders yet or we'd be more aggressive with our forecast. We've seen the POS, and as Don normally follows, night [ph], orders normally and shipments normally follow POS, but until we see them, we're not going to be encouraged. So I want to be sure you understood Jim's comments. But I think that's a very logical, I'll say assumption or conclusion, Dan. Daniel Oppenheim - Crédit Suisse AG, Research Division: Okay. And then secondly, I was wondering about would the $150 million in terms of the cost reduction where there's been enacted [ph], how -- when should we start to really see the benefits of that, coming through at least the second quarter and then beyond?

Yes, second quarter and beyond. We could -- we were I think pretty granular last quarter, but it's absolutely worth repeating and I'm glad you asked the question. Essentially, none of that showed up in our margin in the first quarter. We were often off and running by late January, early Feb. But precious little, if any, showed up in the first quarter. We expect more than half of it, 3/4 of it to show up the remainder of the year and some of that will, of course -- get carried into next year.

And the next question is from Ken Zener from KeyBanc Capital Markets.

Can you talk about the strength in IAR? Obviously, I think in the U.S., you're still gaining share. Europe was kind of surprisingly strong. With FACOM [ph] it seemed to me you're making a distinction between the north and southern markets. And then the strength you're seeing in emerging markets, how is that different than mature markets given the aftermarket exposure?

Yes, well, I mean, first of all, I know that was -- was that one question, Ken? Let me start with Europe. Europe, I was -- I think we were all really pleased with the European performance. I don't think that the distribution channel in Europe has as pessimistic a view of the economy as some of the people I listened to on CNBC over there. But from -- I do think it's getting more pessimistic as the days go on, and maybe more realistic in terms of what's happening overall in Europe. But as we know, basically, Italy and Spain are really, really down significantly, like down as much as 20%, in that territory, and then the rest of Europe is much more sanguine. So in fact, the Nordic [ph] region, for instance, is quite positive in Europe right now. And as we know, Germany, where we don't have much volume but just to kind of complete the journey, Germany is slightly positive too, largely driven by, I think, the auto industry but exports in general. So I would expect it to get marginally worse as it sort of spreads, as the malaise spreads around Europe and the reality of the austerity and so forth sets in, in some other countries. The U.K. is a bright spot, I might add. The U.K. for IAR was quite positive. So mixed bag in Europe. And then the emerging markets, the distribution channels are -- it's interesting that the CDIY and IAR distribution channels in many markets around the world are -- there's a lot grayer and blurrier lines between the channels than there are, say, in the U.S. or in Europe or the developed countries. And so whereas in the U.S., you clearly have well-defined channel separation, sometimes in the emerging markets it gets kind of blurry. And so for instance in Latin America, sometimes it's tough to figure out when you're calling a distributor, whether they're a CDIY distributor or an IAR distributor. So for us, it -- and it's true in Southeast Asia and not quite as true in China, but even in China we see it to some extent, so anyway, for us it really -- it's actually an advantage, I think, to have our IAR and CDIY businesses because we can kind of go into the channel leading with, if the channel leans towards one or the other, those strengths and we can go in with those products kind of as the lead and then bring our IAR products or our CDIY products depending on which is the stronger kind of -- in there as well. I think that's one thing. The second thing for us, and one of the reasons I think we're making a lot of progress, is that when we put the companies together, Black & Decker and Stanley, we really got a much more significant scale in the emerging markets and we put a lot more emphasis at our business unit level as well. So for instance, now IAR, we've actually split the management of IAR, where we have Europe and Latin America is run by one gentleman, and North America and Asia is run by a woman executive. And the reason we did that is so that they could spend a significantly better portion of their time on specific emerging market regions. So Joanna, for instance, who runs IAR North America/Asia, spends a fair amount of her time traveling to Asia and working hand-in-hand with the regional people over there and making sure that they have all the resources, making sure that the products are tailored to that particular market and so on. And then Jim, the gentleman who runs Europe and Latin America, does the same thing in Latin America. So they're running their businesses, which are pretty significant businesses within the developed regions, but they also have much more time than if we ran them as one large business unit. And so I think there's different strategies that we're undertaking in every business to attack the emerging markets, but I think in IAR, it's going to be a unique one. It's an experiment to see if it works, but it's so far, so good.

