Welcome to the Q2 2011 Stanley Black & Decker, Inc. Earnings Conference Call. My name is John 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 Ms. Kate White Vanek, Vice President, Investor Relations. Ms. Vanek, you may begin.

Thanks so much, John and good morning, all and thank you for joining us for the Stanley Black & Decker Second Quarter 2011 Conference Call. On the call, in addition to myself, are: John Lundgren, President and CEO; Jim Loree, Executive Vice President and COO; and Don Allan, Senior Vice President and CFO. I'd like to point out that our earnings release, which was issued after yesterday's close and a supplemental presentation, which we'll refer to during the call are available on the IR portion of our website, stanleyblackanddecker.com. This morning, John, Jim and Don will review Stanley's second quarter results and various other topical matters, followed by a Q&A session. There is also some very helpful information in the appendix of the slide deck as it relates to your models in particular. If you have any sort of questions, please contact me. Replay of the call will be available beginning at 2:00 p.m. today. Replay number and the access codes are in our press release. And as a reminder, you can download the earnings replay as a podcast from iTunes. As always, please feel free to contact me with any sort of follow-up questions after today's 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, may involve risks and uncertainties. It is therefore possible that actual results may differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements and Form 8-K, which we filed with the press release and our most recent '34 Act. With that, I will now turn the call over to our CEO, John Lundgren.

Thanks, Kate. Good morning, everybody. Just -- I'm going to touch on some highlights before Jim gets into some more detail on the segments but as we look back on the second quarter, we remain on a steady course of organic growth despite an unfavorable macroeconomic backdrop. We did get some better news this morning that Jim and Don will touch on as it relates to the macroeconomic environment. But nonetheless, our performance and the organic growth we were able to achieve were driven primarily by new products that we introduced to the market, where we gained share in established markets and continued strong performance in the emerging markets. Again, that -- I'll touch on it a little later. Second quarter revenues were up 11% to $2.6 billion, organically plus 3%. And that, of course, excludes the favorable impact of foreign exchange. Organic growth in Power Tools and Accessories, Industrial and our Convergent Security Solutions was somewhat muted by weakness in Hand Tools, Outdoor Products and ongoing Pfister impact. Don talked about the Pfister impact in the first quarter, but just to shed a little more light on Outdoor, which we referenced in the press release, particularly for those of you who are less familiar with that business, Outdoor is a $550 million to $600 million business, and it is one of the few businesses that's quite seasonal. It's split roughly 60/40 first half, second half historically, with the second quarter almost every year being the largest quarter. We all know there was -- across the country the weather was terrible in the second quarter regardless of where we were. But just in round numbers, it's just math, the 20% decline in the second quarter unrecovered on an annual basis is almost 70 basis points of organic growth across the…

Okay. Thank you, John. Let's start with CDIY. Second quarter CDIY revenue was $1.364 billion, up 5%. Excluding FX, sales were flat. Price was flat. That's the tier of Delta Woodworking and the consumer auto electronics product line cost 2 points, and that basically offset the 2 points of unit volume growth. Operating profit was $195 million, down 3% versus 2Q '10 but profit rate was 14.3%, off 120 basis points versus a year ago, but up 120 basis points sequentially. That's almost $40 million of inflation in the quarter, which was expected, that would offset the benefit of synergies. Now, the pricing actions that we've taken do not take hold until the third quarter. So some of this margin degradation that was associated with the inflation was definitely anticipated. The organic growth was a little weaker than expected. As John mentioned, it was 2%. There was a lot going on behind that number, certainly, as we already talked about to some extent. Pfister was a headwind of about 2 points, the divestitures, I mentioned, were another 2 points and the lost outdoor season that John described cost us 1 point, so total headwinds of about 5 points. So if you take the 2% growth with those headwinds, the rest of the segment actually had a terrific performance in this kind of a market, up 7%. And if you look at the organic growth chart there, you can see the Professional Power Tools & Accessories and Consumer Power Tools were both significantly positive, with Professional Power Tools & Accessories up 13% and Consumer Power Tools up 7%. So very, very good performances fueled by the new product introductions, some of the revenue synergies and a very successful quarter from that perspective for those units. Hand Tools and Fastening, it doesn't…

