Welcome to the Q1 2011 Stanley Black & Decker, Inc. Earnings Conference Call. My name is Teresa, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Kate White Vanek. Ms. Vanek, you may begin.

Thank you, Teresa. Good morning, everyone, and thank you all for joining us on the Stanley Black & Decker First Quarter 2011 Conference Call. On the call, in addition to myself, is John Lundgren, President and CEO; Jim Loree, Executive Vice President and COO; and Don Allan, Senior Vice President and CFO. I would like to point out that our earnings release, which was issued after yesterday's close and the supplemental presentation, which we will refer to during the call, are available on the Investor Relations portion of our website, www.stanleyblackanddecker.com. This morning, John, Jim and Don will review Stanley's first quarter results and various other topical matters followed by a Q&A session. A replay of the call will be available beginning at 2 p.m. The replay number and access code are in our press release. As a reminder, you can download the earnings replay as a podcast from iTunes and even set up a subscription for all future replays of the calls that we post. They should be ready this afternoon. [Operator Instructions] As always, if you have any additional questions, please feel free to contact me with anything after this call. We will be making some forward-looking statements during this call. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risks and uncertainties. It is, therefore, possible that actual results may differ materially from any forward-looking statements that we might make today. And we direct you to the cautionary statements in the 8-K, which we filed with the press release, and on our most recent '34 Act. With that, I will now turn the call over to our CEO, John Lundgren.

Thanks, Kate. Good morning, everybody. If you will take a look at the presentation posted to the website, I'd like to first summarize some of the first quarter highlights that we experienced. Then I will say, as Kate has pointed out, this is the last quarter where we'll provide -- feel the need to provide as much pro forma data from the second quarter forward. Everything will be quite clean. As a reminder, the transaction with Black & Decker closed on March 12, 2010, so there are a couple weeks of Black & Decker performance included in the GAAP measures. And from second quarter onwards, it'll be clean. It'll be more clear. But we think the pro forma comparisons are most helpful to you in understanding our business. Revenues increased 9% on a pro forma basis to -- up 9%; on a pro forma basis, $2.4 billion; organically, up 4%. Strong growth in emerging markets, particularly Latin America. We had some great share gains. New products are doing well. Jim Loree is going to talk about that in the segment breakdown. And certainly, some successful implementations of the first signs of some positive growth from our revenue synergy plans. Diluted EPS was $1.08 reflecting a significantly favorable tax rate. Diluted GAAP EPS was $0.92. Per the press release, the tax rate contributed about $0.12 to earnings relative to our planned rate. I'll come on to that again in just a sec. Free cash flow of $61 million was up $24 million versus the prior year. That excludes the $37 million of merger-related payments. As a reminder, we increased our dividend 21% in February, and we've announced a $250 million share repurchase program that will begin in the second quarter. That $250 million program, when completed, will consume less than half…

Thanks, John. Let's start with CDIY. CDIY had a solid quarter in line with our expectations, except for the loss of some Pfister business that John talked about at a major customer, which is unfortunate but not surprising given the inherent challenges of that product line. I'll come back to that in a moment. Total CDIY segment sales were $1.211 billion, up 2% on a pro forma basis and up 3%, excluding Pfister, and up 4%, excluding Pfister and the exits of the various small Delta stationary and consumer auto electronics product lines. So really, when you cut through some of the dispositions or nonstrategic elements of the performance, a real nice solid 4% growth. Power tools were up 4%. They really drive the segment, up 6%, taking the exits into account. Professional power tools were very strong with continued success in the 12-volt lithium ion program. And consumer products was flattish with solid power tools sales offset by some timing issues in outdoor between 1Q and 2Q; a few premerger SKU losses, some of which have been recouped already in anniversary in the third and fourth quarters; and the effect of the exits as previously mentioned. All of that was as expected. On a regional basis, Latin America remained a highlight, up 22% and up 19% with -- excluding the effect of FX. North America, up 5% without the exits. And excluding Pfister, the profit rate was up 90 basis points including, as you see on the chart, up 50 basis points to the 13.1% as the cost synergies and the volume kicked in and partially offset by unrecovered inflation, some of which will be recovered in the fourth quarter we expect. Let me address Pfister for a moment. Back on March 3 at our Analyst Day, Jim Lucas,…

