Kathryn H. White Vanek - Former Vice President of Investor Relations John F. Lundgren - Chief Executive Officer, President, Director and Chairman of Executive Committee Jeffery D. Ansell - Senior Vice President and President Stanley Consumer Tools Group James M. Loree - Chief Operating Officer and Executive Vice President Donald Allan - Chief Financial Officer and Senior Vice President

Mike Wood - Macquarie Research Jason Feldman - UBS Investment Bank, Research Division Daniel Oppenheim - Crédit Suisse AG, Research Division Stephen Kim - Barclays Capital, Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division William Wong - JP Morgan Chase & Co, Research Division Richard M. Kwas - Wells Fargo Securities, LLC, Research Division Nicole DeBlase - Morgan Stanley, Research Division Michael J. Wherley - Janney Montgomery Scott LLC, Research Division Sam Darkatsh - Raymond James & Associates, Inc., Research Division Dennis McGill - Zelman & Associates, Research Division David S. MacGregor - Longbow Research LLC Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division Clifford Ransom - Ransom Research, Inc. Michael Kim - Imperial Capital, LLC, Research Division

Welcome to the Q2 2012 Stanley Black & Decker Inc. Earnings Conference Call. My name is Sandra, 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 Vice President of Investor Relations, Kate Vanek. Ms. Vanek, you may begin.

Thank you so much, Sandra, and good morning, everybody. Thank you for joining us this morning for the Stanley Black & Decker Second Quarter 2012 Conference Call. On the call, in addition to myself, is John Lundgren, President and CEO; Jim Loree, Executive Vice President and COO; Don Allan, Senior Vice President and CFO; and Jeff Ansell, Senior Vice President and Group Executive of CDIY. Our earnings release which was issued this morning, and a supplemental presentation which we'll refer to during the call, are available on the IR portion of our website as well as our iPhone and iPad app. A replay of the call will be available beginning at 2 p.m. today. The replay number and access code are in our press release. This morning, John, Jim, Don and Jeff will review Stanley's 2012 second quarter results and various other topical matters, followed by a Q&A session. [Operator Instructions] As always, please feel free to contact me with any follow-up questions that you have after today's call. And as I normally have to do, we will be making some forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate and as such involve risk and uncertainty. 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 in the 8-K that we filed with our press release and in our most recent '34 Act. And with that, I will now turn the call over to our CEO, John Lundgren.

Thanks, Kate, and thank you for being with us this morning. And for those of you who have been able to read this morning's press release, I suspect you all have concluded that the strength in our CDIY business as well as continued success with our primarily Black & Decker and Niscayah integration has helped to mute some of the economic and currency headwinds in the second quarter that had a somewhat greater effect on our Industrial and Security platforms. So much more detail to come. Revenues were up 8%, $2.8 billion. Importantly, organic growth up 2%. Strong performance in CDIY, up 5% organically with an operating margin rate x M&A charges and payments of 15.7%. The Industrial and Security segments were pressured by certain weak vertical markets, as well as their presence in Europe. And you'll hear more detail on all 3 segments in just a few minutes, so I won't spend more time on that in the overview. 2Q diluted EPS, $1.32, again x charges, $0.92 on a GAAP basis. Continued positive news and strong momentum on the Black & Decker integration, which we now expect to yield an incremental $50 million in cost synergies next year, 2013. That will bring the total to $500 million since our March 2010 commitment in closing as a combined company, and that's up from an original estimate of $350 million. We're not going to spend a lot of time on the synergies and the increment on this morning's call. Happy to discuss that, as is Kate, offline. But the 2 primary sort of drivers of the $50 million incremental saving were our global strategic sourcing organization continues to gain traction across a larger base and seeing some nice savings there. And some of the programs, as we said earlier, are major…

Thank you, John. As John indicated on Page 7, strong performance within the CDIY segment during Q2, driven by revenue growth and profit expansion. Some of the key points to make during the quarter, starting with revenue growth, total of 5% for the segment; 6% excluding Pfister, fueled as you can see in the upper left by power tools' performance. Across the regions, North America delivered high single-digit growth across both retail and industrial construction or IC channels, driven by power tools and outdoor products. Hand Tools also had a very good quarter, but difficult comp as compared to the prior year, DeWalt Hand Tool load-ins that occurred this time last year. EMEA 2% volume, driven by both hand and power tool expansion with particular strength in the U.K., Middle East, Africa and the Nordics, more than offsetting pressures in Italy and Spain, et cetera. Even with the known pressures across EMEA, we delivered our best volume quarter in that region since Q3 2010, as John indicated. Both North America and EMEA both positively comped the prior year load-ins from the 18/20 volt lithium-ion loads that occurred this time last year, so quite good progress. Latin America continued positive performance with strength in Columbia, Ecuador, Venezuela, more than offsetting pressures in places like Brazil and Argentina. Our emerging market's numbers in total were positive consistent with the recent track record, and I think the piece that gives us more pride than anything and probably reason for confidence going forward is that we had volume growth in every region of the world, excluding Australia and New Zealand, which is both small and improving, as John indicated. That revenue growth around the world also enabled, at least partially enabled, OM expansion of 140 basis points. Again, the combination of volume leverage, efficient…