Thank you, Jim. I'd like to spend a little bit of time talking about working capital on Page 12. We're very pleased with our working capital performance this quarter, where working capital turns increased 14% and revenue increased 11%. It grew 11% as you heard from John earlier. So that means our turns went from 5.1 to 5.8 turns year-over-year, which is an excellent performance. And sequentially, they went from 5.3 turns up to that 5.8 number, which was about a 9% improvement. What I find really encouraging about this particular chart is when you look at the aspects of rolling out the Stanley Fulfillment System into any new aspect of our company, in particular Legacy Black & Decker, what we tend do is attack the receivables and payables first. And you're starting to see the effects of that, where receivable days are 56 and payable days are 70, and you had a nice improvement in both those categories year-over-year. As we focus on credit and collections and the efficiency of collecting our cash on our receivables, as well as improving the turns and the relationships with our vendors, so they're more in line with how we like to do business for those particular companies and entities as we go forward. So it's great to see that progress and really beginning to see the traction as the global enterprise continue to embrace the different tenets of the Stanley Fulfillment System. How does that translate into cash flow? On the next page, first of all, I just want to remind everybody that the cash flow, the free cash flow that we're showing here is -- exclude M&A or merger and acquisition payments. So it gives you a good sense of the operational cash flow performance is. If we start with working…

Time for Q&A, all. John, our operator will be kicking it off and as always, we'll follow the one question and one follow-up routine.

[Operator Instructions] Our first question comes from Eric Bosshard from Cleveland Research.

Can you give a little more color on the 80% cost recovery in the back half a little bit, just across the portfolio, where the expectations are? And then also, provide perhaps a bit of input on what you've learned as you started to have these discussions and how things have fared to this point?

Yes, Eric, this is John. I'll kick it off and Don will give you a little more granularity. From 36,000 feet, we're absolutely holding to that recovery. We're getting a little less price than we'd anticipated, and one of the reasons we're getting a little less in CDIY is inflation is abating or the -- if you will, the escalation has slowed down, so we're getting a little less second-half inflation compared to where we left off. So all in, the 80% is still good. But I'll let Don give you a little more granularity.

Yes, Eric. I mean, we are comfortable that we will see an 80% recovery as indicated in the back half of the year. There's been a lot of moving parts and dynamics associated with inflation and price. The vast majority of our price increases are in place, although we still have a few smaller ones that we're negotiating over this month. But by the end of July, we feel comfortable that all price increases will be in place. And on the inflation side, we've seen some pluses and minuses. As John alluded to, we've seen some trends that have caused production inflation and we've also seen some trends that are increasing inflation. So we're managing. We're continuing to manage that dynamic but at this point, we still feel comfortable that we'll have 80% price recovery in the back half of the year.

Our next question comes from Jason Feldman from UBS.

So obviously, there's a lot of focus on the Black & Decker related cost synergies. I find it interesting though that at IAR, your margin expansion was very substantial. So legacy business without the acquisition-related synergies, and I think it was actually second quarter of last year it started doing much better. Are there other areas in the legacy business, not included kind of in that $450 million synergy target, where you see material opportunities for operational improvement?

Well, this is Jim. I mean, IAR is predominantly a nonrevenue, noncost synergy story. It's really an execution story. And I'd say they've done a great job over the last year pulling that business together on a global platform basis and treating it as if it were one company instead of a series of popcorn stands. So I think that's a terrific story. Engineered Fastening, which is another part of the Industrial segment, when they went through the downturn, they dealt with severe contraction in the automotive market. And they really did a phenomenal job bringing their cost structure down even before the merger. And as the automotive market came back last year and into this year, prior to the second quarter with the Japan issues, they have kept their cost structure intact and they have a tremendous operating leverage story. So I think that is another one that we're particularly proud of. But I think you're still seeing across the portfolio, for instance, in Security, their margin growth is not driven solely by revenue -- or cost synergies. It's driven almost equally as much by a terrific story, managing productivity projects and controlling SG&A levels. So you've got those stories, I think, across the portfolio and the CDIY folks have -- are battling a lot of headwinds. But I think they, too, have managed the productivity element of the equation extremely effectively.