Thank you, Jim. And we start on Page 14, which is free cash flow for the first quarter of 2011. You can see that it excludes all the M&A charges or payments, which is about $11 million in the first quarter. The working capital was a negative in the first quarter. So normal trends, historically, when you go back, both legacy companies have had a negative working capital performance in virtually all the first quarters of the last 10 years. And that's really just the trend of revenue as well as the aspect of building certain inventory levels for the spring season in several of the businesses. But the good news, from our perspective, is the relatively modest negative trend in working capital of $70 million. The other item of significance is other/restructuring. We had some significant timing of payments associated with various things, such as pensions and derivatives, that resulted in the $90 million negative. We do not see that as a repetitive issue. It's something that was onetime in nature in many cases. Moving down to capital expenditures, about 2.9% of revenue in the first quarter. So slightly above the guidance range we provided of 2.5% to 2.8% for the year. However, we still believe that range makes sense on an annualized basis. It's more of a timing aspect to it. The end result was $61 million of free cash flow in the first quarter versus $37 million last year. So a $24 million improvement, and in line with what our expectations were for the first quarter. And we reiterate our guidance of $1.1 billion free cash flow for the year of 2011. I'd like to spend a little bit of time on the next page because inflation is such a relevant topic to us and many other…

Thank you so much, Don. Teresa, we'll now open up the line for questions.

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

A quick question on price cost. The basic expectation is unchanged. But in March, I think you said you didn't expect to get back to an 80% cost recovery level, actually, for a couple of years. What's going to change to make you more optimistic about the second half? And does this imply kind of that the first half is going a little bit more slowly than expected?

Jason, it's Don. I would say there's a few dynamics happening here. First of all, we've had two waves of inflation associated with commodities over the last 6 to 8 months. We had a wave back in third, fourth quarter of last year, and then we had a significant second wave in February-March timeframe of this year. The fact that we had the additional wave, and it increased the negative impact of inflation to us, actually allowed us to have a more pragmatic factual discussion with our customers based on more significant inflation levels, which allowed us to get many of these price increases in place or they will be in place in June and July of this year. So really, it had to do with the timing of it and those two different waves. And the more inflation that you tend to have in one of these cycles, the more factual robust discussions you have with your customers and your ability to implement price increases. I wouldn't say it's easier, but it's a little less difficult when you're dealing with lower inflationary numbers.

Okay, got it. And for power tools, specifically, obviously, very good results in the quarter. Do you have a sense of how much was related to share gains as opposed to market growth? And has you also seen changes in the competitive environment given what's going in Japan Techtronic's and Makita's position in those markets? We've kind of heard they're shipping less to the U.S. given the demand there for the tools.

Yes. Well, this is Jim. The one thing I would say about the market growth is it's pretty soft in Europe and the market and in North America. And by soft, I mean, if you look at point of sale at the big boxes or the merchants, mass merchants, to see a positive POS is a good day for the total markets. So I think what we're seeing is kind of a sluggish bumping-along-the-bottom kind of market. And a couple of points have outperformance on share, in the power tools, and it's mainly the cordless, where I think that's occurring, and mainly in the 12-volt area.

Jason, this is John. Your last piece on product coming from Japan, stay tuned and watch. You're well aware that the travesties and tragedies in Japan took place very late in the quarter. Any U.S. shipments or POS were already here. The supply chain is longer than that. So any impact from Japanese producers shipping to the U.S., as a result of the difficulties in Japan, would not have shown up in first quarter numbers. To the extent they exist, they'll take place in the second quarter.

And I think you will also find that Japan power tool production tends to go to Japan, although there are some export. But most of the power tool production that comes to the U.S. is probably from China, even if it's a Japanese company. So their plants themselves have not -- we've studied the locations of their plants, and the plants haven't been impacted. The final finished goods plants haven't been impacted in any significant way from what we can tell, but we don't know to what extent their supply chain might've been impacted. We know that ours is pretty much unharmed with a one or two little, very, very small immaterial items here and there. You probably can count them on one hand. But as the Japanese companies might have a little bit more tendency to have Japanese subcomponent suppliers, and that's what we'll really have to see in the second and third quarter.

Our next question comes from Dan Oppenheim. [Credit Suisse] Daniel Oppenheim - Crédit Suisse AG: Thanks very much. I was wondering if you can talk a bit more about Kwikset. You talked about the inventory correction there. Where do you think the inventories are at this point? Do you think it's fully done in terms of correction? And just how are you looking at that in terms of the sales environment there?

