Gregory Waybright - Former Vice President of Internal Audit John F. Lundgren - Chairman, Chief Executive Officer and Chairman of Executive Committee James M. Loree - President and Chief Operating Officer Donald Allan - Chief Financial Officer and Senior Vice President

Winifred Clark - UBS Investment Bank, Research Division Nigel Coe - Morgan Stanley, Research Division Richard Michael Kwas - Wells Fargo Securities, LLC, Research Division Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division Jeffrey T. Sprague - Vertical Research Partners, LLC Stephen S. Kim - Barclays Capital, Research Division Robert Barry - Susquehanna Financial Group, LLLP, Research Division Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division Mike Wood - Macquarie Research William W. Wong - JP Morgan Chase & Co, Research Division Dennis McGill - Zelman & Associates, LLC David S. MacGregor - Longbow Research LLC Liam D. Burke - Wunderlich Securities Inc., Research Division

Welcome to the Third Quarter 2014 Stanley Black & Decker Inc. Earnings Conference Call. My name is John. I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the call over to Vice President of Investor and Government Relations, Greg Waybright.

Thank you, John. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's Third Quarter 2014 Conference Call. On the call, in addition to myself, are John Lundgren, our Chairman and CEO; Jim Loree, President and COO; and Don Allan, Senior Vice President and CFO. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we refer to during the call, are available on the IR section of our website as well as on our iPhone and iPad app. A replay of this morning's call will also be available beginning at 2 p.m. today. The replay number and access code are in our press release. This morning, John, Jim and Don will review our third quarter 2014 results and various other matters, followed by a Q&A session. Because of the size of the queue, we're going to be sticking with just one question per caller. And as we normally 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, they involve risk and uncertainty. It is, therefore, possible that actual results may differ materially from any forward-looking statements we might make today. We direct you to the cautionary statements in the 8K that we filed with our press release and in our most recent '34 Act filing. I will now turn the call over to our Chairman and CEO, John Lundgren.

Thanks, Greg. Good morning, everybody, and thanks for joining us. I am really pleased with the performance of our team in the third quarter, given what's going on in the geopolitical front and many others. Let's get right into it. Organic growth of 6% was led by CDIY and our Industrial business, and the combination of the 6% growth, sharp cost focus and price realization delivered strong operating leverage. Our OM rate expanded to a post-merger record of 14.1%, that's x charges, of course, and 120-basis-points increase versus 2013. Diluted EPS, up 12% versus 2013 to $1.55, $1.50 on a GAAP basis. And please note the convergence of GAAP and reported EPS as the large acquisitions, accompanied by outsized restructuring charges, are more fully integrated and the overwhelming majority of that is now behind us. CDIY revenue grew 10% organically, another post-merger record of 16.5% operating margin rate as volume leverage, productivity, price and cost actions offset the continued foreign exchange and emerging market headwinds that you'll hear more about later in today's call. Industrial delivered 5% organic growth, 15.9% operating margin, and that's up 170 basis points. And the turnaround in Security, Europe continues. At the same time, we're taking some further actions to strengthen the global Security business as well as sharpen our focus on our vertical market solutions activities. And Jim Loree is going to give you a lot more detail on Security, in general, and vertical markets, in particular, when he gets into the segments. Free cash flow is $189 million in the third quarter and remains strong. Year-to-date, it's up $464 million versus 2013. And as a consequence of the earnings performance in the third quarter cash flow, we're raising our fiscal year free cash flow guidance and reiterating the earnings midpoint while tightening the…

Okay. Thanks, John. Let's start with CDIY. It was a blockbuster quarter for organic growth in the developed markets with double-digit performances in both North America and Europe, overwhelming a second consecutive slow growth quarter, in this case, 2% in the emerging markets, for a total performance of 10% globally. CDIY operating margin grew 19%, achieving another post-merger record rate of 16.5%, and margin gains resulting from volume leverage, modestly positive price, operations productivity and tight SG&A cost management overcame currency pressures. Last quarter, in my remarks, I said, and I quote, "So as we step back from the CDIY picture, we see a very healthy franchise with world-leading brands, broad and deep global distribution, delivering record margins. As we look forward, we have tremendous NPI momentum in both developed and developing markets and a cost structure that is poised for operating leverage." That is, in fact, exactly what our CDIY team delivered in bigger proportions in North America and Europe than even we expected. Across the global product lines, strength was broad-based with growth in Professional Power Tools, Consumer products, Hand Tools & Storage and Fastening & Accessories, each in a range from 8% to 11%. As the cover page indicated, CDIY new product development momentum is driving both revenue and profit growth. DeWalt DC brushless, an important and growing segment of cordless, is off to a very strong start. A host of other examples around the globe, ranging from highly innovative products, such as the first-in-world cordless electric pneumatic nailer and the Autosense drill, as well as practical products, such as the new designed in the market for the market, emerging market power and hand tool lines, all contributed. Putting the company's leading array of brands to work across categories also continues to produce strong results with examples…

