Good day, and welcome to the Snap-on Incorporated 2013 Third 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.

Thanks, Tim, and good morning, everyone. Thanks for joining us today to review Snap-on's third quarter 2013 results, which are detailed in our press release issued earlier this morning. We have on the call today Nick Pinchuk, Snap-on's Chief Executive Officer; and Aldo Pagliari, Snap-on's Chief Financial Officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we have provided slides to supplement our discussion. You can find a copy of these slides on our website next to the audio icon for this call. These slides will be archived on our website, along with a transcript of today's call. Any statements made during the 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 filing. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick?

Thanks, Leslie. Good morning, everybody. As usual, I'll start by covering some of the highlights of our third quarter, and I'll provide an update on the general environment and on the trends of our business. Aldo will then give a detailed review of the financials. Our third quarter, it was encouraging. We again showed progress along our runways, both for growth and for improvement. Our sales were up 5.8% from last year, reflecting a 4.7% organic rise, as well as a $15.6 million increase related to Challenger Lifts, which you'll recall, earlier this year, was acquired for our undercar equipment portfolio. Our operating margin before financial services was 14.8%, up 130 basis points from the last year's 13.5%. When you add the $31.6 million in operating earnings from financial services, which was up from $27.9 million in 2012, the consolidated operating margin was 17.9%. And EPS was $1.43, also up from the $1.26 achieved last year. From a broad perspective, our automotive repair related businesses continue to be well positioned. You can see that with another quarter of mid to high single digit gains in both the Tools Group and in the Repair Systems & Information, or RS&I Group. For Commercial & Industrial or the C&I Group, where our major headwinds have been the most pronounced, the third quarter, it did offer some evidence of an improving environment. Now military activity, which is being held back by troop withdrawals and budgetary constraints, did remain a substantial headwind. Outside of that isolated sector, we saw a generally better year-over-year comparisons throughout the remainder of C&I. Importantly, that's also true for our European hand tools business, SNA Europe. You remember that this is an area that's been a substantial headwind for quite some time. Well, in the third quarter, SNA Europe was…

Thanks, Nick, and good morning to all those on the call. Our third quarter consolidated operating results are summarized on Slide 6. Net sales of $753.2 million in the quarter increased $41.6 million or 5.8% from 2012 levels. On an organic basis, sales increased 4.7%, excluding $15.6 million of sales from Challenger Lifts and an unfavorable $7.3 million impact from foreign currency translation. The year-over-year organic sales increase primarily reflects continued higher sales in the Snap-on Tools Group, along with increased sales of diagnostics and repair information products, as well as higher sales to OEM dealerships. These sales increases more than offset lower sales to the military and slightly lower sales in our European-based hand tool business. Consolidated gross profit of $364.3 million increased $23.9 million from 2012 levels. Gross margin of 48.4% improved 60 basis points, largely due to savings from ongoing rapid continuous improvement, or RCI initiatives. Operating expenses of $253 million increased $8.8 million, and the operating expense margin of 33.6% improved 70 basis points from 34.3% last year, primarily due to benefits from sales volume leverage, savings from ongoing RCI initiatives and lower restructuring costs. Total restructuring costs in the quarter of $1.7 million compared with $2.3 million last year. As a result of these factors, operating earnings before financial services of $111.3 million in the quarter increased 15.7% and as a percentage of sales, improved 130 basis points to 14.8%. Operating earnings from financial services of $31.6 million increased 13.3% over prior year levels. Consolidated operating earnings of $142.9 million increased 15.1% over 2012 levels, and the operating margin of 17.9% improved 140 basis points from 16.5% a year ago. Our third quarter effective income tax rate of 32.6% compares with 32.3% last year. We continue to expect that our full year 2013 effective tax…