Yes, I don't think we can provide anymore direction, Dan, than we already have, specifically, inventories were too high. They were corrected, and we think they're right about where they need to be at this stage, which is why -- I worry about a lot of things, but this is not one of them. As Jim described, we really do think it was temporary. This business has performed, the Kwikset business, extraordinarily well over the last 18 months in terms of both POS, customer acceptance and performance in the marketplace. And as you know, home center inventories are always depleted in the month of January due to their fiscal reporting, and reorders took place later in the quarter than we anticipated. But that's a long way of saying we think they were a little high. They probably got a little low by the time the quarter was over, and we think they're pretty much in line with where they need to be given our customers' projections and our projections on demand going forward. Daniel Oppenheim - Crédit Suisse AG: Great, thanks. And just a second question, wondering about the comment on commodity costs. You said you still expect the commodity costs to peak in the second quarter. Can you add a little, any color in terms of what's driving that, just in thinking about it for the second half of the year?

Sure, I'll start. And Don, Jim and I are also extraordinary close to the pricing center of excellence and our global commodities sourcing team. I think we're probably all equally attuned to respond. If you think about the commodities that affects us the most, primarily it's steel, then we get into the non-ferrous metals, resins, and now that we're in the power tool business in a big way, batteries. But it's still far less of an issue than steel, non-ferrous metals and resins. We've seen pricing out through essentially the third quarter. So as Don made the reference, and it was a very good one, when there was very modest inflation in the fourth quarter of 2010, we absorbed it or tried to with productivity because it was not enough to justify a price increase. When we got it the second time, dramatic increases, particularly in steel, it was enough to go and get the pricing. And as Don suggested, most of it -- that we've had the negotiations. It will go into effect in June or July, and we think that will offset, at least, Dan, what we've seen coming basically through September. Beyond that, we don't have prices. And obviously, our prices in the marketplace will be -- are pretty much set up until that time, and we think one will offset the other.

Our next question comes from Michael Rehaut. [JPMorgan] William Wong - JP Morgan Chase & Co: This is actually Will Wong in for Mike. Just a quick question regarding CRC-Evans. I was wondering if you guys could talk a little bit about how that's backed up to your expectations this quarter, and also in terms of whether if you guys have seen any sort of weather impact on some of the operations at CRC-Evans.

Well, we haven't seen any weather impact. I mean, the business, overall, I think is on track for what we expect for the year. It's a lumpy business. This quarter was not as robust as we would've liked, but it certainly was a solid quarter. We had 8% organic growth and low single-digit operating margins. So we're going to have to get used to the lumpiness of that business. I think we're all going to have to get used to it, especially when Infrastructure becomes a bigger part of the portfolio. But right now, we're more than happy with the integration the way it's going. I think the interesting thing, as nuclear becomes a little perceived as more risky in the wake of the Japan situation, I think natural gases and clean coal are basically the two areas that you're going to see a lot of interest in, in terms of helping supplement the energy base here in the U.S. And CRC strength is natural gas onshore North America, so we're right in the sweet spot if and when that takes off. In the meantime, the offshore business in CRC is a burgeoning area. I'd say, CRC brings more to the table in offshore and has a very small business there, but significant contracts have been signed in the last 3 to 4 months with the providers, major providers. And we really have a great value proposition. We see a lot of growth coming from that. So I think that CRC is going to live up to our expectations and maybe then some, but time will tell.

Our next question comes from Nicole DeBlase. [Deutsche Bank]

So first of all, if we could talk a little bit about the repurchase. What is the timing that you guys expected? Is this more of an accelerated repurchase that will occur in 2Q, or is this going to be balanced across the year? And then also, is there room to do more repurchases based on how the M&A pipeline looks right now?

Nicole, it's Don. It's likely that the repurchase, the bulk of it, happens in 2Q, and I wouldn't expect it to go much beyond that. And as far as additional repurchase, I mean, John gave an indication that we have approval of about double the size of what we're doing. So we could certainly look at that as a possibility. We'll have to balance that against the pipeline. As I mentioned in the summary comment, the pipeline is robust. And combining that with the fact that a lot of our vast majority of our cash is overseas, we are looking at the utilization of that. And hopefully, through acquisitions, we can do that in particular. So I would imagine that some we'll continue to evaluate as we move throughout the year.

