Good day, and welcome to the Snap-on Inc. 2012 First Quarter Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Leslie Kratcoski. Please go ahead, ma'am.

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

Thanks, Leslie. Good morning, everybody. I'll start off as usual with the highlights of the quarter and with my perspective on the results and on the overall business. Then I'll turn the call over to Aldo for a detailed review of the financials. Our first quarter was another period of encouraging progress. Once again, it showed that the Snap-on Value Creation Processes are enabling improvements just as they been doing for some time in a variety of macroeconomic environments. I think you could say that these past few years sure have been marked by a very dynamic environment. And yet, our discipline around safety, quality, customer connection, innovation and Rapid Continuous Improvement or RCI has driven momentum in good times and in bad. Speaking of momentum, our first quarter reflects continuing gains in the majority of our markets, and it represents another period of favorable operating margin comparisons. Organic sales increased 7% from last year. The OpCo operating margin of 13.3% was up 70 basis points, while FinCo contributed $23.9 million of operating income, a substantial increase from $12.5 million a year ago. The end result is an EPS of $1.21, a rise of 26% from the first quarter of 2011. Now the primary feature in the past quarter was the volume. Widespread, strong gains across the majority of our business and the Tools Group serving automotive technicians and the Commercial & Industrial group or C&I serving emerging markets of Asia, as well as professionals in critical industries through our industrial division. And in diagnostics and software sales through our Repair Systems & Information group or RS&I, which focuses on serving repair shop owners and managers. All of those areas had solid gains. If you recall that we identified 4 key strategic runways for our growth, areas that we believe…

Thanks, Nick. Our consolidated operating results are summarized on Slide 6. Net sales in the first quarter of $735.2 million increased $41.5 million or 6% year-over-year. Excluding foreign currency translation, organic sales increased 7%, led by double-digit growth in Snap-on tools and across the majority of our businesses serving customers in emerging markets in critical industries. Consolidated gross profit of $347.7 million in the quarter increased $17.1 million from 2011 levels. As a percentage of sales, gross margin of 47.3% was down slightly from 47.7% last year, primarily due to continued margin pressure in our European-based hand tools business, partially offset by contributions from RCI initiatives and $2.1 million at lower restructuring costs. Operating expenses in the quarter of $250.2 million were up $6.9 million from 2011 levels. As a percentage of sales, operating expenses of 34% in the quarter improved 110 basis points from 35.1% last year, largely due to benefits from sales volume leverage in savings from RCI and restructuring initiatives. These improvements were partially offset by a higher stock-based mark-to-market and performance-based incentive compensation expense and $3.1 million of higher restructuring cost. Operating earnings before Financial Services of $97.5 million in the quarter increased $10.2 million or 11.7% from 2011 levels. And as a percentage of sales, improved 70 basis points to 13.3%. Operating earnings from Financial Services of $23.9 million in the quarter increased $11.4 million from 2011 levels, reflecting the continued growth of our on-book finance portfolio. Consolidated operating earnings of $121.4 million in the quarter increased 21.6%, and as a percentage of revenues, improve 180 basis points to 15.7% from 13.9% a year ago. Finally, net earnings of $71 million or $1.21 per diluted share in the quarter increased $14.8 million or 26.3% from last year's levels. Now, let's turn to our segment results.…

Thanks, Aldo. Well, that's our quarter. An encouraging period, strong volume growth, continuing credit company ramp up and more progress in driving increased profitability, and all of that was achieved in the face of European headwinds. We believe the quarter's performance represents, clear confirmation that our decisive runways for growth are wide and that we are advancing forward. The van network is being enhanced. Sales were up more than 12%, and franchisee health metrics are the best we've seen. We are extending to critical industries. Our industrial division grew by double digits again. We are expanding with repair shops owners and managers. Our Diagnostics and Mitchell businesses grew nicely, and we are building an emerging market strong double digit again in places like China, India, Indonesia and Russia. The progress along each of these runways made our quarter and overcame imperfect economies. Going forward, we believe we're well-positioned. We have momentum. And we will take advantage, full advantage, of the abundant opportunities that stretch out before us. Before I close again this quarter, I think it's appropriate that I recognize the essential role of our franchisees -- that our franchisees and associates have played in our performance. I know many of you are listening, and I also know that this quarter's result is a direct result, is a direct reflection of your contribution. For your energy, for your support and for your commitment to this team, you have my thanks, and you have my congratulations. Now I'll turn it over to the operator for questions. Operator?