Thanks, Aldo. I would say the third quarter is more confirmation on the strength of our business model and on the opportunities available along our runways. Of course, there are headwinds. The military is turbulent, and Europe, though stabilizing, is not yet cured. But despite those challenges, our sales in the period were up 5.8%. We are moving down our runways for growth. Rock 'N Roll cabs and techno vans enhancing the van network, the Challenger acquisition and new diagnostic product reaching more shops, our success in oil and gas and in creating customers for life, our growing presence in places like China and Brazil, all of that is compelling testimony to our ongoing growth potential and to our progress in taking advantage of those abundant opportunities. And we're also moving down our runway for improvement. C&I and SNA Europe, higher profitability despite lower sales. And the overall corporation and op co OI margin of 14.8%, up 130 basis points, clear evidence of Snap-on value creation and its ongoing benefits. We are encouraged by the third quarter results, achieved against challenge, but we believe that substantial opportunity remains and that our favorable trends and long-term progress will continue as we move forward. Before I turn the call to questions, it's appropriate that I recognize those who made these results possible, our franchisees and associates. Once again -- I know many of you always listen to this call. I know you're listening today. For your extraordinary skill in driving our progress, you have my admiration. And for your extraordinary commitment and dedication to our team, you have my thanks. Now I'll turn the call over to the operator. Operator?

[Operator Instructions] We'll take our first question from David Leiker with Baird. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: A couple of questions. I want to start with on the Snap-on Tools business, and it's nice to see the strong organic growth across all the businesses here in the quarter. I wanted to zero in on the SG&A number here. I mean I think, if I look at the numbers correctly, the SG&A as a percent of that segment sales have been falling or declining, and this is a change from that pattern. So are these the incremental initiatives of what you've been doing, just more of them or broadening them geographically? Can you help some color -- give us some color there?

Sure. Look, I think the thing is the principal activity here is the investments in the -- what we would broadly say, our actions which are breaking through the structural disadvantages of the van. One easy one to remember -- you'll all remember is the Rock 'N Roll cab. The van is constrained by size. You can only put a couple of tool storage boxes on them, therefore, the Rock 'N Roll cabs allow -- add more marketing space at the point of sale from time to time. It breaks through it. It drives more sales. We've gone up. I think the number that we have almost 50, over -- we were in the 40s last time and -- about 40 of them last quarter. So we've gone up quite a bit. In fact, we're in the 30s last time. So you see that. And then this time, we're launching the techno vans. Last time, I think we had 3 or 4 at the end of the quarter, now we have 10. And the techno vans are diagnostics, and there is quite a bit of training around this. Not only are the vans heavily facilitized because you have all of the equipment on the vans, which help you demonstrate the diagnostics to their fullest, but there's a lot of training associated with the van drivers themselves because you have to have guys on those vans that have to make the diagnostics sit up and do dog tricks. And then there are a number of other things in there this quarter, smaller items, which have helped us in that regard. And then I would offer the idea that the SFC was bigger and better than ever before, and we had 10% more, 10% more attendance. That 10% drives more expense. And…

I don't think so. I can't speak to their number. I think they said they were up high single digits. I don't know what the exact number was, so I am... David Leiker - Robert W. Baird & Co. Incorporated, Research Division: High single digits.

Yes, right. So I'm not sure exactly what the number is. There are a number of things that can flow through in terms of the different products that can be selling and the sources of those products that will result in driving Stanley sales, depending on how they come out on the Mac vans. The market is nice, but we're pretty sure that we are reaching more customers and selling more to the same customers. I can tell you that our van drivers are more excited about our proposition. I was just in Saratoga, New York, riding around on a van with Greg Dolan [ph] up there, and he was very enthusiastic about our products and its prospects. And his customers were positive about what he does for them. So we feel very good about both those engines driving the tools sales, reaching more people and also selling more to the same customers. That's what's happening in both of these places. And part of it is productivity giving the van driver more time to sell, reaching more customers; and two, breaking through some of the structural disadvantages like space and technical expertise that can only -- that one man can only have so much technical expertise on the van, and that's been driving this increase. David Leiker - Robert W. Baird & Co. Incorporated, Research Division: Great. And then one last item on the C&I segment, on the military. Q4 -- I know your business had been declining already last year going into Q4, but the fourth quarter was the first big decline. So anniversary-ing around that, is there a way you can characterize your Q3 military volumes versus what they were in Q4 of last year? Is that flattening out? Are we still seeing declines? And I know overall, it's a small piece.