Okay. And a quick clarification on the guidance. I'm just, I guess, a little bit confused, and I'm sorry if I'm missing something. On the 150 basis points of margin expansion that was reiterated for the year, the revised guidance has basically lower revenue and more cost savings, so wouldn't that suggest that the operating margin expansion would be higher than in the prior version of guidance?

No. Jason, this is Don. I get the question but I would say no. When you look at the components of revenue and then the profitability of those revenues and -- as well as the increased synergies and other dynamics that are changing that are pluses and minuses, it puts you roughly to the same place year-over-year expansion in operating margin.

Our next question comes from Dan Oppenheim with Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG: Just wondering if you can talk a little bit about the launches of DeWalt in August, what you're thinking about doing in terms of just the spending behind the marketing of that to make sure it's getting traction there in this tough climate?

I'll take it, Dan. We're not going to reveal our spending plans for competitors to jump all over or counterpunch. But simply said, if you look at SG&A, it's totally in line with expectations and with former guidance. We have very robust plans in support of those launches and one of the reasons we talked about CDIY in the second quarter margins, we really had a semi-hiatus same period a year ago, so we are comparing against a low spending base. Essentially, I'll call it brand support and product introduction support. In fact, the historical level in line with where it should be as a percentage of SG&A. And I'll go so far as to say thus far, customer acceptance and future plans we're quite -- we're very encouraged by it and we would not have gotten that level of acceptance without meaningful levels of support. But it's just not appropriate to give you any more granularity than that. And I hope you understand. Daniel Oppenheim - Crédit Suisse AG: Sure, I understand that. And I guess secondly, just wondering in terms of as you look at growth opportunities as you're pursuing Niscayah right now, would you be content to -- finishing with the integration of Black & Decker and looking at Niscayah or are you still looking at other opportunities here at this time?

I guess any of us could take that. The pipeline is really full but the playbook will be the same. We will look at both financial capacity and organizational capacity. The beauty of Niscayah, as we pointed out, it's primarily a foreign acquisition made with foreign cash, extraordinarily good use of a somewhat dormant resource. That, in and of itself, would make it a good deal. The fact that it's highly strategic, it's been a coveted asset and it's quite accretive makes it an even better deal. We'll still have plenty of cash. If it's a business and a geography that will not interfere with the integration of either of those businesses, we could still opt -- unlikely, this year's 2/3 is over from an M&A perspective, unlikely, we could execute -- would execute anything else this year. But we'll start the meter running again as we look forward to next year. The pipeline is quite full. The only change in environment that I know you're well aware of is with financing being relatively inexpensive. Private equity or financial sponsors are far more meaningful part of any competition for good assets than perhaps they were 2 or 3 years ago when we did the Black & Decker deal. But it's a robust environment with a lot of opportunity. Jim, may want to add something.

Yes. I think just in -- to take it from a complementary but slightly different perspective, what we're basically doing here from a capital allocation perspective is taking about 1/3 of our excess capital and returning it to the shareholders in the form of dividends and repurchases and taking the other 2/3 and investing it in acquisitions that are strategically linked to our key franchises and our growth platforms, but are also able to produce cash flow return on investment returns in the 13% to 15% range over time. And we think that is a great way to create shareholder value. However, if we don't execute on the acquisitions and deliver those returns, then we could destroy value. So we're very conscious of making sure that we only invest when we are confident that we can do that, which means we have the organizational capacity to do so. And so, financial capacity, organizational capacity, getting back to what John said, is critical both from a tactical and a strategic perspective.

Our next question comes from Mike Rehaut from JPMorgan. William Wong - JP Morgan Chase & Co: This is actually Will Wong on for Mike. Just a quick question. When you talk about your outlook, not including any rebound in residential construction, first can you just remind us how much residential construction exposure you have across the 3 segments? And then secondly, when do you expect sort of residential market to rebound and when that will be built into your forecast?