And the next question is from Eric Bosshard from Cleveland Research.

If you can give a little bit more color on the margin trends through the years, specifically 2 points: one, is a little bit more color on -- I didn't totally understand how much of the 2012 cost savings showed up in 1Q. And then secondly, the CDIY margin, I know that there's a price versus cost improvement that takes place during the year, if you could just provide a little bit of sense of how that margin should improve as we work our way through the year.

I'm assuming you're talking specifically CDIY, Eric, in your margin comment?

Yes.

Yes. So obviously, the first quarter, as I mentioned, is the lowest volume quarter for CDIY. It's significantly lower by about $200 million of revenue. And when you look at that and you think about the leverage opportunity where a business that was -- performed at 13.1% in Q1, probably had, as John mentioned, a little bit of the cost reduction actions in the first quarter, but not a great deal that the vast majority of that is going to happen in Q2, Q3 and Q4. Recognizing those 2 items and recognizing that our company -- based on our current outlook, we're going to achieve very close to 15% operating margin this year. The CDIY business needs to achieve that type of level as well from an operating margin rate, which means it's going to get to levels that are around 15% and above as the year progresses. So when you look at price inflation, that's another positive factor associated with that. The inflation is clearly higher, in particular in the first quarter, and it begins to go down significantly in the second and then becomes very small in the third and the fourth quarter. And the price benefits of what we did associated with different actions last year will be a positive that rolls into that as well. And then there's ongoing productivity associated with just normal productivity that occurs every year.

And then the underlying margin in the business, is there anything other than inflation, is that the reason why there's cost savings or is Black & Decker cost savings and the profits in the CDIY are flat in the quarter? Does inflation explain -- that's what's offsetting all of the cost saves and the underlying margin is stable, is that something you could help us with?

That's exactly what it is. I mean, it's inflation and then the positives that we have are pretty much offsetting that, which is why we have a flat operating margin rate versus last year at Q1. But then, like I indicated, that dissipates significantly in Q2 and beyond.

With volume leverage, 50% of the $150 million cost reduction over the next 3 or 4 quarters and what we feel will be, at worst case, neutral price inflation arbitrage, those 3 things all will -- all should and will contribute positively to the CDIY margins for the next 3 quarters.

Yes, and I think if you'd think about the first quarter margin in CDIY without the inflation, it was a 230-basis-point impact. That would have been incredibly positive story for our first quarter in CDIY. So, yes, we have the inflation, so yes, we absorbed productivity and we absorbed the synergies in the quarter. We're not going to have that in the second quarter anywhere as near that magnitude as what's pointed out, and then you have the positives that were just mentioned. And I think it's going to be a good story as we go forward.

And the next question is from Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Two questions. First off, as it relates to CDIY market share, I know we, we talked about POS a lot, but I'm specifically looking at sell in and reorder rates. I mean, the commentary in the channel was such where some of your primary competitors are looking at growth rates considerably above 3% for their sell in. So if you could give any commentary around that or if you're seeing any cannibalization with your new products, maybe the 20v is cannibalizing the 18v or the DeWalt Hand Tool line is cannibalizing FatMax, something like that? And then I have a follow-up question also.

Sam, I mean, we could talk all we want about sell in. All that is, is a change in inventory if it doesn't have anything to do with POS. So 20% POS in Power Tools seems to indicate share gain, from everything I can derive. And really, I can't even begin to fathom why there would be major differences in sell in. That's just something that's going to have to sort itself out in the inventory line. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Okay. My follow-up question. Last quarter, the valuation of the stock was more like 6x or 7x expected EBITDA, which probably precludes a lot of acquisition appetite on your behalf. Now the valuation is a little bit -- you get an extra turn and if it's closer to 7x or 8x, does your appetite now increase a little bit and what does the pipeline look like for deals this year?