I hate to comment on any kind of trajectory around the military given the turbulence in Washington these days. Who knows where it's going. I mean, look, we had a -- the fourth quarter has always been our biggest quarter. We took a big shot in that, the fourth quarter last year. I had said that we're going to see -- I know I said on these calls that we're going to have probably lighter comparisons going forward. Yes, but the atmosphere gets -- got worse and worse, and so we've been seeing some big headwinds -- maybe not as big as the fourth quarter, but some big headwinds in the third quarter as well, third quarter of this year, not as big as the fourth quarter last year, but still pretty significant that's moving the needle.

And we'll take our next question from Gary Prestopino with Barrington Research.

I've got a question on the Tools Group with the solid growth there. Could you maybe categorize or break that out between U.S. -- and I guess, it's -- U.K. is where you have the franchise business. Was a lot of this the U.K. snapping back more strongly than...

No. Yes, go ahead. Finish your question.

No, go ahead. That's fine.

Look, if you look at it broadly, if you look at it broadly, international, U.S., kind of the same, Gary, kind of the same. If you landscape the international business -- as you know, for the Tools Group like Canada, U.K., Australia and so on, we had some goes-ins and goes-outs. The U.K. was up nicely as well. In fact, our overall business, if you roll it all together, one of the things we're kind of happy about in terms of our -- one of the things that's positive -- we're happy about is the U.K. actually did snap back, but it's not driving -- our overall business in the U.K., including SNA Europe and the Tools Group and other businesses that sell in the U.K., are up double digits. But for the Tools Group, it's not driving that -- not influencing that 9.5%, not influencing it. It's in that ballpark.

In terms of -- could you maybe talk about or give us some metrics surrounding growth in the emerging markets, and what percentage of your sales that is now?

Look, it's north of 10% now, I'd say in low double digits, you'd say, now. And every quarter, you get kind of -- because you're spread over lots of emerging markets, you get kind of goes-in and goes-outs. We had -- as I said, I think, in the script, we had a good quarter in China, good quarter in China, nice quarter in Thailand, good one in Korea. We had a fine quarter in Brazil. Some of the others were weaker. For example, the Philippines was weak for us this year. But in general, we're at 11% -- not 11%, but it's the low single digits and we're growing.

Okay. And then could you just remind me, Aldo, the finance receivables versus contract receivables, what's the difference there?

A finance receivable, Gary, is when Snap-on Credit finances an end customer who is a customer of the franchisees, so in other words, a technician, a mechanic out on the shop floor. A contract receivable is when Snap-on directly finances a garage shop owner or a franchisee themselves. So the receivable is directly between Snap-on and the party versus a third party.

And we'll take our next question from Richard Hilgert with Morningstar.

Congratulations on the award during the quarter to MOTOR Magazine. That was good accomplishment, but something that -- obviously with the technology is something that isn't out of the realm of possibilities. I wanted to ask about the restructuring costs. Was any of that in the Tools segment? Or was all of it in the C&I segment?

Very little actually in this quarter.

I'd say it's -- Roger (sic) [Richard], Aldo here. It was a little bit in the RS&I segment actually and then the Commercial & Industrial Group. There was a smidgen, so to speak, in the Tools Group.

So this wasn't really a big restructuring quarter for us.

Right. It was $1.7 million, you said?

Right.

That's correct. Overall, it was $1.7 million as compared to $2.3 million for the corporation last year.

All right, okay. With the shutdown that we just experienced in the government, will there be any impact from that in any kind of government contracts that you might have in the fourth quarter?