Thank you, Jim. We are very pleased with our third quarter 2014 cash flow performance, which resulted in $189 million of free cash flow. On a year-to-date basis, our free cash flow performance was $355 million as we continue to benefit from increased operational earnings, lower restructuring payments and reduced capital expenditures. These 3 factors are responsible for the vast majority of our year-over-year improvement through the first 9 months. Additionally, we are also pleased with our third quarter working capital turns performance at 6.4x, which is up a half a turn versus the prior year. We believe this bodes well for us achieving our year-end goal of 8.5 to 9 working capital turns as we're looking for a half turn or better improvement versus the 2013 year-end. Many of you are aware that every year we experience a significant positive working capital benefit in the fourth quarter due to certain seasonality aspects of our CDIY business. As a result, we tend to generate close to 60% of our annual free cash flow in the fourth quarter. If you extrapolate our year-to-date performance through the third quarter, which is $355 million, and consider the fact that it indicates our free cash flow for the full year of 2014 will approximate $800 million. Considering all these factors I just mentioned, we are increasing our annual guidance for free cash flow to approximately $800 million from the previously communicated, at least, $675 million. This improved performance will ensure we will achieve our debt deleveraging goals for 2014 and then allow us to begin the previously communicated share repurchase program at some point in the fourth quarter. Now let's review our 2014 EPS outlook on Page 10. As indicated by John earlier, we are reiterating the midpoint of $5.55 while tightening our range,…

Great. Thank you, Don. John, if you would, we can now open the call to Q&A, please.

[Operator Instructions] Our first question is from Winnie Clark from UBS.

Could you talk a bit about -- a little bit more about the emerging market expectation continuing to be sluggish and now somewhat weaker in 2015? You quantify the dollar change in your expectation, but what does that translate to from an organic growth expectation? Does that impact your ability to drive 3% organic growth via your initiatives next year?

Yes. No, a very fair question. Let me start at a higher level. Emerging markets, depending on exchange rates, accounts for 17% to 19% of our total revenue. So first and foremost, put that in perspective. Within the emerging markets, we didn't touch on specific geographies. But historically, as a group, these are growing in double digits, low teens and now they're growing at 2% and 3%. Specifically, certain markets, in our case, Venezuela, where we've had essentially no business for the last 12 months, that will anniversary which is nice in terms of our ability to grow. Argentina is difficult but continuing up. We've seen some bright spots in the last quarter. Brazil, it's much about currency and the economy, and of course, China, a very, very good -- switching to Asia. China, a big piece. We saw 7.3% GDP growth in the third quarter. That's encouraging. It's below where they have been, but better than of late. And of course, the geopolitical situations in Russia, Turkey, the Ukraine is impacting all of it. So at the end of the day, it's 17% of our volume. And if the markets are growing at 10% and we're gaining share -- maintaining share, excuse me, that's 170 basis points of organic growth. If they're flat, it's 0. So simply said, we have the products to go into those markets. We are certainly tempering our expectations for those markets in total, but that's what's baked into the kind of guidance that we've been able to provide thus far.

And if you just think about it from a macro point of view, there clearly is a rotation of economic growth away from the -- in the short term, away from the emerging markets and more into North America, in particular, and Europe, kind of sort of -- expected to continue to sort of stay the same, maybe get slightly better. So we would expect to see the organic growth profile of the company mirror that economic growth rotation. So I would expect to see developed markets kind of -- and emerging markets converge for a period of time in sort of similar growth rates and then, over the long term, emerging markets to kind of ramp up again. We have taken considerable action in terms of product innovation and product development, brand development channel. We've made significant investments in the emerging markets. So we do think that we will be able to outperform the market or the economic performance of various countries. However, the volatility does remain high in the short term and are probably well for the medium to long term as well, but one has to be in these markets because these markets are the future. The 2/3 of the world's economic output and -- within 20 years will be from the emerging markets, and we will be there. So this is a -- this is not a period where one should get shy or cautious about being in these markets or second guess their strategy. This is a time to hunker down and gain as much share as possible.