[Operator Instructions] And our first question will come from David Leiker with Robert W. Baird. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: This is Joe on the line for David. I think the most obvious surprise and it's a great quarter with the Tools Group growing 12%. Several straight quarters now that group has been putting up double-digit results. I'm just wondering if you can point to anything specific that might be driving that, because it's obviously well in advance of what some of your public peers are reporting for growth in their businesses.

Well, I think there's a couple of factors. One is that, as I've said, we kept investing during the downturn. We said that. We invested in the health of our franchisees, and they didn't take a step back during the downturn. They, in fact, got better and stronger. And I think coming out of that, we came out of the downturn with relative to others a strong, strong network. That's one. Two, we've been investing in innovation. If you've ever been here, you see the innovation works and you see the products were rolling out so they have attractive products. And then finally, as I said in my remarks, we've been spending time working on RCI in terms of Rapid Continuous Improvement and expanding the selling time. Only a -- not all of their day is spent on selling. And so this is a productivity opportunity for us, and we're working on that. I've said many times on the call, I think our call and then analyst meetings one-on-one that fully enabled our advance call on, maybe 800,000 technicians or 850,000 technicians and there are 1.3 million technicians in the United States. This is a product -- and they don't call on them because they're less target rich. This is a productivity opportunity. What you're seeing here is in effect that given our people more time to sell, more productivity advancements and, therefore, able to call on broader range of customers. And so you see those 3 effects: New products, stronger health and better productivity. And that's what's generating these double-digit gains. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: So with the van count pretty much stable productivity has helped you increase coverage, is there an indication of how much more you can pull that lever to further revenue increases?

This is -- you're right. This is same-store sales. It's a great -- it's an encouraging look. I don't want to speculate on that. I mean, I said that the numbers -- but the numbers -- when we had a first couple of quarters like this, I said, well, one quarter a trend does not make. But now the Tools Group has been putting together some pretty good quarters. I think their organic growth have been stuff like 9, 10 and 6 and 9 and 12, so they've been doing pretty well. So we think this has got some runway. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: The new trend is double-digits?

But I -- but, no, I wouldn't say that. I wouldn't use -- I wouldn't say -- Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: Of course, yes.

-- it is double-digit, of course. But I think we feel very good about the position the Tools Group is in. So without making any projection, I stick to my projection which says, we are looking to grow as a company at 4% to 6% organically, right, every quarter. And the Tools Group is a component of that. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: Sure. And then just on the C&I business, I think this is the first quarter that the military side of that business is in a headwind, and I'm just wondering with the organic growth going from 4.5%, 5% and now it's up about 6%, would 6% be a more sustainable pace of growth in that business if [indiscernible]

Look, sure, we said that our growth range would be 4% to 6% organically, and we said that C&I would be toward the top end of that. And so this kind of lines right up with that, it's a little bit better than that actually. And you're right in saying that this military was not a headwind this time, but this is the critical -- military is part of the critical industry, the critical industry's piece of this business. And so you have -- and that's concentrated in our industrial division. And if you go back to our last call, you'll see this is the second quarter in a row, which the industrial business has been registering double-digit growth, which we view as confirmation of our assertion that we have runway in these critical industries. And so we think that the C&I group will be helped by that. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then just one last one for me for Aldo. Can you say what the delinquency rates have been running at with portfolio?

Well, the delinquency rates are published on Chart 11. If what you're suggesting is the all-in bad debt rate that we sometimes talked to, again, it remains a favorable trend with these delinquency rates. Joseph D. Vruwink - Robert W. Baird & Co. Incorporated, Research Division: So like around 3%?

About 3.3%.

Our next question will come from Jim Lucas from Janney Capital Markets.

A couple of things here. You've given a lot of good color, not just this quarter but over the past several quarters about the runways and how they continue to widen. Wanted to just delve a little bit into the Tools Group. In the past, you've talked a little bit about the makeup of bigger ticket items and demand there. And just curious what you're seeing in terms of the purchasing patterns of your customers if it's more toward the handheld, the software upgrades, the toolboxes or is it just really just the day-to-day?