Well, I don't know. I mean the thing is, is that I think you can speculate yourself. First of all, we usually -- we don't give guidance or anything like that, but look, we have a military business. I would say anybody who's got direct business with the government would be wondering whether it would be effect going forward. But they did solve the problem now, so whether that plays out quickly enough to eliminate any overhang, I'm not so sure. What I would say though is that through the quarters we've had, we've seen an overhang from sequestration in the military business and the government business, and it's hard to predict whether that will get positive -- whether that will get more negative as we go forward. I would suppose, if this is not solved and they don't snap back quickly, it could get more negative. But I think that's very shaky, shaky to predict. We've been dealing with a kind of difficulty in that area for some time.

Okay. One last question. The inner segment eliminations for revenues went up quite a bit this quarter. Just curious what was the activity there that drove that?

Well, it tends to revolve around the SFC, the Snap-on Franchisee Conference, where you bring all these guys together, the franchise -- remember, I said it's part selling show. They order, some of those sales get in the quarter. And what that means is some of the other segments, for example, the diagnostics groups or the C&I Group will provide products, they provide products to the Tools Group, and that tends to ramp up during this period. And that's what you're seeing in here.

And we'll take our next question from Liam Burke with Janney Capital Markets.

Nick, you talked about emerging markets in the C&I business picking up some of the slack, where you had other areas of weakness. Is it the same end markets? Is it oil and gas in emerging markets? Or is it some other critical industry?

No, no. It's broad, broad. And when we say emerging markets, we really mean the whole Shamil [ph], like automotive, automotive repair. We would call automotive repair, by the way, a critical industry. It's just that it's not handled within our standard definition. There is criticality around automotive repair. But it's automotive repair, oil and gas, aviation, in some cases, the military -- foreign military and power generation. So it's broadly based.

Okay, great. And you had a lot of new product releases around the diagnostics. Those products are typically smaller. Are you generating similar margins to the -- to what your traditional diagnostic product line?

Yes, yes. I don't think -- look, I think the products we mentioned, which are handheld diagnostics and for heavy truck and for automotive, there isn't much margin difference between those 2 segments, I would say. So if you're talking about like products reaching into different segments like diagnostics or software, they're pretty much the same types of margins. The margin variation in the RS&I Group comes from the sort of essential tool businesses that we sell to OEM dealerships, that can be a little smaller, and the undercar equipment businesses, which can -- are hardware-based and tend to attract lower margins than, say, the software businesses. But in general, there's no implied motion period-to-period, quarter-to-quarter, year-to-year by those. That we have talked about today.

And we'll take our next question from David MacGregor with Longbow Research.

Nick, you were asked earlier about the sequestration on military and the government shutdown on military. I guess, I wanted to approach that question a little bit differently and just see if you saw any slowdown in channel velocity through your franchisees in the second half of September.

Well, we usually don't comment on month by month, but I will offer this. When I go out -- and like I said, I was just on a van up in upstate New York, I was just with the national franchise conference -- our franchise advisory council last weekend. And as -- they represent -- there's franchisees, there's 12 of them, they represent every region of our country. I saw nothing but optimism. So my suggestion about the effects of this uncertainty broadly described around the shutdown and the debt ceiling and the sequestration, I believe is not weighing as heavily on smaller businesses that we're seeing, that are -- remember, we're operating in criticality. So the small businesses operating in criticality, whether you're talking about technicians or franchisees or repair shop owners, they seem to be anesthetized to the bad news. As I move up in size the businesses, they seem to be more burdened by the uncertainty. The bigger businesses, the more uncertain they are. And then, of course, anybody who's dealing directly with the business, like our military business, of course, that business gets shut down a little bit. So that's what we're seeing. If you talk about the effects of sequestration and the shutdown of the government and the debt ceiling and the whole idea that this is going to come up again in February and all this news, sure, this is something we watch, but we are not wringing our hands over it.