Hi, Will. This is Kate. First, I'm going to point you to the appendix of our investor overview, which is always on our website. That has the breakdown by segment and by business of our exposures to residential construction. So as of 2010 pro forma, about 20% of total Stanley was residential, 28% was other residential, meaning sort of outdoor, repair, remodel. Second, we're not going to be in the business of predicting the housing rebound, and I think you understand. And I think if we were, we would be embedding it in our guidance and having a lot more conviction behind it. But that's not the stance that we're going to take today. William Wong - JP Morgan Chase & Co: Okay. Great. And then just my follow-up question, in terms of the weather-related weakness in outdoors, how are you guys able to discern what was sort of weather-related weakness versus maybe an overall demand coming in weaker?

Yes, I'll take it, Will, the one -- essentially, overwhelmingly, it was weather-related. We can take it off-line but the one reliable source I've seen that measures, essentially, hours available for outdoor activities through May, not through June, because the data isn't available yet, that would mean using our outdoor products, participating in various sports, et cetera, it's syndicated resource. Through May, those hours were down 26%. So if you think about -- we were down about 19% with our outdoor, that would tell us that we may even have gained a little bit of share. But the overwhelming majority, if not more than 100% of the softness, was weather-related. You don't hear us talk about weather very often. Legacy Stanley, I think the only businesses that would have -- are impacted by that are Access Technologies and to a small extent, Gate Hardware in our legacy hardware business. So this is new for the Stanley side of the merger, not new for the folks who've lived with this business for a long time. But the simple answer is I would say 100-plus percent of the shortfall was weather-related. Thus, we don't anticipate that it's going to repeat itself. That's the good news. The bad news is second quarter is always your biggest quarter, and when you get past June or July, and you haven't sold it, it's generally gone for the year.

Our next question comes from Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc.: A couple of questions. First off, the change -- the 1% change in the organic growth, it seems like the vast majority of that is already spoken for with Q2. I'm looking on a go-forward basis, how much have you revised your European demand expectations and what are those European growth expectations given as 1/4 of your business?

Sam, it's Don. I would say on the outdoor component, I would say the vast majority of that is behind us. As far as the European component, we do expect slightly negative performance in the back half of the year, which is what we experienced in the second quarter. So that trend will continue and contribute to the whole 1% decline that we talked about for the year. Sam Darkatsh - Raymond James & Associates, Inc.: Okay. And then John, hopefully I'm going to be phrasing this question right. Based on a bunch of recent security industry transactions and multiples, it would seem that the overall stock market might be materially undervaluing either your Security business or your Tools business. And I was just curious as to what your view on the subject might be and maybe what options you and the board consider in terms of unlocking latent value?

I guess, I'll say 2 things. It should be obvious that the markets grossly undervaluing both our Tools and Security business, but I would argue that those of us on this side of the call are biased. Look, Security at legacy Stanley grew from nothing to almost 40% of our revenues. And Jim, Don and I spend a lot of time talking about that and with the board. And we always felt that if it got to 50% of our revenues, and wasn't being valued properly, we'd think about some alternatives for it. With the acquisition or merger of Black & Decker, Security has slipped back to less than 25% of the business. With Niscayah, it will be about 30%. So you can argue just based on market multiples, we have an 11x or 12x EBITDA business trapped inside a 7x or 8x company. We would all argue that's a very, very high-class problem, because we're -- were it to be -- come to a point where it's a stand-alone company that would be valued higher. We'd create a tremendous value for our shareholders and it's something we'd have to talk about. It's the furthest thing from our minds as we speak right now. We love our business. It's a very important part of a diversified portfolio that served us so well through the last economic downturn, while our Tools business was down 15% to 20% on an organic volume basis, and not quite as much in terms of earnings because we took out some cost. The Security business stayed flat in terms of volume, increased in terms of earnings and it's what makes us, we think, a reliable and a valuable diversified industrial company. That's the place we want to be and our board wants us to be. But every year, we go through a strategic planning exercise with our board. It's one of the things we talk about. Right now, Security is as I'd say, 25% going to about 32% of our revenue with Niscayah. We love the business. We love having it as part of our portfolio, and we're always open to considering various alternatives. Securitas, I might add, and they've been public with this, had the same thought 5 years ago, a guarding business, a monitoring business and a residential security business, based upon 2 of the model but it didn't work very well for them. So it's not magic but if you take essentially high EBITDA multiple business and spit it out and put it on its own, that you've created wealth overnight due to financial engineering. If it was that simple and straightforward, we have an incredibly capable and savvy Board of Directors, and I think a pretty good business development team and a lot of good financial advice, we would have done it 5 years ago. It didn't make sense then, doesn't make sense now, but it's certainly something, Sam, that we will always look at, always consider at the present time.