Yes, and thanks, Jim. And just to follow up because you only get the one question. I think 2 things. Jim's referring specifically to our feet-on-the-street advertising promotion efforts in those markets, but a greater importance, made in the market for the market to hit the right price points to get the products to the -- particularly to the distributors who are short on cash and thinking very hard about their purchase. So at the end of the day, think about the math. And in the appendix, if you're not familiar with it, we don't go through it in each presentation, but it'll just help you with the math that will give you every region of the country and the percent of Stanley Black & Decker revenue that, that region accounts for. So if you're modeling, it'll just help you with kind of a weighted average and you can apply your own assumptions to the market. And to Jim's point, we will mirror that.

And our next question is from Nigel Coe from Morgan Stanley.

Don, I just wanted to dig into your comment about currency with the hedges, about $45 million, $50 million headwind for '15, and you're mentioning the possibility of further actions this year to offset that. And so what I'm going to try to figure out is do the incremental actions you're considering offset the $45 million to $50 million? Or do we think about that as the total actions you've taken this year offsetting that headwind, potentially?

The actions that we're -- that we are evaluating would offset the currency impact as well as the emerging market volume impact. So I -- we described a $50 million to $75 million headwind for 2015. Within that, there's a $45 million to $50 million currency pressure, and then the other component is the volume concerns that we were just talking about related to emerging markets. We're looking to take actions that would offset all of that.

Our next question is from Rich Kwas from Wells Fargo.

Just quickly on -- 2 questions. Don, I think you said buyback in Q1 because of higher cash flow. Just wondering why you wouldn't be aggressive here in Q4, given this is seasonally the strongest cash flow quarter. And then the second question, CDIY margin, 16.5%, very strong number. How should we think about this from a sustainable standpoint? I know there's some seasonality within the business, but just trying to understand as we think about '15, given the strong margin here this quarter.

So the first question is, I said the fourth quarter, maybe there was a Freudian flip and the word first came out, but I did say fourth quarter. So we expect to start the repurchase in the fourth quarter. So our objective has always been, since the beginning of the year, would be that we would focus on deleveraging. We had about $300 million roughly of deleveraging we wanted to do. We believe with this outperformance of cash flow we will be able to adequately achieve that, and then we'll be able to move forward with our repurchase program at some point in the fourth quarter. As far as the cash flow and the seasonality comment, yes. I mean, when we look at the history of our CDIY business, it is -- it was a little muddy last year, I think because of some other dynamics. But every other year, post-merger, about 60% to 70% in some cases, of the free cash flow or working capital benefit occurs in the fourth quarter. And it's because of the timing of the different promotions and other activities related to the holiday season and the vast majority of those shipments occur in October, early November. And then the good news is we're able to collect a lot of those receivables. And then we ramp down our production in our plants, so our inventory levels are actually able to decline because we do -- the -- our major customers tend to have a weak first quarter because it is the winter months.

And our next question is from Ken Zener from KeyBanc.

On the Security, it seem to be very specific in the U.S. on Mechanical, if I interpreted your comments correctly. So would you expand on that, if it was related to -- going to the distribution model, if it was aggressive behavior by a competitor? Or was it simply more misexecution?

Well, the Mechanical issue is kind of the issue for North America and emerging markets Security in the quarter, without a doubt. The other issue, which is the CSS kind of efficiency and operating margin rate, is simply a one quarter blip, where we have a big installation of a huge vertical market customer project. So you do have that correct. And I'd say what we believe about the Mechanical business today is that we have selected the correct strategy, and we have attempted to implement it effectively for about 2 years now and, at some point, the -- once patients dwindles with execution. And we've made some mistakes along the way, and we expect that new leadership will tackle the project and get it right. So that's the impetus behind the management change, and we're looking forward to Joe's experience coming into this job and getting this right very quickly. We've studied the strategic elements and aspects of this in depth, and we see that as the right strategy. We've got the specifiers in place. We haven't seen any untoward competitive activity. The market is going to be good at some point in time. It's not bad right now. We're just not performing at that level. So we get to those situations and it's time to make a change.

Just to add to what Jim said, the one thing you didn't mention is coming out of that is -- which as you know, is the largest annual Security trade show. It's not a product issue as well. The product is very, very well received. We're encouraged by that. So just to reinforce everything Jim said, plus we're -- not only do we feel the strategy is right, we're -- we feel we're in better shape than we've been in the past in terms of product offering. So it's up to us to execute.