Okay. You were asked earlier as well about the emerging markets. I just want to go back and pick up on that. If you could just talk about the profitability of the emerging markets business and how's that changing.

The emerging -- look, if you look at -- it's a -- the emerging market business is about as profitable as the rest of the businesses. Let's say, in C&I, emerging market is a big piece of our business -- a big piece of our emerging market business in C&I. It's about as profitable as that business. It's about as profitable as the businesses reflected in the segment for those product lines. The geography of the profitability is different, lower gross margin, lower SG&A or lower operating expense usually. And then we can parse that there's a pre-investment on top of it that tends to put a little bit of drag on it, and that investment keeps going as we keep expanding. But if you look at the business as it occurs transaction by transaction, you say, this is just as profitable as all the rest of our businesses. So we're very encouraged by that.

Okay. On Europe, can you -- on Europe, you've -- I think you've talked in the past, it's roughly about 1/3 of that C&I segment, right?

Say that again, I didn't quite catch it.

I'm sorry. The European business, we think of that as being...

About 1/3, yes.

About 1/3 of the C&I business. So I guess, the question is, it sounds like it's stabilizing, that's encouraging. When that business comes back and you get a little further down the road, you're running at close to full capacity, what can the European business generate in terms of margins? What would you think of as peak margin capability for that business?

Well, actually, I don't think we've ever spoken to the margins of the European business in isolation. But certainly, you will be entitled to the fact that we know these -- we've said these things. The European business was down drastically. It was wounded. We have pushed on it and pulled on it and worked RCI on it over the years. Remember, it really never -- it came out of the recession briefly in 2010, then sort of dipped back in, at the end of 2011, went back to double digit reductions and kept going. But through that period, we were working RCI, but we were very careful to, say, one, we didn't see our customers disappear; two, we didn't actually take out capacity. We kept capacity there because we're confident the business comes back, and what that means is we have lowered breakeven. And I would suggest to you that the idea that it is more profitable on even lower sales is good arithmetic and quantitative testimony to the fact that works pretty well. When volume comes back and they start to see some good numbers, it will accrue relatively well to the bottom line like any of our businesses, I believe. And what's happening in Europe actually is kind of interesting. Northern Europe has come back. We're -- particularly England, double digit growth for our businesses overall in England. Very good in the north, Sweden, Norway up very well. The middle countries like Germany and France, France still down, but narrowed a little bit. And then the periphery contributing, like the Maghreb countries and Turkey and so on contributing well. So you still see that Europe is not yet cured, but it's stabilizing in the middle, and the north actually seems to -- at least in this quarter, seems to have turned a little bit of a corner. That accrues well for us based on where our cost structure is.

So what you're saying is, essentially because of the lower breakeven, you think, as volume comes back, your margins will recover faster there than they would elsewhere in the business?

I think you'd be in -- I think you'd be entitled to that assertion, yes -- to that thought, yes.

Okay. That's good. Last question. Just you talked about the OEM dealerships being a bigger part of your business, can you just talk about what you're seeing in terms of business trends there? Are the OEM dealerships likely to be a stronger part of your business going forward? And what are the implications for your RS&I mix?

No, actually, I -- correct me -- let me come back. The OEM dealerships, our business with the OEM dealerships, electronic parts catalogs and this essential tools business were up -- I think I said were up strongly in the quarter. But our sales to independents -- Mitchell 1, the software business, the diagnostics business, these are software-based businesses that take advantage of our reservoir of data about the independent -- the car part that independents need so badly, those were up strong double digits. And so actually, I wouldn't say our business is changing. It was growing in the OEMs, but it also grew in the independents. So I wouldn't say the mix changed this quarter, just both moved for us.

And at this time, there are no other questions in queue. I'll turn the call back over to Leslie Kratcoski.

Great, thanks. We'll wrap up our call today. A replay of it will be available on snapon.com shortly. And as always, thanks for your interest in Snap-on and for joining us today. Goodbye.

That concludes today's conference call. We appreciate your participation.