Yes, I guess 3 things. We don't give 6 seconds' thought to what our multiple is, relative to our -- and that's assuming an all stock transaction. And as Don pointed out, we generate $1.2 billion in cash, of which 2/3 is going to be deployed towards acquisition. So our -- if you will, our multiple being up or down a turn, Sam, is not a significant factor in our thoughts about acquisition. Our balance sheet is strong, our cash-generation capability is strong, thus from a financial perspective, our ability to acquire is strong. What will be the governor is organizational capacity. The good news is our 2 large integrations are going extraordinarily well, but if you think about Security, they're digesting an acquisition and integrating one that is almost 50% of their size pre the acquisition. Their plate's full, so obviously we can look for some bolt-ons that'll make sense, but we don't want to overstress the organizational capacity. Small opportunities in other areas where less of the organization is focused on integration. That's where you could expect to see some modest activity. But if you combine 2 integrations that neither of which are fully complete, Don has very publicly stated, and we have -- we've got a couple of $300 million of deleveraging that we intend to do. The pipeline is very full. It'll be -- more organizational capacity than financial capacity that will govern our appetite, speed and size for our acquisitions.

And the next question is from Nicole DeBlase from Morgan Stanley.

So I wanted to dig in a little bit to this Security seasonality issue. You guys went through a pretty big effort last year, if you go back to your 1Q '11 slides, to reconcile why you had margins down in the first quarter from the fourth quarter as well as year-on-year. And it looks like you guys you should be benefiting this year from the lack of HHI issues, from the lack of some of this acquisition dilution, from the lack of MAS inflation. So if you could just walk me through that, that will be great.

Nicole, it's Don. I would say that you have to think about a couple of the comments that Jim made around, in particular, the commercial and mechanical business and the product gap that we're looking to fill related to certain products in the back half of the year. That has certainly caused some pressure to the profitability of that business, in particular this quarter, and in previous quarters as well. And then also some timing around some of the Access Technologies or automatic door business around that particular business and some of the ordering trends related to national accounts as well. So there's -- and then there's a seasonality aspect related to what John described, which is it's really 3 businesses in there, 2 of which I've mentioned. One is also the residential lock business that for the first quarter, is very similar to a CDIY-type business from a revenue perspective. So that -- certainly feel pressure from profitability in the first quarter as well.

Well, and I guess, of equal or greater importance, first quarter '12 versus first quarter '11, x -- we bought $1 billion business with single-digit operating margins. It's math. It's up 130 basis points, excluding Niscayah, quarter-on-quarter-on-quarter. So I'm a little bit puzzled as to the need to rationalize the margins. But I think between the 2, remember the 13 4 excludes Niscayah. It's $1 billion business with single-digit operating margins that we will improve over time. But that's why we carved out x-Niscayah, it's 130-basis-point improvement versus same quarter last year, which is the one that was referenced in the question.

Okay. And secondly, can you describe how the NiCad promotional activity trended during the quarter? And I guess, I just don't understand why CDIY margins would be flat q-on-q. It seems like price cost should be getting better. Volumes are clearly getting better and you have -- so just can you talk about that?

It really goes back to what we -- what I said earlier, and I think John and Jim touched on it as well, is we have not, we're not completely covering inflation with price in Q1 in CDIY. And as a result, we have 240 basis points of pressure, and they're associated with inflation. That complete -- virtually goes away in the second quarter. But as we've talked about for 2 or 3 quarters now, that's been a pressure point in that particular business. We didn't have that type of inflation in Q1 of last year. It began to -- and the commodities began to trend up late in Q1, and we began to feel an impact of that significantly in Q2 and the rest of the year. So that is anniversary-ing as we go into the second quarter, but that is the main driver for why you're seeing that flat performance.