Our next question is from Jeff Sprague from Vertical Research.

Just a question around Europe Security. I was wondering if you could provide us a little bit of granularity, maybe it's collectively, not by country. But in the -- what's going on in the 12 P&Ls you view as, at least, satisfactory versus the other 2? And what would actually be the gating decision to drop Spain and Italy into disc ops? I mean, the -- obviously, if you decide to exit, that might be one thing. But if you're looking at a sale, I wonder if you would consider dropping it into disc ops before you have an agreement on the exit.

I'll take it, and Don can correct me on the accounting. Let me take the second part of your question first. We've said all we could say about whether or not -- what we said is we're evaluating it. We will have a decision in the fourth quarter, and we will communicate it. That is all we're going to say. It's all we're in a position to say for all the reasons that I know you understand. I respect the question. Please respect the fact that we're not able to provide any more insight on it, other than we want you to be aware we're not letting that issue fester. What I think is important to understand, we timed that and allow us to go through '14 P&L. We do report them. And the ones, the big ones that matter, U.K., France and Sweden, all performing pretty well and very near line average and historical margins. The math is really important, and it's interesting. We talked about Spain and Italy, which, together, from a revenue perspective, represent 10% of European Security; if you just cascade that with the math, which represents 4% of Stanley Security and 1% of Stanley Black & Decker revenue. Yet that region is accounting for 70 to 100 basis points of headwind or negativity to our Security margins. And quite frankly, that's just math. And it's 2 things going on, those are very competitive markets. They're difficult markets, as you can imagine. But secondly, particularly, Spain, which is 80% of that 10% or 70% of that 10%, the financial services industry, as you know, is in turmoil. Retail bank branches closing left and right. I'd be off -- I shouldn't speculate, at least 30% to 40% down. And that was our strength in Europe. So when you got -- very competitive in Spain -- so when you have a very competitive market that's 30% to 40% smaller than it was 1 year, 1.5 year ago, that's just tough sledding. So we're evaluating all the options in the best interest of our shareholders and of our employees in the company, recognizing the pros and cons of the 2 or 3 different alternative that you outlined. And when we're ready to -- when we're in a position to take a firm stance, you'll be among the first to know.

Let me also just mention that another way to look at this situation, Security Europe, is -- and at the P&L, is that once you excise the Southern Italy part that we're talking about, the gross margin rate is north of 40%, and the operating margin would be a couple -- kind of in the mid to slightly above mid-single-digit range. So what that says is that the SG&A is quite high, and it's in the 35-plus-percent range, which is just too high for a Security business, no matter where it's located in the world. So it's very important that part of what Don mentioned in terms of this cost exercise that we'll be going through in the fourth quarter to yield profitability improvements in 2015, there will be a significant -- as he mentioned, a significant portion of it targeted at the Security Europe cost structure, and particularly, as it relates to the SG&A. And we will find a way to make some significant improvements in that structure, that cost structure so that we get the operating margin lift that comes with that. So I think is very encouraging, from my perspective, that the gross margin is north of 40%, once you get that Southern Europe portfolio excised.

And our next question is from Stephen Kim from Barclays.

I wanted to follow up a little bit on the CDIY. I think you talked about the outdoor previously as, I think, hindering you by about 2 points of growth. I think you mentioned that in either 2Q or 1Q. And I'm triangulating on that to be about $30 million impact. I was curious if you could give us some sense. Is that kind of in the ballpark of what you benefited from this quarter? Can you get it all back? Or just some color around that. And then what you think the incrementals on that look like? Is there a reason to think the incrementals there sort of higher or lower than the segment average typically?

We -- just so -- just for clarity, we only got about 1/3 of that back. So it didn't even contribute -- it might round to a point, point of growth for CDIY, but it wasn't a significant an issue as -- or a benefit as it was a hurt in the second quarter. And incrementals are going to be pretty much consistent with the rest of the portfolio.

Yes. Steve, outdoor -- just to quantify what Jim said, outdoor was up 2% VPY in the quarter, which was nice, but it's still down 3% year-to-date, emphasizing what Jim -- that helps to quantify what Jim just said. So despite a pleasant surprise in the third quarter, it didn't begin to fill the hole in the second quarter. It's just added a bit in the third.

Our next question is from Robert Barry from Susquehanna.