Thank you, Jeff, and kudos to your team under your leadership, which really did a remarkable job simultaneously integrating these businesses from Black & Decker and from Stanley, each of which when combined is -- this unit is larger than either of the 2 companies in totality before they were merged. So a $5 billion-plus business, a lot of moving parts global, a lot of issues to deal with on the NPI front and somehow, the execution in delivering this was just phenomenal and I think it's a credit to you. And I'm glad you're on the call to be able to describe that and answer some questions as we go forward here. Let's move on to Security. Security revenues were $792 million, up 613 -- or up 29% versus a year ago when they were $613 million. Segment profit was $122 million, up 15%. The profit rate was 18%, which was very impressive, excluding acquisitions, i.e., Niscayah in particular, and 15% including acquisitions. The 18% represents a 240 basis point sequential improvement and the 15.3% would be a 200 basis point sequential increase. The profit rate improvement was accomplished despite weakness in core markets and negative 4% organic growth. As you look at the organic growth, you can see that CSS was down 3%. They had a flattish U.S. performance. Europe was down mid-single digits not surprisingly, and that would be the legacy European piece of our business, which was primarily focused in France. And then the commercial MAS, which includes access and the SMS business or commercial mechanical security, was down 4%. Access continued to have issues with the CapEx requirements of its major customer, which were significantly decreased from a year ago. That will anniversary here shortly and not continue to be a problem, and then the…

All right, thank you, Jim. On Page 13, as many of you read in the press release this morning, we talk quite a bit about the portfolio transformation and capital allocation. And before I get into the details on this page, I just want to remind everyone if you go back to our strategic framework that's been in place since 2004 time frame, the first tenet there is really about portfolio transformation. And as discussed, mixing it to higher growth and higher profitability businesses over the long term, as well as increasing our weighting in emerging markets and specifically having a goal of getting the 20% of the total company in emerging markets by the middle of this decade. The net result of that, as we drive towards the long term and as we grow, will be continued diversification away from U.S. home centers, i.e., as we grow in our growth platforms, that will become a smaller part of our company. So what we decided to announce and to give people an update on where we were in this -- our continued portfolio transformation and we are in the process of evaluating the potential divestment of our Hardware & Home Improvement business. And just as a reminder for those of you who may not be as familiar with that business, it's approximately $940 million in revenues. It operates largely under the brands Kwikset, Baldwin, Weiser, Stanley, National and Pfister brands. It's not a CDIY business, aside from the Pfister business. We do include the Pfister business in our CDIY segment. The remainder of the business that's included in our Security segment. 90% of the revenues are North American-based, and more than 50% of the revenue is through U.S. home centers. We think it's a very healthy business. It's had operating…

Sandra, why don't we turn it to Q&A?

[Operator Instructions] And the first question is from Mike Wood from Macquarie Capital.

To get to the relatively flat Security margins for fiscal year '12 implies a large ramp-up in the second half. Can you talk about the timing of specific actions that are hitting in terms of what's driving that expansion [ph] on the weaker organic growth in the segment?

Yes, I think it's really 2 things that are occurring there. Of course, the continued execution of the Niscayah integration as we see more synergies occurring in the back half of the year and as we go into 2013, as well as the very proactive cost actions they've taken at the beginning of this year, as well as the most recent ones we're looking at were $100 million of annualized program across the whole company. Certainly, Security will have a significant portion of that. And I guess the last thing I would mention is that they've been very proactive around passing on price to the customers where appropriate, given certain inflationary pressures that have kind of occurred in the past. We would expect those price increases to stay in place and be able to drive improved margins in the back half.

Okay. And within that segment, can you help us understand how that 6% order growth that you reported last quarter impacted 2Q? So were there customer delays in terms of those orders coming -- turning into sales? Or was there just a substantial weakening in orders in this current quarter?

Yes, I think the dynamic that's happening there, you're primarily referring to our CSS, the Convergent Security Solutions business, where we did have backlog growing in the last quarter. And clearly, this particular industry is feeling a little bit of pressure around subcontract resources in that space. The subcontractors that are used in this space are used for not only our business, but they're used by the cable companies, the telephone companies, et cetera. And so there is a bit of a resource strain right now in that space that's causing a little bit of drag, and then you combine that with some of the restrictions we're experiencing in the government channels as well. It's putting a fair amount of pressure on both order trend and what I would say conversion of orders into revenue.