And I think you're seeing a lot more -- or a lot less promotional activity in CDIY. As you may have noticed, the price was neutral. It was not positive, but it certainly wasn't negative and I think from a trend perspective, that's a good trend. And I think in that business, we've spent a lot of time with them. John and Don and I have spent a lot of time with the CDIY folks, walking through promotional strategy, level of promotion, promotional payback and a number of other things and how important it is to keep the gross margins moving in the right direction. And I think they will -- they have listened and have made some changes that are going to be positive as we go forward.

Yes, just to add on, Nicole, because you will -- to Jim's point, which I think is an important one because you won't get another follow-up. We are very pleased with the increased level of sophistication, albeit from a high base of the CDIY team's ability to analyze the effectiveness of its promotions. If you think about it, you took 2 serious players in CDIY, but with Hand Tools and Power Tools strengthened, may be different drivers. I give the team a lot of credit as we shine the light on margins and on the impact, sometimes negative, of promotions on margins. Which promotions made sense, i.e., did the volume lift more than compensate for the sacrifice in margins and which didn't. They've done great work in the last 6 months, so that's just the long way of saying, we think we're a lot smarter about which promotions are effective and which aren't. And that takes some time with 2 organizations coming together with different databases and different strategies and I think we're cautiously optimistic that by us putting the focus on it and the team taking it very seriously and internally developing significantly improved analytics. We think we've got a better handle on it than we did 6 months ago.

And the next question is from Rich Kwas from Wells Fargo.

Just 2 questions. On auto production, you talked about Japanese production and the rebuild here in the second quarter. But if you look at North American production trend, it's much higher here in North America versus the beginning of the year. So is that factored into the guidance for Industrial? And then my second question is, Don, what's the FX assumption now? I think you had a pretty conservative assumption at the beginning of the year. Euro's certainly tracking a little bit better than we all kind of expected and I know there's still risk out there, but what's the assumption now embedded in the guidance?

Sure. On the Engineered Fastening business, yes, we have factored in auto production forecasts in different geographies around the world both -- and obviously, there's 3 major ones for us in North America, Europe and Asia, plus Japan, both of them. And we have factored that into our particular guidance in that space. From the beginning of the year, we felt that the Engineered Fastening business would be strong, not necessarily as strong as it was last year given some of the significant increases in penetration and market share gains that they've had. But based on where we are at this point in time, we feel good about projections for them for the remainder of the year, but we'll continue to watch that closely as the second quarter evolves. As far as FX, yes, the euro has improved slightly and as I indicated back in January, they're -- we were using roughly a EUR 1.29 to dollar exchange. And our assumption at this stage, it's about EUR 1.30 to EUR 1.31. And I indicated that basically a $0.01 movement in that would equate to $0.015 of EPS on an annual basis, so that could be about $0.03 of a positive, if you look at it from that perspective. But if you also look at a few other things like shares outstanding, which is a bit of a negative versus what we initially estimated, it's pretty much a wash.

And weaker yen.

And weaker yen.

Okay, that's helpful. So just a follow-up just to clarify. The North American -- you've got 600,000, 700,000 units of increased production versus January forecast. That's in the guidance or embedded in the guidance?

Yes.

Yes. I mean, we look at those every month and every quarter as we get new information around auto production forecast, that's factored into Engineered Fastening business ongoing forecast process.

And the next question is from David MacGregor from Longbow Research.

I have a couple of questions on the Security business. Clearly, without [ph] Niscayah 130 basis point margin lift is a pretty strong performance. But John, in your opening remarks, you mentioned that the Security business was feeling some competitive pressure, and I was just wondering if you could go back and talk about that if possible.

Yes -- no, I talked about in 2 things, and I may have confused you. When I talked about Canada and Australia, 2 established markets, relatively small geographies, but I wanted to touch on them. I said there was a tremendous amount of competition in IAR and in CDIY. What I mentioned was in Australia, we have very small Security business as well as South Africa, that we are deemphasizing. It's that specific. Call it a conscious business withdrawal because it's below-line average margins and I may have unintentionally misled you. No, there's no abnormal competition in the Security business, either in the U.S. or Europe. The major players remain aggressive. Our focus remains on commercial. But nothing abnormal, and if that was your takeaway, I apologize, I unintentionally misled you.