I wanted to just ask about the vertical market solutions revenue in Security and how much revenue you're expecting that to contribute in North America in 2014. And wanted to also clarify the margins there, I know there was some mention of project mix headwinds in the quarter and some mention of -- perhaps that was related to a big vertical market install? I wanted to clarify that because I thought the margins on the VMS was higher. And then just finally, the latest thinking on bringing the vertical market solutions to Europe.

Yes. I'll take that one. I think that was 4 questions in one and I'll have to break that down. So when we look at 2014 for the vertical market solutions, we've said throughout the year that our expectation is that we'd probably get pretty close to $100 million of revenue from these solutions during the year, and we're tracking relatively well to that at this stage of the year. So we feel pleased about how that's progressing. As far the gross margins, we've also said that they most likely will be accretive to the overall business. But you have to look at this across the entire contract. And what I mean by that is when you have large jobs like this, you have an installation component. And in the case of the third quarter, as Jim was describing the impact of a large job, we were doing the install, and we'll be close to finishing that here in October. But that does have a negative mix impact, but the profitability is lower on the installation. And then the recurring revenue stream starts later this year and continues into next year. And then when you look at the overall profitability of the entire job, it achieves the type of profitability we were describing before. And that's the way you have to evaluate it. I think it's important to remember that as we continue to focus on the vertical selling solutions, that we're occasionally going to have a quarter where we have a little bit of a mix challenge we have to work through when we have a large installation. But over the long term, these will be profit-enhancing activities.

Simply said, you need to do the installations to keep the pump primed to generate the future recurring revenue. It's always a challenge to balance the -- balance the mix and balance the timing. But it's the nature of the business. And the larger the install, the more of a short-term challenge it is with the -- yet, at the same time, the greater the long-term reward.

And our next question is from Tim Wojs from Baird. Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division: Just on European CDIY, really strong growth there again. I guess what type of growth should we expect going forward there? I know you said new products and retail expansion has been a driver, I guess. But can you give us some color on what might be in the pipeline there? And especially if comps get more difficult in the 2015, what we should expect for growth?

I'll take that one. So yes, we -- obviously, we talked about how pleased we are with the performance in CDIY Europe. Jim went through that in a great deal of detail. There's been a lot of activities around new product introductions, new customer listings, some new brands put on products that didn't exist before in the European marketplace, such as the Stanley FatMax brand on power tools, so some great examples of that. And I do think there's momentum to continue that into 2015 in the sense of having new product introductions, expansion of some of the things that we did in certain countries into other countries within Europe that we haven't penetrated yet. I wouldn't expect to see high single-digit revenue performance, but I do expect them to outperform the market as a result and continue to have share gains.

Our next question is from Michael Wood from Macquarie Capital.

I wanted to focus in on the CDIY business. The CDIY sales in North America for Stanley took a while to reflect the housing recovery, given there was a considerable lag. Now we're starting to see building product companies reflect more tepid growth in end markets that are slower compared to last year. What are you able to do -- or what are you planning to do proactively in the North American CDIY business to get out in front of the curve from a cost or share gain perspective?

Well, I think what we're doing is exactly what we did in the quarter, which is we're basically driving new product innovation as hard as we ever have. As I said in my remarks, that new product innovation resulted in 3 to 5 points, at a minimum, of contribution to revenue growth.

So 1/3 to 1/2 of the growth.

Yes, which also drives profit growth because you mix into higher-margin new products. And so it's a growth -- it's an innovation machine right now, which is clearly -- I mean, I can guarantee you that there are significant share gains going on in the U.S. and in Europe and, frankly, globally. I mean, this business has grown its market share significantly over the last 4 years, and it will continue to do so. Now we don't see any near-term abatement in the CDIY business U.S. market. It is largely DIY-driven, much more so than new construction driven. New construction, when it hits and the lag occurs and so forth, that will be an added bonus. But we did not ride that curve up in the last couple of quarters, like some of the building products companies did, and we certainly aren't going to ride it down, having not ridden it up. So I wouldn't correlate us quite as closely to the building product companies as your remarks seem to imply as well.

Yes. Just to help you, Mike, I think you're aware of this, perhaps not. For the 10, 11 years I've been here, and I think for the 100 years before that, we have been 3 to 9 months, so take the midpoint, 6 months, behind any significant change in North American residential construction. That's just the nature of our business, the wallboard folks and the timber folks and those who are involved in foundations, et cetera, are obviously at the beginning of that program, and we're closer to the end. So the lag, to use your words, not -- and Jim, I think, described it well. He just didn't put a number on it. That's been going on for 100 years, and we don't anticipate that it's going to change.