Yes, and this is Jim. The last few years, I think we've been pretty good at getting the orders in CSS and not as good at converting the backlog in a timely fashion. And I think part of that underlies the leadership change that we made in CSS North America, where we now have somebody in place who is a more generalist type of a leader, who's got the operations capabilities and focus as well as the sales and marketing.

And the next question is from Jason Feldman from UBS.

On M&A, you described this pause as a tactical change, and I'm sorry I didn't mean to mischaracterize it. But I guess I'm just kind of curious as to why you think this is the right time. I understand that you need to focus on integrating what you have, but you seem to have strong confidence in your cash flow. You're possibly selling HHI with sales that are rather depressed, and valuations on multiples and potential acquisitions look relatively attractive where they're available. So isn't this actually the time where you'd almost want to do the opposite for now and then come back to the integration and organic growth initiatives going forward sometime in the future?

Yes, Jason, your observation is very logical, but what you're leaving out or missing that I think will be helpful for you and everyone else is we look at 3 things all of equal proportion as we evaluate acquisitions. This hasn't changed since 2004. Specifically and you're well-aware, we look at strategy, the strategic fit. Does it fit with our growth platforms as Jim very articulately described them? Is it high-growth? Is it where we can compete? Is it where we can have global-class leadership? Is it where our brands matter? That's the first screen. The second screen is the financial hurdle. Does it significantly achieve our cost of capital? We might discriminate in favor of an acquisition where we could use overseas cash because obviously, it's earning such a low return. But simply said, if it's a small bolt-on, it has to get to our financial hurdles, 15% operating margin, 15% ROCE quicker than a large one. But that's the second, if you will, filter. The third is organizational capacity, and I think maybe that's the one that you're leaving out in your observation. Specifically, we are as likely to walk away from a deal or not pursue a deal because we don't think we have the corporate or business-specific capacity to aggressively integrate it, manage it. Two things: a, what comes with the acquisition in terms of management; and b, to the extent management -- we are as comfortable with the management that comes with the acquisition, what exists in-house within our various businesses to give us the confidence we can successfully integrate. If you just look very quickly within our segments, our CDIY team is incredibly capable. That being said they've, for 2.5 years, been integrating Black & Decker. That's been 75% of the activity that's been within CDIY. We've just added Powers, which as Jeff described is strategic. It's going well. Their plate is very full. Within Security, we bought Niscayah. We closed on that deal less than 9 months ago. A lot of it's in Europe. Niscayah didn't come with as much operating management as we'd anticipated and as a consequence, we've redeployed some of our more capable executives to oversee that business. It's going very well, but Brett Bontrager and his very capable team also have a very, very full plate. That leaves the Industrial platform where some of the opportunities are smaller. One of our more capable tested proven teams with arguably the organizational capacity is Industrial in general and our Engineered Fastening team in particular, which is why Don referenced and Jim did that we're looking at something in that space. So when you cut through it all, the organizational capacity issue, digesting what we have, be sure -- making sure that we've properly integrated them, set a solid foundation and teaming them up for strong organic growth is every bit is important as the other 2, I'll say, filters that you, I think, appropriately pointed out.

And I will just add to that, that we always look at one other thing, which is our capital allocation strategy over the long term, which has been to take about 2/3 of our capital, excess capital and allocate it to acquisitions and the 1/3 to return to the shareholders in the form of dividends and share repurchases. And we tend to favor share repurchases at moments when we think the stock is grossly undervalued. And it's difficult for us to look at Stanley Black & Decker as world-class -- series of franchises trading at 6x EBITDA and then go buy some small private company for a couple hundred million dollars at 9 or 10x EBITDA, and justify why we would have want to do that in our heads. So we're going to work on organic growth, digesting some of these acquisitions for all the reasons John said. And we're going to take the excess cash for that period of time, and we're going to maintain our credit worthiness. And whatever is left over, we're going to buy back our own shares until we get to a point where the arbitrage is more -- is closer and makes more sense.

That's very helpful. And then just lastly, but in terms of the repurchases, the way that I thought I heard Don describe it, the new repurchase authorization seems to be largely a potential redeployment of the HHI proceeds assuming that, that deal happens. So Jim, did you just suggest that basically the 2/3 that normally is used for M&A or free cash flow is also on the table for potential repurchases?

Historically, Jason, the allocation is 2/3. But historically in the last 5 years, it has been close to 50-50 between buyback and dividend. 45% to 55% of our cash has been returned to shareholders the last 5 years despite the, if you will, ideal allocation over time that Jim described as basically 2/3, 1/3.