Nicole, let me just -- to clarify. The repurchase for the third time is to avoid creep get our share count back in the 170 million to 172 million range where we guided at the beginning of the year, and it has zero to do with lack of a robust business development pipeline. As Jim has pointed out on numerous occasions, and I think it's important to reiterate, the integration of Black & Decker remains our highest priority. It's organizational capacity, not lack of opportunity, that will allow us to tread softly and be very thoughtful in terms of which types of acquisitions that we think we can pursue. We're very pleased to have a position, from a balance sheet perspective, to be able to pursue some meaningful acquisitions. But if it's the same people working on those acquisitions that are working on the integration, that will detract from our primary objective. So that is our biggest concern, staying focused on the integration of BDK. The pipeline's robust. As you're probably aware, we have full-time BD professionals on every continent and a very, very active group. It's just something we're spending less time on, short to intermediate term, because we are focused on the Black & Decker integration.

Yes. And I'd also -- and this is Jim. At the analyst meeting, I mentioned that our expectations for acquisitive capital allocation in 2011 was nothing substantial in terms of multibillion dollars or billion dollar plus. I think I said probably around $0.5 billion would be our target for the year with maybe a little bit more, but that's kind of the range that we're thinking of here. And so if anybody is worried about a major multibillion dollar transaction, you could put that aside for the rest of this year, at least. They're certainly -- that's not going to happen.

Okay, great. Thanks for color on that, guys. And then in the outlook, what are you guys embedding for FX? And what Euro rate are you using?

We're utilizing the -- as far as FX, we utilized the latest rates, in the last week or so. That's what we utilized in our guidance. And so whatever the Euro is a week ago, $1.43 or $1.44, in that range, is what we've utilized.

And how much of a positive impact does that have on revenues in your outlook?

Relative to what?

Year-on-year?

Oh, year-over-year? I think that's just like 1 to 2 points.

2% so far, Nicole. So our sense would be, unless we've missed something, that would be about 2% tailwind due to FX.

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

Thank you, guys. First question, just wanting to understand the creep a little bit more, because the $5 million, I think you mentioned, seems rather sizable relative to the $8 million of options that were exercisable at year-end. So can you kind of split that between new issuance and what's been exercised? And from the exercise component, everything you're laying out certainly points to a very strong market moving forward and results moving forward. So even when the stocks been strong, we certainly would hope that results continue to indicate stronger appreciation as we move forward. So can you maybe elaborate on where within the organization you're seeing those exercising?

As far as the outstanding share creep question, the reality is, is that because of the rise in the stock price, it's not only the exercising of options, it's also the sudden impact of anyone who has options that are in the money. That has an impact on the shares outstanding and on a diluted basis. So as stock price goes up, it puts pressure on the number of outstanding shares as a result of that. And we also have -- you combine that with the fact that we do have certain tranches of options that we know will be expiring, from a vesting period perspective, later this year, which will likely result in many of those options being exercised. And so when we forecast that and look at it, it indicates possibility of $5 million -- 5 million shares of creep from the 170 million level to, potentially, 175 million. That's why we're looking at a share repurchase, which is about 3.3 million as John indicated, but it doesn't completely offset that potential creep. Now if all of those exercises don't happen, which would be unlikely, because if you have people's options expiring in a vesting period, they probably just wouldn't let them expire, they're going to exercise them. So as a result, we believe that's why 172 million makes sense.

Just to clarify in that point then, of the increase then, the vast majority of that is just timing of options that have already been issued as opposed to an new issue?

Oh, yes.

Absolutely.

Not new shares that have been issues or new options. This is previously issued options.

Okay, perfect. And then the second question would just have to be around the pricing realizing there's a lot of focus here. Can you talk about, within the key power tools and hand tools area, have you seen announcements from competitors of similar magnitude? And if you had to think about the 80% recovery on a 1 to 10 scale, how confident are you in achieving that based on what you know today? Is there any uncertainty as we think about the back half of the year?

The 80% is a back half number, which -- at the same time, inflation is abating, the price increases are kicking in. So our total price recovery is going to be far from 80% for the total year, quite a bit lower. And as far as competitive reaction, we are the market leader, so we have to go first in order for the rest of the competitors to make their decisions. And time will tell whether they follow or not. Frankly, our value proposition is so strong right now. We feel very confident that the price increases will stick. The discussions are underway. In some cases, commitments have been made. Agreements have been forged, in some cases. And we're not feeling terribly concerned right now about the willfulness of the channels to take the increases in general. Now we'll see what happens at the point of sale and whether competition follows. And we'll have to do whatever we do to protect our market share and just watch and observe and respond as circumstances unfold.

Our next question comes from Sam Darkatsh. [Raymond James]

John, Jim, Don, Kate, this is Josh filling in for Sam actually. I wanted to follow up a little bit on the last question with pricing in power tools. You talked about 80% realization overall. Could you maybe give us some sense of how much realization you're counting on in power tools given that's been historically a little tougher?