Our next question comes from Michael Kim from Imperial Capital.

Specific to Convergent, you talked a little bit about installs being greater than RMR. Can you quantify how much stronger install was over RMR? And then with RMR specifically, was that primarily account growth or ARPU growth or is it split pretty evenly between those?

Well, that's an incredible amount of granularity that you're asking for. What I will say is that the RMR or the install growth was a couple of points higher than the overall line average organic growth for CSS. So we're talking kind of in the 5% to 7% range. And it was largely derived from new account acquisition. And also, I think the RMR growth was also aided by the fact that our attrition rates are coming down as well and they're in a very good place as it relates to historical performance.

Okay. Great. And then you guys also called out some order strength from national accounts and a rebound in commercial. Can you talk a little bit about where you're seeing the vertical strength or are there any particular segments in the market that you're seeing some good activity?

I think the state and municipal markets continue to be horrendous. I think we're seeing good in the multifamily, we're clearly seeing some positives. Education is stronger than it has been. Healthcare, slightly stronger. So we're -- that's kind of where we're seeing from a vertical perspective, the better performance. And the order rates are in excess of the install growth. So I mean, they're doing well from an order perspective and our job now is to convert that in the back half of the year.

And Michael, I'll just add to that, because you'll get cut off, because it was your follow-up that's up. As you know -- you know our Security business so well. We're heavily skewed towards retail but working very hard to diversify into 6 other verticals that we're actively pursuing. Retail simply isn't getting much worse. It's been bad. It's hit bottom. And I'm not suggesting a rebound there, but to Jim's point, all the positives that Jim has talked about, which are modest but in the right direction, are not being offset to the extent by retail declines as they have been in the prior 4 or 5 quarters.

Our next question comes from Ken Zener from Keybanc.

I wonder if you could, I thought it was interesting on in CDIY, obviously the difference between the Power Tools and the Hand Tools. So I'm wondering if you could maybe just expand on your comments about the relative difference. I know you mentioned the product launches were very impactful on the Power Tools side. But does that imply on the Hand Tool side, you were are gaining share or were you holding share in a market that was down that much? And if you wouldn't mind refreshing us, I know you addressed this at the capital markets day, but the introduction of the DeWalt hand tools, if you could kind of refresh us on why you don't think that will be a high rate of cannibalization towards the high-end Stanley hand tools that you might or might not have in the same channel?

Sure. I'll take the first part of your question, for sure. It's Jim. I clearly believe that the overall market was negative, modestly negative for both Power Tools and Hand Tools in the quarter. And the reason I think that we had strong double-digit performance in Professional Power Tools and solid single-digit performance in Consumer Power Tools is primarily a result of the new product introductions and share gains in cordless that are derived from the 12-volt that we did last year and the 18-volt that we are just beginning to introduce now. So this is not surprising to us that we're performing well in this regard. We expect to continue to perform well. And so really, the market which was exacerbated by the weak European performance down, I'd say, a couple of points. And then with the hand tools and fastening number of minus 1%, probably would've been minus 2% to 3% had it not been for the revenue synergies that are being pursued, selling hand tools through power tool channels that existed with legacy Black & Decker, especially in Latin America but also in Europe now. So I think that's certainly a driver. And then of course, the DeWalt power -- hand tool line, which really didn't have a huge impact in the quarter, but I think we'll continue to see progress in -- as the year develops, and we take that across the U.S.

And I'll take -- I'll just take the second part, on the cannibalization, which I think is a very logical question. Jim touched on it. Remember, DeWalt hand tools are available in one large big-bucks customer, primarily the staff [ph] channel. Stanley hand tools were significantly underdeveloped in the staff [ph] channel. That's why this was a tremendous revenue synergy opportunity to Jim's point and there's not much to cannibalize to be very candid, which is why that was the -- a; the product line, and b; the channel of focus on where we wanted to introduce this high-quality product with obviously a terrific brand name to support it.