And what that enables, if you think back to the long-term financial objectives that we've had in place since 2004 is that we'd like to grow our revenue organically about 3% to 4% a year. And then we'd like to grow our total revenue somewhere in the neighborhood of 10% to 12%. We've far exceeded the total growth rate over the last decade, growing closer probably around 20%. However, that was aided by that one very large acquisition or merger, Black & Decker. I think if you take that away, probably closer to right around the stated goal that we had. So that particular -- there's no real magic to that other than the fact that our capital allocation between 50% and 2/3 of our excess cash flow with the prices we that typically pay for acquisitions enables us to achieve that math. And that math, when we grow the top line 10% to 12% a year, our goal is to grow, to expand margins at the same time and to achieve mid-teens earnings growth. And we have definitely achieved that over the last decade, and that's where we're going to continue to do over the long term. This is -- that's why we use the word tactic to describe this because we do occasionally have a tactical change here where the organizational capacity becomes an issue or the arbitrage, the valuations become an issue or an opportunity, to characterize it more positively. And under those circumstances, we typically will shift to a more repurchase kind of focus for a period of time. That served us very well. In the early part of the last decade, we bought back several hundred million -- probably close to $600 million worth of shares in the 20s. A couple of years ago, we bought back another similar amount in the 40s. And so I think we have a pretty good sense to -- as to when the stock is grossly undervalued, and I feel like we're in a -- that kind of a mode right now. So this makes perfect sense, especially given our organizational capacity constraints at the same time.

Jason, one final point because you've asked your follow-up and you'll get cut-off. As it relates to buybacks, also keep in mind where that cash is. As most U.S. multinationals, the majority of our cash is generated overseas. Buybacks with overseas cash obviously are not terribly tax efficient. So our desire to do that, to do more is somewhat constrained by where our cash sits. That being said, there are ways to work with that, work through that, work around that. And Jim's point is a really important one. We think the best investment out there is SWK at $60. So the hurdle for an acquisition is higher than it's ever been.

The next question is from Dan Oppenheim from Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering if can you talk a bit more in terms of the HHI and fastening and potential transactions there. You've been talking about the stock. It seems you're very aware of the valuation there in thinking about the repurchase. On HHI, it seems pretty clear in terms of just what you'd like to do with that. I'm wondering if that's a thought that you're being potentially being paid for the entity growth and that as the business rebounds here in housing? Or if it's more of a strategic issue in terms of wanting to – let's just say divest at this end?

Yes, I'll take it. The reason now we feel is a good time to divest HHI is because as Don said earlier, HHI has reasonable growth prospects in the next couple of years ahead of it in the U.S., and that's largely because we're out of stage in this cycle where we expect some sort of a housing recovery. And so do the potential buyers of this asset, and that makes it attractive to them. From our perspective we, using a slightly longer-term strategic lens, look at it and say, "That would be great to ride that. We'll get paid for a good part of that. It's a relatively tax-efficient transaction by the way." And our stock is -- to the extent we use the proceeds for repurchase, our stock is undervalued as we've talked about. So that all makes sense to us. But over the medium term, the strategic attractiveness of that business is okay. In terms of growth, as Don pointed out, but it would take an enormous effort too and a lot of capital to invest in international and emerging market capabilities, very North American centric. So there's a short term ride ahead in North America to position that business for the long term, the amount of effort that will be required, the amount of capital starts to put it in a position where the other opportunities for faster growth with opportunities with more margin expansion potential with locations in the emerging markets, in particular, emphasis in the emerging markets. There are other opportunities that are on our growth platforms that are much more attractive to us. So the timing is absolutely perfect for us to divest the asset because it will command a very good price. We're pretty confident in that. And if it doesn't, by the way, we won't sell it. So I think that's a very logical time to do it and hence the decision. Daniel Oppenheim - Crédit Suisse AG, Research Division: Okay. And then secondly, I'm just wondering, I think, John, you've been pretty clear in terms of the thoughts and growth in emerging markets, particularly in Asia assets growing to global diversified industrial company. I think -- would you think you're talking about ramping the local teams? Or do you think that you have enough in terms of critical mass in place? Or how much should we expect to see in terms of just very small acquisitions in terms of bolstering your prices there?