Actually, it's the mix by product. If you characterize it, let's say, big ticket tool storage, the big boxes and the big size diagnostics and so on all the way down to hand tools and so on, that mix hasn't changed for several quarters. It's been -- we use -- the big ticket have been reasonably strong and robust in those mixes, and they haven't really gone down or up within reasonable, what I would say, quarterly windage. And so I don't think we -- you'd see any trend inside there whatsoever. You could -- you see sometimes in the Tools Group as they reach out to other customers, you get a different mix within those groups, like if you sell more to heavy truck or somebody like that, you'll get different diagnostics and different hand tools and so on, so you get a different mix within the groups. But we haven't seen much change with regard to the dimension between big ticket and small tickets. It's pretty much been the same.

Okay. And then if you -- if we take a step over to the C&I side on critical industries, are there any particular industries were you've been more successful? And conversely, are there others where you find you're not having as much traction? Just curious as to what is standing out there.

If you look at the quarterly numbers, Jim, you'll get ups and downs every quarter. These businesses can be lumpy, so you get -- but if you step back and then look at it over the March and say 18 months or so on, I would say that we've been pretty strong in aerospace. We've been very good at that. I think we've been good in the military when the military has been positive, hasn't been so lumpy, and we haven't had these sort of political headwinds flowing through the military. So we've been strong in that critical applications. And those are the 2, I think, that we've been better at. Natural resources is very good for us at times and so on. And so I think those have been the improving areas for us.

Okay. And finally on Europe, I mean, undoubtedly that's going to continue to be a headwind. You've got some further cost actions that you're going to be taking. When you take a step back and you look at your competitive position in Europe, where you are today, what you're doing from a cost structure, is it really more just about playing defense until the headwinds subside? Can you just talk a little bit about how you manage through the current environment in Europe?

Yes. First thing I'd say is we're not exactly wringing our hands over it. You go back and forth when you make comments on these calls and you want to say -- you want to make people aware of the issues in Europe and so on. But we don't -- we -- this isn't our first recession, our first downturn, of course. And so we're managing through this. And so what we see is our customers are still in place. We see our productivity and our RCI efforts creating opportunities for restructuring. We see our Asian factories ramping up to the point they get capability and so on, so they can support and provide even more capacity. So we're being proactive in the idea. We're bringing together the new capacity expansion we're seeing in Asia, and okay, looking to support Europe more in that. We're taking the RCI activities and tailoring the footprint to the current environment reflecting those RCI activities. So I think those 2 things are happening. And one -- so I wouldn't call it necessarily plan defense. I would say more or less saying we believe the market comes back. We believe our customers in place. We believe that the Bahco brand is still strong. And around that, we are tailoring the footprint to be as flexible as possible. So in future ups and downs, we're more -- we're less vulnerable to, let's say, variations in volumes. And then on top of that we're overlaying the idea that more capacity is coming online in the very flexible and growing capabilities in our Asian markets. And that will also create the kind of restructuring program around Europe. One of the things I do want to emphasize around our brand, one of the things that's encouraging to us there is that when you look at SNA Europe's primary brand Bahco, it's selling pretty well outside any -- when you're not talking about the core Europe, when you're talking about the periphery about Turkey and Russia and Middle East and so on, this brand is selling pretty well. So we're convinced there's nothing wrong with the product lines. It's still very strong and being well received, and we get our pricing there. It's just in those economics that are causing us the current challenges -- those economies that are causing us the current challenges, and remember that Spain is one of our, as you know, is one of our biggest area, was one of our biggest areas and the highest margin areas, and it's down substantially in the quarter.

And next, we'll go to David MacGregor with Longbow Research.

Just on the Snap-on Tools segment. I guess you realized a 12% organic growth, but gross margins were off about 40 basis points. So I was wondering if you could talk a little bit about sort of what appeared to be disconnect there? And mindful that there was a comp issue here. In the first quarter '11, you had some manufacturing activities, I guess, that were influencing them. Can you quantify that for us?