Okay, I appreciate that. And for my follow-up, I'm not sure if you don't mind commenting on Niscayah. It's kind of Security in the U.S., which we are seeing more of a nascent recovery obviously on the Convergent side, less on the Mechanical side. But if one looks at the Niscayah business, which is a bit more on the install side than your existing business, I believe, it's seen pretty negative growth. I mean could you kind of, without getting into detail, but kind of describe your thoughts around how that installation versus the kind of the recurring market is occurring? And given recent changes that we've -- where pressure that we've seen on the European economy relative to the U.S. is more nascent commercial recovery?

Ken, this is Jim again. The big difference between Niscayah and our business is they both have pretty strong recurring revenue. I think we're about 50%, they're about 40%, but only 10% of their revenue derives from monitoring and we're substantially higher than that, at least double that. And the monitoring business is by far and away the most profitable part of the recurring monitoring business. But the other recurring revenue is service revenue. And I would offer that, I think, Niscayah does a fantastic job signing up their customers for service. And I think we could learn from them actually in the U.S. and take some of what they're doing with respect to their contract service and leverage our service base even more effectively. I think that one of the problems that they have is that, given some of their historical constraints, they haven't been able to really size their service fleet in accordance with their level of demand. So there's opportunity all over the place for both Niscayah and for us to learn from each other and to make our entire enterprise even more profitable.

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

Just wondering if -- I'm sorry if I missed this, if you touched on this already, but can you just talk about how inventory management in some of your bigger customers have impacted results during the quarter or the outlook for the third quarter?

Yes. Dennis, this is John. I think we've been pretty public and granular. Inventory is not at dramatically low levels, although our data tells us that at the larger customers, we won't name any by name, we're down about 1.5 weeks from historical level and that's arithmetic. That did have an adverse impact, particularly in our HHI channel, and to a modest extent, in hand tools. We're not going to go through inventory by SKU or by product line, but in general, as you know, we get good TOS data from our 7 largest customers, and we get it almost realtime. And we're down about 1.5 weeks from what I think we would agree with our customers are historically optimal levels. To the extent, they keep it there. That won't come back, to the extent, they rebuild. There'll be a little bit of a lift in the second half. We've built no lift based on inventory rebuild into our forecast because we think our customers, just as we do, are getting better managing their supply chains with a little less inventory. We know, historically, when it went from about 12 to 8 weeks, they were out of stocks all over the place. That was neither good for vendors or customers. But to think over time, retail inventories could come down a week or so, which is 8%. Of course, it varies a lot by category. And turns would increase and out-of-stocks wouldn't. That's quite feasible. And so we've built no lift into the numbers going forward. But it clearly did have an impact in the first half of the year, in general, and the second quarter in particular.

Okay. And then just -- that's is very helpful, John. Just to be clear then though, the 1.5 weeks, roughly, would also be down versus the year-ago period?

That's -- yes. Our best estimate is yes. 1 to 1.5 weeks across the big bucks is going to [indiscernible] . That's right.

Okay. And then just one follow-up on a comment you made earlier about Outdoor. I think you said it's $500 million to $600 million business. Does that include the legacy BDK, cleaning and lighting and some of the household products or was that strictly the Outdoor category?

Yes. It's all of that.

Our next question comes from Nicole DeBlase of Deutsche Bank.

I just wanted to clarify the comments that you made on pricing. I think it was probably the first question on the call. You said that -- it sounds like your getting a little bit of pushback from your CDIY customers, and I'm a little bit confused because I thought that, that was all unrecovered inflation. And so, I'm not sure why they'd be pushing back? So just -- if you could clarify that comment.

It's not like we're getting pushback, Nicole, what it is is that -- there was the profits just continual discussion on data and information sharing, trends that happen in inflation on a daily basis gets discussed. So we're at the later stages of these discussions, but it's relatively small amounts we're referring to that haven't been finalized at this point.

And frankly, we have no choice but to finalize them. So we've implemented the price increases across the rest of the channels so that they will come at the home centers and we will work through that.