Two things. Most of it is going to organic, and Jim touched on this when he described the formation of the new focused SBUs to drive organic growth in emerging markets. I'll address both your questions. Most of those are internal resources, but that was one of the luxuries of the Stanley Black & Decker merger where each company outside has a desire, but honestly not the commitment in terms of management feet on the street, et cetera. We were both rather -- spread rather thinly, to be very candid. And while a lot of people came out of the confined organizations, we've talked about this before, so I won't repeat it, no one came out of emerging markets. We had the chance to take 2 capable senior executives, divide their responsibility, take the 2 teams, merge them in an effective way, and this is just the next step in that evolution. We've made one small acquisition to the second part of your point in the Mechanical Security area. That being said, small or large acquisitions in emerging markets, particularly, Asia, less so in Latin America, are very, very difficult and time-consuming to exercise. The integrity of the financial statements, business practices, a lot of other things where I think maybe rule of thumb is, let's say in Western Europe or more appropriately North American markets, of 4 things we look at, we might pursue 2 and acquire 1. In Asia, of 9 things we look at or 10 things we look at, we might pursue 2 and maybe acquire 1 just because it's a difficult legal environment. It's a difficult environment to confirm the integrity of the financials relative to the price expectations. It takes longer. Taxes are complex and as a consequence, I'm going to say no to small bolt-ons, but what we're saying is they're hard to execute. They're very time-consuming, so that will not be the driver.

[Operator Instructions]

The next question is from Stephen Kim from Barclays.

Yes, I just wanted to drill in a little bit deeper on the Security margins going forward. You've talked about an outlook for margins to be relatively flat. I just want to make sure we understand what basis that's on. Is that excluding acquisitions? Or is that sort of an all-in figure? And then if at the same time, if you could give us some sense of if you divest the HHI, knowing that that's not a definite yet but if you were to, can you get give us some understanding of what the margins look like last year, excluding that business in Security?

Yes, Stephen, I would say that your first part of your question is that's -- it is including Niscayah. So the operating margin rate that we're referring to would include the effect of Niscayah, so it's not excluding acquisitions. And it's for the reasons I articulated, I think the first question we had today, which is really due to the 3 areas -- the 4 areas because Jim added on, which is due to the cost actions that we've taken and that we will be taking in the second half. It's really continued execution on the synergies of Niscayah and the benefits we will see in the second half, the positive pricing trends that we've seen versus previous years' commodity and other inflationary experience. And then Jim talked about improved execution levels as well in the business and how we can convert backlog more rapidly and more efficiently to revenue. As far as the impact of HHI on this segment, not a dramatic impact. It's not dramatically off from current line averages.

The next question is from Ken Zener from KeyBanc Capital Markets.

Of the $150 million benefit that you guys had initially, which is now rising, can you talk about how much fell in 2Q and in 1Q, as well as the inflation headwind at $0.70? Can you talk about how that might have shifted, given the macro changes?

Yes. I would say that the $150 million was executed in the first quarter of this year. We're now talking about another $50 million that we'll execute here in the month of July, by the end of the month, early August time frame. And the vast majority of that was -- $150 million was completed in the first quarter. So you'd see a full effect of that in Q2, $150 million divided by 4. So there's no reason why you wouldn't see that. And then as I mentioned, the new actions will be $50 million in the back half. As far as inflation, as I touched on the $50 million of negative mix impact around lower Security and Industrial volumes versus higher CDIY volumes in our original guidance, embedded in there is a slight benefit to improved inflation outlook. So we clearly are seeing a little bit of deflation in certain commodities. Although we won't experience a dramatic impact of that in 2012, it's just due to the timing of really getting some of those price increases or decreases in place with our vendors and getting it through the inventory and the production of finished goods, et cetera, before it actually is sold to our customers and see that benefit. I will remind everybody that we did experience significant levels of inflation. So even though we are experiencing a little bit of deflation expected this year going into next year, we still have not fully recovered that inflation that we experienced in that time frame back in '11 and '10.

The next question is from Michael Rehaut from JPMorgan. William Wong - JP Morgan Chase & Co, Research Division: Hi, this is actually Will Wong, on for Mike. Can you guys talk about the current pricing environment you're seeing, especially within CDIY? I know, Don, you mentioned inflation historically has been offset by price by roughly -- or roughly 85% of that has been offset by price? Does that continue to be a reasonable assumption?

Well, I would say that -- what we said historically is that our -- we believe our company can offset -- Stanley legacy has offset 85% of inflation with the price. Our new company, since the merger, we're trying to achieve those levels of objectives. But we've also indicated that in CDIY, that percentage is much less and it's higher and much closer to 100% in our Industrial and Security businesses or pieces of our Industrial and Security businesses. So in CDIY, and I think if we achieve anywhere from 40% to 50% price inflation recovery through an inflationary period, we've done well based on the current makeup of that business in the product line.

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

On the timing of the potential deals, the sale of HHI, is that predicated on doing anything with the Engineered Fastening business? Or one -- does that have to lead the potential acquisition? Or could you do Engineered Fastening ahead of time, you feel comfortable doing that before an HHI sale?