This is Don. I would say that we're not going to, say, break it down by power tools and hand tools and Industrial businesses and Mechanical Security. But if you look at where we're experiencing inflation, the vast majority of it is in our Mechanical Security business, HHI business and CDIY and both CDIY hand tools and power tools. We do, as Jim indicated and I indicated, we do expect 80% price recovery in the back half. I don't see a significant deviations in businesses as a result of looking at each business component to that percentage. But you also have to recognize that for the year, we're only going to get 1/3 to 50% price inflation recovery. It's just the back half that we're experiencing. And if you look at previous cycles, there tends to be a period up front where you don't get the price recovery and then you get a higher percentage later on. But you rarely get to a point, across the whole cycle, where you fully recover all your inflation.

And 30% to 50% for the portfolio would be at the very low end of our historical post-2004 inflationary era norm. So I think we're in a good place there.

Exactly.

Okay, I appreciate that. And then just a little bit of a modeling question with -- I appreciate the walk with the Security margins. Could you give us a sense of how you see those progressing as the year goes on and subsequent quarters?

No, we don't tend to forecast operating margin percentage by segment. I think you can take the information that Jim presented. And he talked about things that he felt were temporary and things that he felt were permanent, and the vast majority of them were temporary. You can take that as an indication of the future.

Our next question comes from Jim Lucas. [Janney Montgomery Scott]

All right, thanks. No inflation question, but two on Security, please. Within CSS, with the installation growth, could you give a little more color of what verticals you're seeing that growth occur in? And then on the Mechanical side, where the legacy Stanley business has been a little choppy, any particular markets standing out? I mean, have we seen the bottom there?

Well, in the CSS business, Jim, I think, without a doubt, it's the national accounts that we're gaining traction with. So it's the corporations and the very large commercial customers. What remains weak is municipalities and education. Government is modestly positive, although I'd say we're making good strides in government, from a share perspective, because we have a big initiative going on there. So that kind of breaks it down for CSS. Mechanical, oddly enough, the construction business is stronger than the retrofit business. But when you think about that in the context of education budgets being constrained in this environment and municipality budgets being constrained, I think it makes sense. We're not seeing any huge recovery in commercial construction. But I do think that there's a general feeling, with our people in Mechanical, that the construction market, whether it's our own execution or whether it's the market, that the volume has kind of firmed up a little bit there. And we're certainly not decreasing, I'd say, in the municipalities and education at this point in time. So it's really kind of a sluggish situation in Mechanical. We're talking the Best Access commercial, MAS, what we call, level. And I think we'll probably see a little bit of positivity, but not a whole lot. I think there are -- Electronics is going to carry the segment for the rest of years would be my guess.

And any update on the retail channel of what you're seeing there?

Retail channel, it's very -- but for the inventory corrections, it's very stable. It's a point or 2 of growth, that type of thing. Nothing dramatic, but certainly no downdraft going on. And it's just -- what we saw this quarter was a little resizing in the inventories.

I was actually referring more to from construction versus retrofit?

Yes, Jim. That remains slow, to be very candid. I mean, part of what we experienced in the second quarter was a large, very, very good customer delaying some retrofits and some store expansions. And a lot of competition in the retail space, on both the door and the locks side. So I guess the simple answer is that remains low. We think we've certainly have hit the bottom. But we'd like to see a little more robust activity in that, if you will, retail-end market or retail vertical as we refer to it, both for our Mechanical locking and our Access Technologies business. We have not seen it yet. And as you know well, having followed legacy Stanley, second and third quarters are normally the best quarters for that business due to a lot of work, no weather-related issues and just a lot more construction than normal. But it's still bouncing along the bottom, to be very candid.

Our next question comes from Eric Bosshard. [Cleveland Research]

One question. Jim, you talked about CDIY growing 5% to 10% in the second quarter, an acceleration from what you saw in the first quarter. Can you just give us a little more color in terms of what you see going on, and how much of that is end market or how much of that is new product or market share that's driving that improvement in 2Q?

We're going to get a little end market, but I think it's going to be mostly ? Stanley, Black & Decker specific. We've got new product major initiative in hand tools through the DEWALT hand tools. We've got additional generations of power tool, product development that'll be introduced here as we go forward. We've got timing issues that affected the first quarter that won't repeat. We've got revenue synergies. I mean, everything's pointed in the right direction.

From an end market -- and I appreciate that. From an end market perspective or from a channel interest in supporting or promoting or bringing inventory in the category, is there any change within that?