Oh, good. I guess the other question I just had, just kind of tying back to the earlier question on acquisitions and as you answer that question, you made reference to bolt-on acquisitions. But I guess, my question is, maybe a slightly different angle here. As you move through the integration of Niscayah, and you approach the completion of that process, can you talk about where you can go strategically from that point in terms of further acquisitions in Convergent Security, sort of larger acquisitions as opposed to bolt-ons?

Sure. I'll have Jim take it, so I think we're all on the same page.

I think we have a clear -- in -- when we stated our strategy about capital allocation. John mentioned that about 2/3 of our free cash flow will typically be allocated to acquisitions, it's been lower over time. So when you look at $1.2 billion, you're talking about a meaningful amount of acquisitions. When you look at the revenue objectives for the company, we try to get the revenue growth up into the double digits, maybe on top of an average of maybe 3% to 4% organic growth. So we're adding about 8, 9 points of acquisitions a year with that money that we generate. And so -- and John also mentioned the organizational capacity being a gating item. It's one of the reasons we have growth platforms, because we have multiple growth platforms. So we have Security as a growth platform. We used to say Electronic and Mechanical, now we just say Security because we run it as one business. We have Engineered Fastening as a growth platform. You can see we really like that business a lot. It has growth characteristics. It tends to be a little focused in automotive OEM, which is great right now, but it's not always great. So there's other growth markets in aerospace and electronics that are really -- other verticals that are interesting to us in Engineered Fastening, so you can expect us to be working on a pipeline there. And then we have 2 exciting new growth platforms in health care and infrastructure. In infrastructure, we did CRC-Evans a while back. It's been a good story for us, as the offshore business has grown significantly and that -- and we've had a weak market in onshore, but that hopefully will change as time goes on. And at some point, we probably will add to our oil and gas activities and infrastructure, maybe branch out beyond oil and gas to some extent. We're looking at some opportunities in that regard. In health care, the value proposition in health care is bring productivity to acute care facilities and bring patient safety to acute care facilities and security. And we have a small but growing business there that we will probably buttress up with a few bolt-on acquisitions to improve our value proposition, to improve our distribution reach, et cetera. Those are the types of areas. Now as it relates to Security, when you start to evaluate the available opportunities in security, especially in electronic, there's one very, very large company out there that while it's not for sale -- it could be for sale, I highly doubt we would ever do anything to acquire a $10 billion security company, so it doesn't look like that's in the cards. Once you get beyond that, you're into regional players in North America. You're into Resi security. Resi security in North America, we don't really like that. We like it better in Europe, but there's nothing really meaningful for sale in Europe right now. So there's not a ton of opportunities. I think we'd like to beef up our Security business in the emerging markets, especially Asia, maybe Latin America. Over time, you might see something there. And then finally, in mechanical security, today our Mechanical Security business is too focused on North America. We've been trying to globalize that for several years. It's been challenging just due to actionability of assets outside of North America, but there's always a chance...

Commercial locks and access.

Yes, commercial locks and access, both. So there's a whole series of different areas that we can play and we can also work on bolt-ons in the CDIY business to the extent that they aren't home center focused or to the extent that they're not Power Tool or Hand Tool-focused. So for instance, Accessories is a great opportunity for us. Higher-than-line average margins, higher-than-line average growth in general over a long period of time. And we are about half our market share in Accessories versus where we are in Power Tools. And by the way, the opportunities in Accessories are plentiful because it's a very fragmented marketplace, so I think you could see something in Accessories. And then also in some of the blurry areas between industrial, automotive repair and CDIY, you might see some activity where it didn't have home center content, and then you might see some geographical expansion in IAR as well.