These transactions are not interdependent, so any one transaction can occur without the other. We have the liquidity to do it, and we have the financial capacity to do it. So it really -- we could end up with an engineered -- as Don pointed out, we could end up with an Engineered Fastening acquisition and not a sale of HHI, and we'd be perfectly okay with that.

The next question is from Nicole DeBlase from Morgan Stanley.

I was hoping to just dig in a little bit to the guidance change. So it looks like you guys are chalking up most of the $0.35 to FX. And if I do the math between the $1.29 that you originally guided at and the $1.22 today, I think you guys have said in the past that the $0.01 impact of the euro rate typically results in a $0.015 EPS impact, so that's giving you more like a $0.10 delta. So can you explain what I'm missing?

Yes, 30% of our business is in Europe, Nicole. We actually do business in other foreign countries, but Don will give you the math on that.

Yes. That's just the proportion of it Nicole. And then we gave that rule of thumb for the euro because it is a dominant component of our FX. But as I touched on in the call and I also touched on in our January earnings call, there's 3 major currencies that drive a big impact to our performance as a company. Clearly the euro is 1, the Brazilian real is #2 and the Canadian dollar is #3. That is about 3/4 of our international OM exposure around the world. So you have to look at all 3 of those currencies to really get it through assessment. And if you look at how I described it earlier where we've seen -- at the beginning of the year, we saw about a 7% decline in the euro, 11% in the Brazilian real, 3% in the Canadian dollar and then incremental to that since the beginning of the year, we've experienced about 5.5% decline in the euro to the dollar. The Brazilian real has declined another 10% beyond that 11%, and then the Canadian dollar has declined another roughly 2% since then. And so as I mentioned, the first wave of that was about a $0.45 impact back in January, and the second wave is now a $0.35 incremental impact on top of that. And that's really the best way to look at it. I think the rule of thumb is great for just looking at the euro, but you also have to look at these other currencies.

Particularly when in emerging market -- Latin America, there's as much volatility as there has been of late. Remember, we have a $750 million to $800 million business in Latin America. 2/3 of that's in Brazil, and Don talked about the real. So that's -- in your top line math, Nicole, that's a big, big piece that's excluded.

The next question is from Michael Wherley from Janney Capital Markets.

I just wanted to ask about Industrial. It looks like you're factoring in 16%-plus margins in the second half. Does that include European IAR getting worse, since you said you expect overall Europe to deteriorate further in the second half?

I wouldn't say it's going to get dramatically worse from an OM rate perspective in IAR. I think you also have to recognize the proactive cost actions that we're trying to take across the company. Clearly, a business like IAR is suffering from economic circumstances. It's going to be contributing to that extra size in a significant way. So I wouldn't say that it's going to drop off dramatically from where it was. Frankly, I wouldn't be surprised if it's roughly continued at the same level we experienced like in Q2 or in some cases, maybe even slightly better.

And the next question is from Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: I understand the financial rationale behind potentially selling HHI. I'm trying to fully understand the strategic rationale, however, based on 2 things. First off, if you no longer have HHI, your European exposure by definition goes up company-wide. And it also -- I always understood one of the benefits of having the HHI business is it's a -- the lockset business is a very high-margin category for the retailers and therefore, you're able to leverage those SKUs into getting more power tool listings at the home centers, and so not having HHI may affect your market share.

I'll do it. Yes, Sam, the Europe -- this is John and then I'm going to turn it over to Jeff, because you won't get a follow-up. That's after we pick Jeff up off the floor with his reaction to we have leverage in power tools because of lockset margins. Jeff's the expert, and we'll let him talk about it. Totally different departments, buyers and everything else. But to Europe, yes, it's math. To your point, if we sell $900 million worth of business that's overwhelmingly in the U.S. and do nothing else, the math will be a higher percentage not in absolute terms, but a higher percentage of the total will be in Europe. Over time, we'll shift away from that. We're not going out of business in Europe. But yes, the math is irrefutable. Jeff, why don't you talk about the leverage you get from the power tools from the lockset business? Or the -- more importantly, the lack thereof and exactly how that works in the home centers because you're the -- you're the homes expert.

Thanks, John. Sam, I think, you could draw conclusion you just did reasonably. The fact of the matter, however, is that every one of these programs stands alone. And if you look at our size even as the world leader and market leader as compared to the size of the customers that supports the HHI business, you'd say the leverage is that -- is certainly a challenge at least. Beyond that, the chain is as strong as its weakest link. So when you have an issue in any one part of your business, it becomes an issue. When you have a benefit, it doesn't necessary translate to a greater benefit. All those things stand alone. So there really has been no benefit to speak of in any way of the HHI business on the power tool business or vice versa. All those programs across various customers, departments, regions, et cetera, stand alone. So there wouldn't be any impact that I could see...