No, the customer receptivity is as strong as ever.

Our next comes question from Peter Lisnic. [Robert W. Baird] Peter Lisnic - Robert W. Baird & Co. Incorporated: I guess first question on the inventory, and just ignore HHI. Can you give us a sense in -- especially the power tools business, I would've expected maybe some pressure with inventory adjustment there, but may give us a sense as to what you're seeing in terms of sell-through there. Any inventory risk related to that business as you kind of look forward?

Pete, this is John. I guess it would be naive to say there's no inventory -- there's inventory risk every day. We experienced it in HHI in the first quarter. But I think, simply said, what you're after, POS is in line with shipments and retail inventories across the board, to the best of our knowledge, and that's one area where we've really got good data, are totally in line with what we're used to seeing. Now there's a modest seasonal build because it's a busy season, but we see that there's nothing at retail to suggest a risk, in that regard, at this stage of the quarter. Peter Lisnic - Robert W. Baird & Co. Incorporated: Okay, perfect. And then just second question on the Infrastructure piece of Industrial. Understand that comps getting tougher, but from the global Infrastructure players and suppliers, that piece of the economy is certainly strong and maybe even strengthening. Can you give us a sense as to how your backlog in that piece of the business is evolving? And when you say sort of a tougher comps in the second quarter and second half, does that apply to that business specifically?

Let me start, and then Jim will give you a little more detail. The Infrastructure piece of our portfolio is extremely small right now. It's $350 million annualized revenue. About 1/3 of that is legacy Stanley hydraulics and 2/3 is CRC, which Jim talked about our optimism in that business but the lumpiness of it. If you think about the third that we've got a lot of history on, there is a very, very close correlation between our backlog and our future projections and the price of scrap steel in our Hydraulics business. And as Jim referenced, scrap steels, very high, relative to historical levels right now, which would indicate our legacy Hydraulics business is in very, very good shape. CRC-Evans is newer to us. And as Jim indicated in the segment breakdown, it comes in bigger pieces on a less regular basis. And to be candid, we really don't have the history with that business to project it quite the way and too read as much into backlog, good or bad, as we would if this had been part of our portfolio for 5 or 6 years. Jim, you may want to elaborate.

The only thing I would clarify in addition to that is that when Don referenced more difficult comps, on a prospective basis, he was really referring to the Industrial & Automotive Repair business, which has been booming since the second quarter of last year, as well as the Engineered Fastening business, which has also been extremely strong if you look over the last three quarters or so. That's what we're up against in Industrial is that the comps for IAR and for Emhart are both getting tougher. Hydraulics is not big enough to matter in the overall scheme of things.

Next question comes from Michael Kim. [Imperial Capital]

Just a quick follow-up on the Convergent Security business. With the step up in installations, how should we think about the pull on RMR through the balance of the year as we exit the year? And then, can you talk a little bit about maybe the pricing delta between the national accounts and your core commercial customers?

I guess, two things. We are not going to get into detail on the pricing between national and core commercial. I just don't think it's appropriate on this call. As it relates to install and RMR, as Jim said, install is up 10%, RMR is up 3%. We've been saying, for about the last 18 months, that our margins have been flatter, for lack of a better word, or certainly helped by the fact that installs were so low. And as a consequence, RMR, as a percent of the total, is higher and our margins are higher. So the shift to install is growing at 3x the rate of RMR is not healthy, short term, in terms of margins. But I think as we've alluded to all along, we feel very, very good about it because you know well, without those installs, the future RMR won't be there. Historically, we've had a tremendous national account focus. I will say that much. And the small -- the local or small- to medium-sized enterprises, as we refer to them, offer a great opportunity for us going forward. And Brett Bontrager, Tony Byerly, the North American team, are really, really focused on it. But we are not going to get into profitability by customer or by channel on this call or ever, if it helps you going forward.

And then just maybe to clarify with the neutral impact to the balance of fiscal year on the mix of installation and RMR. Can you clarify what are the puts or takes then to drive sort of a flat operating margin performance for the balance of the year?

Yes. I think our [indiscernible] -- and frankly, the impact wasn't that significant in Q1. It's not going to be that significant throughout the year. It's a relatively small impact of 20 to 30 basis points on the Security sector, and it's not something that we should be overly concerned about as a result of this year and going forward.

That was our last question. I will now turn it back to you for any final remarks.

Thank you all for joining our call today. Again, if you have any questions or need any sort of follow-up, please do not hesitate to reach out to me.