And I think, Nicole, just another point, we talked about inflation abating. It's true. To Don's point, as they ask for more data and we provide it, most folks are focusing on steel which is, without question, the biggest single commodity with which we deal, resins' import, et cetera. But if anybody has looked at rare earth metals lately, they're up 600%, 700%. Now, that being said, they're a tiny piece of costs, but it's important as it relates to power tools. And our customers understand that because they source those products directly themselves. So to Don's point, the data's there to support the increases. What Jim said is absolutely right, we can't have 3 sets of prices in the marketplace, so we either raise the prices or don't ship. And we've been here before and we don't expect much of a fallout from where we are.

Okay. That's really helpful. For my follow-up, Industrial margins, on an incremental basis, came in at about 20%. It's a little bit lower than we've seen recently. Is there anything to call out there?

Are you saying on a contribution margin basis?

Yes.

Yes. Well, we are investing in the business, so contribution margin is one way to look at it, but that assumes that SG&A is steady-state and that's just not the case. We're -- in the Industrial business, we're investing in new products. You're going to see an absolutely stunning new air tool introduction, the first industrial power tool -- air tool that will be introduced here in the next few weeks, in about 15 years in the industry. So just -- those types of things are going on. And we're spending money on advertising and sales promotion and working the emerging markets aggressively. So you can't just take the contribution margin of that. Some of that has to fuel growth.

This is a dynamic business.

Our next question is from Peter Lisnic from Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated: I guess the first question on Security, I just want to make sure I understand the profitability here. Up 250 bps x acquisitions, which I consider to be pretty strong especially on the Mechanical side where organic growth was down one point, I think you pointed out. So I'm just wondering what the levers are in that Mechanical business. My guess is that profitability there actually improved even though organic was down. Am I kind of on the right track there? And then, just kind of what led to that?

Yes. I guess I'll start, Todd -- Pete. It did improve but I'd like to feel better about it. We predicted it. It improved from an extraordinarily low base in the first quarter, which Don -- I don't think could have been more clear to say we considered it an aberration. We said what we thought contributed to it, specifically, a lot of softness in MAS and the mechanical locking subsegments of the business. And it isn't so much that second quarter was terrific. Second quarter was a terrific improvement off a low base and quite frankly, we felt sanity was restored to our margins rather than we did something special.

And you are seeing the impact of the Black & Decker Stanley integration in the mechanical business as we integrate HHI into our commercial locking business. You're starting to see the synergy effect really this year and it'll continue into next year. We didn't have a lot of that last year. Peter Lisnic - Robert W. Baird & Co. Incorporated: Okay. And so the implication is the second half should -- we should continue to see the improvement in mechanical if you're not kind of putting for par in that business, to use an analogy I guess?

That's a perfect analogy. Pros putting for pars and dogs chasing cars, don't last very long in... Peter Lisnic - Robert W. Baird & Co. Incorporated: On the CDIY business, I just want to make sure I understand the organic growth forecast for the second half. 4% to 5%, can you give us a breakdown of price versus volume?

Well, we're not going to give that level of detail, but there definitely will be 1 point or 2 of price in the mix. And then beyond that, it's going to be volume driven.

The whole company will add about a point of price in the back half of the year. That's going to be the best way to look at it. Yes.

And CDIY is about 80% of the inflation. So you can figure out where the pricing action is most aggressive.

Our last question comes from Mike Wherley from Janney Capital Markets.

This is Mike Wherley, standing in for Jim Lucas. I just had a follow-up on the Security business. You said that -- I was just wondering about the productivity gains. Are they more from SSDS or spread more evenly across the segment and part of that BDK integration you were talking about?

They're across both CSS and MAS. And as I said, when I gave my comments, there were 3 principal factors that drove the earnings growth in security. One of them was synergies, one of them was productivity projects and the last one was SG&A control. Those are the 3 things that drove the profit growth.

Okay. And then was there any change to your full year material inflation recovery forecast of 33% to 50% that you gave us last quarter?

No. We're still on track for the 80% in the second half and the 33% to 50% for the full year.

Thanks all. This concludes our call today. Again, please feel free to reach out to me with any questions about any sort of matter, and thank you so much for coming in today.

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