Totally different buyers, Jeff, totally different departments, different merchandising decisions, Sam. We talked about that a lot, and we wished it were the case of putting Stanley and putting Black & Decker together because 2 large such suppliers to the home centers. But at the end of the day we, as a corporation, are about 1.5% of the large retail -- of one of the large home centers' revenue. And so dice and slice that, it's even a smaller piece. So it's logical but in fact in reality, it's just simply lower nowhere -- not the case.

And if you look at the lockset business, everything that we do in the home centers, it is the least differentiated. So it relies most heavily on its cost, its brand appeal and its cost position. The -- and therefore, it's so much susceptible to private-label incursions over time. The -- one of the rationales behind the Tong Lung acquisition was it gets you the world -- it gets us the world's best-cost manufacturing, and provides an opportunity for the buyer of this business to participate in any private label business that might end up shifting from the branded business. But for us, we're just not interested in doing a lot of private label business. So that's just another reason it's strategically less attractive to us than some of the other things that we do in CDIY.

And the next question is from Dennis McGill from Zelman & Associates. Dennis McGill - Zelman & Associates, Research Division: Just to take advantage of Jeff a little bit more here. Jeff, can you talk about just domestically as it relates to the CDIY business? You talked a lot about market share. Can you talk about what prices are doing on an apples-to-apples basis maybe year-over-year? How you see the promotional environment today and how that impacts how you go-to-market? And then any quantification you can put behind the market share as you see it would be helpful?

Dennis, the environment is not so different than it was over the last 12 months. Growth is at a premium. Competitors and retailers alike, very aggressive. That said, I think our biggest benefit has been far better execution in planning promotionally. And so if you look at what we've attempted to do inside the year, we have moved a lot of things from one period to another, products from one to another. And the desire is to make sure that we provide the greatest value to the end user, to the greatest POS benefit of the retailer for our customers and the greatest share gain opportunity for us. And we've moved a lot of things as a consequence. The shortcut to thinking is we've done it before and therefore, we need to comp it exactly the way we've done it previously. We've really abolished that way of thinking and revised our promotional plans in the space. What you've seen us do is promote older legacy products more aggressively to make sure we hold that position while we enable the growth of lithium-ion products to flow through, so that's been quite positive. And I would say all in all, most recent periods you'll see that Father's Day, the best example promotionally, big season for every domestic retail customer. Our business was up great during that Father's Day period than our POS average year-to-date. Therefore promotionally, we've been successful and you can see we're both successful and profitable in those endeavors.

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

Good call, by the way, on the tactical plan. I like that. I wanted to ask Jeff a question on the CDIY. Demand patterns within the quarter, can you just comment on that please?

Demand was consistent throughout the quarter. We started relatively good position in April and carried through the subsequent 2 months. POS consistent, relatively consistent across the periods, taking into effect the seasonal nature of June and Father's Day. Really, nothing extraordinary in either direction, pretty consistently positive performance across the quarter.

And the next question is from Peter Lisnic from Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Seems to be an underlying theme of MPP or focus on it. Can you talk about any sort of cannibalization impact from that and maybe the margin implication of mix moves toward more MPP broadly?

Sure. This is Jim. I'd say when we talk about MPP in the domestic markets, well let's start with that or the developed markets. Definitely, some shifting going on in both power tools and hand tools and commercial hardware. However, I think in power tools, we are very well-situated with our Tradesman line and with our revived Black & Decker line, which I think is outstanding to deal with any cannibalization, and it's not debilitating cannibalization. In any case, it goes from somewhat lower margin to higher margin business and maybe for a slightly lower purchase price. So I think in the CDIY business, we don't really have a big issue there. We clearly do have an issue in the commercial mechanical security business, as I've discussed previously. That issue is -- in our case, we're getting cannibalized by the competition right now. So we've lost some share. So there's no internal cannibalization associated with us developing an MPP line. It's an absolute essential must-do for us. In addition to that, we need to get more aggressive in the contract construction -- commercial construction market as well. We historically have been much more of a retrofit business, selling our products into the institutions such as education, health care and government that have multiple locations and require locks that can be converted and changed over time and replaced. So we're definitely doing something to address that with Tong Lung in what I described earlier. And then we move to the developing markets. And I think in that area, there's absolutely no cannibalization whatsoever. That is -- it's an opportunity, huge opportunity for us, but it's a markets that we don't serve. It's generally served by local competition. We do see Boschs and Makitas starting to kind of poke around in there and start to try to figure out how to develop positions as well. So I think we're all going to be involved in a land grab in that particular area in power tools, Hand Tools. I think we'll have a better shot at Hand Tools, obviously in terms of accelerated market share gain because the competition will be weaker. And then in commercial security, again there's a -- it's pretty wide open space, a lot of local competition, no cannibalization.