Well, I don't think we're going to quantify those, but I'll give it to you directionally. When you look at that, you're getting the -- I think we said in the 10-Q or maybe that there was a manufacturing unfavorable comp in terms of manufacturing because last year we're preparing for the consolidation of our tools storage business in the United States and Canada. So therefore, there were some better absorption positions despite the differences in volume in certain of the factories in the first quarter last year. And then the other piece of this is it depends on where you're talking about. The other piece of it is if you look in quarter-to-quarter, the first quarter is always lower because of -- is always past because of higher spending in the first quarter because of kick-offs and so on. And then the other factor, I think, is fair is that as we reach out to different customers, and remember, I said these are -- these were less target rich customers. You get a different mix of product lines that sell to those, and that can create a product line mix -- within a mix within product lines, that will give you some difficulty. And also, I mean, and my view is when you look back over time, the margins are kind of in line with the range of Tools Group anyway. But I think that's -- those are the sort of couple of effects this year as the thing we called out in terms of the year-over-year absorption that was very favorable last year. And secondly, the reach to different customers, which creates a little bit of different mix in some of our products. That's what happened in the Tools Group. The Tools Group. I know some people are worried about tougher comparisons sometimes as we go forward from time to time. But -- and it is. It will get tougher. It does get tougher. But this quarter in the U.S., the U.S. grew over 15% this quarter. That's a gang busters quarter.

That's a great quarter.

This business is doing pretty well, I think, so.

So I'm just trying to understand in your operating margins, you get 140 bps of improvement there. Does that just imply that you had a lot of RCI gains sort of bridging the relatively flat gross margin down to a reasonably good step up on the operating margin?

In the Tools Group?

Yes.

Just leverage.

Yes, you get leverage. You get leverage in the Tools Group.

Okay. What's normally the gross margin leverage that we should see absent all sorts of year-over-year comp issues that we're seeing this year, but what's the normal?

I hate to speculate on -- I hate to say that because it depends on -- I realize you'd like something like that to help modeling, but it really depends on the situational situation. Sometimes you can be selling products which you don't make. We can be using not everything we sell are of the brands we make. And so therefore, it depends on the mix of products. So it's very difficult to give you guidance in that regard.

Okay. If I could just ask one other point. Just on the Financial Services business. What's a good number for originations going forward beyond 2012? Growth [indiscernible].

The growth in the Snap-on FinCo portfolio over time get more closely aligned with that of the Tools Group. So once the runoff of the CIT portfolio and the transition stops to occur, originations are more or less fall in line with the Tools Group growth pattern. You can always have a little bit of timing difference one quarter to the next, and it depends on the mix of what is sold in the way of big ticket items, because that tends to find its way onto credit contracts more readily than just hand tools. But over the long-term, it will reflect the growth of the Tools Group. As Nick characterized, while we're enjoying double-digit growth these days, over the longer run, it'll be probably something a little bit less than that.

Aldo, should that convergence occur early in '13?

I think you'll start to see 2013 become more normalized. At the end of this year, I mean, our estimates -- I think we've commented on this before, it will be probably about another $25 million or so of CIT-owned extended credit receivables will be managing on their behalf. So once we get down to that level, I think the crossover will become less.

Our next question will come from Alek Gasiel, Barrington Research.

Just sitting in for Gary. Most of my questions have been asked. But I guess one thing. I know, Nick, you talked in the past about -- just kind of curious again, what percentage of your territory is under penetrated by the van network? And has that changed recently?

Actually, I don't -- generally, it kind of changed over time. We're not looking to -- I would say the addition of vans is not a major factor in our growth going forward. So we have probably as many vans -- it's not to say we won't add some, but the thing is I don't think that's going to be a major factor in the growth. The big thing about in terms of vans is how quickly we can replace them. Of course, we -- our turnovers are down. I believe at least a relatively -- a relative low and I think it might be an all-time low, but so -- but when somebody turns in his Van or somebody wants to retire and he sites to retire and he happens to do Northeast Peoria, you maybe don't have anybody in Northeast Peoria to go in there. So how quickly do we fill that? So how quickly do we get them in? How quickly to get somebody up? This is a factor, so we track that and we talk about that. That's something that can do -- that can go better, that we could do better. We've improved, so we can do better. And then, secondly, I said, we call on a group of technicians. There are some we don't call on because they are less target rich. They're either off the geographic center of our route or they're in tire shops, something like that, and as we get more productivity with our vans, give them more selling time available, they can choose to use this time to call on those people. That's part of the phenomena we're seeing in this growth. And so I would offer that the 2 of the runways for growth anyway with regard to the physical to the van have to do with getting a new guy in when another guy leaves, retires and then secondly, have the people get more selling time so they can reach out, reach more customers. And I guess if you have more selling time, you can schmooze the existing customers and sell them more. So those are the elements of growth.