And the next question is from Josh Chan from Robert W. Baird. Joshua K. Chan - Robert W. Baird & Co. Incorporated, Research Division: Hopefully 2 quick ones for you. You mentioned really strong POS in CDIY. The one category that was not as strong was Hand Tools. I was just wondering what caused that? And I know you have less share gain opportunities there, but anything else that you could highlight?

Well, clearly, I absolutely believe that the market is stronger for Power Tools than it is for Hand Tools right now, and that's one thing clearly our product development, our new product vitality in Power Tools is exceedingly strong. So vis-à-vis Hand Tools. Hand Tools is -- if you think about the innovation opportunities in Hand Tools, they're at the margin, whereas in Power Tools, you have lithium-ion, which we came out with. Now we have brushless DC, which we're coming out with as we speak. And these are big game-changing kinds of product innovation areas, whereas in Hand Tools, we kind of go out into the marketplace, we go to construction sites, we evaluate how we can inch up the productivity of a worker by changing the tape rules at the increment. It's just not -- it doesn't drive the same level of excitement and so forth in the marketplace, but it supports the brand and the value proposition, et cetera.

And I think part of it is just math, too. If you think about history of innovation in Hand Tools, much lower ticket item, $15 to $25 ticket item, far less pent-up demand in Hand Tools, we would think or suggest than there has been in Power Tools. So all of those are contributing, I think, to the spread between Power Tools and the Hand Tools.

Yes, it's more of a replacement. Hand Tools is really more of a replacement market than it is a new product market.

And our last question will be from Michael Kim from Imperial Capital.

Just to expand a bit on Niscayah, are you -- in your Security guidance, are you assuming somewhat greater headwind through the balance of the year than what we saw in the first quarter? And is that driven primarily by project delays or are you walking away from certain business or are there vertical markets or -- any color you can provide would be helpful.

Sure, Michael. It's a combination of a few different things. Clearly, whenever we acquire a electronic Convergent Security business, there is a bit of a shift in the model and we like to achieve certain levels of profitability around installations and service and monitoring. And Niscayah's not any different in that sense, and so as we look at new installation revenue and new installation projects, there'll be certain projects that we will pass on because they don't achieve certain levels of profitability. And that's really what we're saying, when we built in a bit of a revenue retraction associated with that, combined with that there isn't -- obviously, 85% of the business is in Europe. And although there's a large chunk of it that's in the Nordic region and the northern part of Europe, which as Jim indicated, is performing relatively well in many of our businesses. There also is a decent amount of that business that's in the southern part of Europe, in particular Spain and Italy, that we do expect some retraction associated from an economic perspective. Those are the 2 main drivers that would really be associated with why we would see a revenue retraction in year one related to Niscayah.

And just to add a little more, and hopefully it was clear in what Don said. Maybe to say it in a different way, remember that Niscayah's business, they are extremely capable with demonstrated skills and installation in systems integration. A much lower percentage of their business is recurring revenue in monitoring than our model, than our base business. So as we -- and I think Don said it quite clearly but just to amplify, as the Niscayah business mix shifts from a little bit less systems integration and a little more service and monitoring as a percent of total, some of the lower margin installs, although they're very good at it and very effective at it, if it doesn't come with the service or the recurring revenue, that's what we will pass on therein is the, if you will, top line headwind. But needless to say, it's favorable from a mixed perspective thus the margin accretion assumption that goes into the numbers.

And just to clarify in the margin accretion, is the mix shift roughly half of the overall expectation for accretion or is it the primarily cost synergies [indiscernible]?

No, it's -- Don could give a better -- it's 80-20 cost out mix shift. The mix cost out will happen within a 12- to 24-month period. The mix shift is a very gradual thing. That's going to be 1 to 3 or -- plus year project, so at least 75% of its cost out, I'd say 25% mix in that short term.

I will now turn the call over to Ms. Vanek for closing remarks.

Thank you all for joining us today. Please feel free to contact me if you have any questions.

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