And the next question is from Cliff Ransom from Ransom Research.

First of all, thank you very much for your detail, very useful and in particular, I appreciate your comment on the management depth as a factor in the acquisition lull. I think the answer -- I'm going to ask 2 questions, but -- because I think the answer to the first one is no and the second one is more important. Is there anything you can say about Apex Tools? And number two, when I look at the portfolio, the one really big hole is that 4% in Asia. Can you talk about what you're going to do there please?

Yes, the answer to the first question's no. And the answer to the second question is yes, we would -- we have a -- it depends on how you define Asia as well, obviously Asia as a geography, but we talk about the non-developed Asia Pacific markets. I think Jim has been fairly articulate on this on the last call and the portfolio transition. But simply said, our business has grown in emerging markets in total, but that would include Latin America and emerging Asian markets from 10% or 11% at the time of the merger to 14% now. We still feel that we are woefully underdeveloped in emerging markets. We think 20% is the target. We've actually publicly stated that. I think you're aware of that. And it wouldn't hurt us, I think, to grow to 25%. That's the driver behind the formation of the SBUs that Jim talked about at length on that one slide. And as we think about Jeff Ansell's business, our IAR business and to some extent our Security business, particularly Mechanical Security, that's what's driving all these initiatives. But in response to an earlier question, because acquisitions are much harder in Asia, they're a little easier in Latin America, we believe we're going to have to do it organically. And I think Jim did a real nice job articulating that we are going to get serious about it. We're going to do it with internal resources. We're going to sell, fund them with some of the cost cuts. And you're absolutely right, we recognize the void. We're addressing it, but more with our resources and via acquisition.

And I have -- also, when you look at the logic of the Engineered Fastening acquisition, it's about $200 million of revenue in Asia, so very nice -- that would be a very nice incremental pop for our -- what we're trying to accomplish there as well. The company's actually headquartered in Asia.

Singapore.

So that's a -- that would be nice and again, another one of the reasons behind the decision on capital -- reallocating capital.

And the next question is from Mike Kim from Imperial Capital.

Just turning back to Niscayah. Could you talk a little bit about the pipeline you're seeing there and the overall market environment in Europe? Does that sort of suggest maybe a little more headwind relative to what we saw in the first half?

Yes, as we mentioned, the performance in Q2 with Niscayah overall was about 5% pro forma revenue decline. And we continue to see pressures in our European business. As we went into the year, we felt that we really have baked in 7% of an organic revenue decline for Niscayah associated with the accretion from that acquisition in 2012. We still see that that's a likely possibility. We've also indicated that if it got as bad as 10% for the year, we'd be able to offset that with additional synergies and still achieve our accretion objective. We don't see anything that changes that outlook at this point, and we're prepared for a more difficult second half which in the Security, Electronic Security business, you would tend to see an economic impact and a little further down the road because these are longer term, longer lead types of revenue objectives or projects. And you don't necessarily see that as quickly as you would in the CDIY or in Industrial business. So it's taking a little longer to see that impact.

And the last question is from Greg Hensler [ph] from Bank of America Merrill Lynch.

So if you guys are successful in selling the HHI business, but you cannot acquire the Engineered Fastening business, can you talk about exactly how you plan to delever? And also do you have a particular credit rating target where you -- if you're looking to delever too soon, you can hold on to a certain rating? How are you guys looking at that?

Yes, if that scenario played out where we decided to sell HHI and not acquire the Engineered Fastening asset, clearly we would be delevered a little bit, as I mentioned, because we would be losing about $200 million of EBITDA. And our objective would be over the next 18 to 24 months is to get our debt-to-EBITDA ratios closer to 2, the way that the credit agencies measure it, and that would basically be strong investment credit grade. That's part of our financial -- long-term financial objective and continues to be the case. So there are occasions like this where we're slightly higher than that objective, but we work it down to that level over a reasonable time frame. The most important thing is that in that scenario, we do buyback some stock to offset a significant amount of the earnings dilution associated with the sale of that business. So we have a relatively modest dilutive impact in that result.

And we -- and that's tremendous flexibility for our comment to an earlier question from Jason Feldman of UBS. That is all U.S. cash, so that's a -- gives Don and his team a lot more flexibility with respect to deleveraging buybacks, et cetera. So it's a highly possible scenario, but it gives us tremendous amount of flexibility that we feel quite good about.

Sandra, I think that ends it for us today. Everybody who dialed in, thank you so much. Please reach out to me if you have any questions after the call.

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