How fast is it to get a new guy running up, I mean, versus in the past?

It depends if we have a guy for the territory. Being as maybe we have trouble -- we might have 4 guys for, let's say, a garden spot, Kenosha, Wisconsin. We might have a lot of people for Kenosha, but we happen to live in here in Kenosha. Our headquarter is in Kenosha, so I'd say that. But we might have a lot of people for Kenosha, but we might not have many people for Peoria. I'm not sure -- it's come down. I don't actually have the statistics. If you like to get the statistics, we'll get them to you. If you call Leslie, she'll have it for you. Okay?

All right. And just one quick. I might have missed this. Just with Europe, and I know last quarter, you talked about how the softness and weakness in Southern Europe is now creeping into more mature area, which is evident now. Just kind of what you're seeing right now in the quarter, Q2 at the moment? If you can provide any color.

Yes. I don't think -- we can't. I can't speculate on that. If you read the same paper as I do, I think this is being driven economically. We're not sure. I think if you look at the GDP growth rates that are projected in Europe, a lot of them are flattish. Some of them are down. Our European businesses are down substantially, deeply in the south, mid-single digits in the sort of center, and in Eastern Europe, we're actually up a little bit. I think the important thing to think about for our businesses, if you look at the European business, and our European businesses in each of our groups, there's 10% in the Tools Group and some other percentage all the way up to about 1/3 or more of C&I. If you take those businesses and you isolate them, the rest of the business grew at double digits organically. So if you look at the place where we weren't organically -- we weren't economically afflicted, you're growing at, what, double-digits, and Europe represents a kind of challenged 20% to 25%. We used to say 25%. It's down now, because it shrunk a little bit, okay?

Okay. All right.

And next we have a question from Michael Prober from Clovis.

Could one of you talk about the acquisition environment and how the deal pipeline is? And then I have a follow-up.

Well, as I said, I think when I've spoken of this, we found that -- we say that we will look at acquisitions that will be in any of the 4 critical paths, our strategic runways for growth. I think you could argue that the Tools Group doesn't have so many acquisitions available to it. But in terms of emerging markets, in terms of repair systems and information and with repair shop owners and managers and with critical industries, there are businesses which would enhance our business and enhance our position that we could acquire bolt-on and allow us to continue to grow coherently. There are a number of those. And I think I've also said that we're still working -- we think we're still -- we're working through and just getting through the largest acquisition in our history, which was the credit company. So the idea that there is a -- we're working through that large acquisition. We have a pipeline -- I don't know, pipeline implies that you're going to go off and do them all. I don't really mean that, but we have a number -- a universe of possible candidates that we have out there in each of those segments, and so we keep -- we're looking at those and when the time is right, we'll take some actions.

I mean, the company really hasn't -- I know that credit card -- excuse me, credit division was a big acquisition. Credit company is a big acquisition, but that was really more of a financial integration than an operational integration because you were mostly...

Well, that's worth $800 million.

But it soaked up a lot of capital in the balance sheet and now the company is over capitalized by most measures. And I was just wondering if you're planning on spending capital after you build the balance sheet for the finance company in 2013, '14 on acquisitions? And are there any out there for you because it doesn't really look like there are that many out there?

Well, I think there are acquisitions. I mean, I -- obviously, I don't want to talk about such things on the call, but I think a casual review of things available would say that there are acquisitions that would be available. We may not have -- in fact, there has been acquisitions available, which we may not have moved at for a variety of reasons. So I think there clearly are acquisitions. If you look at the automotive space around repair shops -- repair shop owners and managers, there've been a couple of properties passed. We viewed it, and we didn't -- we weren't the acquirer. And then there are critical industries. There are a lot of product lines, which we could add to our product lines smear the Snap-on patina above it and make positive things. In emerging markets, there are places to acquire.

And at this time, we have no further questions in the queue. And I will turn the call back over to Leslie Kratcoski for any additional or closing remarks.

Thanks, everyone, for joining us today. A replay of the call is available later today on snap-on.com. And as always, we appreciate your interest in Snap-on. Thanks. Goodbye.

And that does conclude our conference for today. Thank you for your participation. You may now disconnect.