Our last question is from Michael Rehaut from JPMorgan. William W. Wong - JP Morgan Chase & Co, Research Division: It's actually Will Wong on for Mike. Don, thanks for providing the additional color regarding the cost cuts. The company has initiated cost-cutting actions over the last 2 or 3 years to offset weakness in end markets as well as FX and we're just wondering how long this can continue without cutting into the core capabilities for growth and operations, but your license fees appear to be unplanned and reactive rather than proactive?

Well, I think we -- for those -- as I mentioned, for those of you who have followed us over the years, we are very proactive about looking at certain headwinds we see and how we're going to react to it. And so you can describe that as reactive or you can describe it proactive. I look at it as proactive. At the same time, I look at our company and I see, every year, significant productivity programs that occur in the supply chain, productivity programs that incur in our SG&A costs that we never talk about. We just do those every year, and those are the more proactive things that you're describing. They need to happen to continue to enhance our profitability to allow us to deal with occasional periods of time when we have commodity price pressures, et cetera. We don't like to sit back and just let things come at us and then not do anything about it. Our response is to do something about it. And what we're basically saying is that we are going to take a proactive approach to a headwind that with -- become a reality in the last 30 days. And we're going to do it in a way that is surgical in nature. It's going to be a combination of continued evolution of the Stanley and Black & Decker merger. It's going to be the continued improvement of the Security profitability, Europe and -- specifically, as Jim and I both talked about it, and it's also going to be the continued enhancement of the efficiency and effectiveness of our functions and our corporate overhead. These are all things that we need to do every year and sometimes we accelerate some of these things to deal with headwinds that come at us quickly.

Yes. And just, again, to quantify, we've said this before in a lot of calls, but what Don's talking about, the proactive or ongoing nature of our business, particularly to CDIY and IAR, for that matter, the tools business. It's as simple as -- and real prices have declined 1% to 2% a year, let's say, 1% for the last 15 years, real prices. We get price by mixing up, by being -- by mixing into higher-margin items and a good price discipline. But with gross margins round numbers of 35%, real prices declining 1% a year, if you don't get net 3% productivity every year, your margins would decline. Look at the math, our CDI margins are not declining. So if you exclude all the new headwinds to which Don's referring to, particularly foreign currency, emerging market growth, just to stay in the game you need 3% productivity every year to offset 1% real price declines, and we've been doing that for a long time. I think Don can account for 15 years of it.

Yes.

And that's just part of our DNA. That's part of SFS that we don't talk about too much. But I just kind of want to steer you away from anything we're doing, is we see something going wrong and the knee-jerk reaction is to fix it. That's a necessity, too. We wouldn't be where we were this year if we hadn't done a whole lot of those programs. As Don described, the level of unanticipated and uncontrollable macroeconomic headwinds we faced, yet we're plodding along with a pretty successful year relative to expectations.

Our next question is from Dennis McGill from Zelman & Associates. Dennis McGill - Zelman & Associates, LLC: Don, can you just talk a little bit about some of the cash flow items that are dropping below the free cash flow line? I think one seems to be on the head settlements and then there's a lot of grouped in the other line, about $200 million so far this year, and I think last year is about $30 million. Can you just maybe explain what those are? And then let us know if there's anything that you'd expect along those lines in fourth quarter or next year.

Yes. The other line in operating cash flow is where you see the impact of all the reduced restructuring payments. Dennis McGill - Zelman & Associates, LLC: And was it down on the -- in the financing investing side?

Well, that would simply just be the activity around commercial paper and financing. And as we go through the year, we see fluctuations in there. We tend to increase our commercial lines, paper lines as the year begins because we have cash outflows in the operating levels. And then as the year goes on and we have our strong fourth quarter, as I described, that slowly and gradually goes away, and you'll see that this year. You do have some other type of currency and hedging activities that do happen below there, but we could certainly walk you through that in a little more detail off-line.

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

The question is -- the questions I have are really on the mid-price point. You mentioned that the launches are pacing to expectations. I guess the question is, are your distribution build-outs where they need to be? And Jim, I think you made some passing reference to some pressures that are being felt by some of those distributors. Can you just talk about what you might be doing to support those distributors, such that the fourth quarter and beyond isn't at risk in terms of the growth?

Well, I mean, we're doing everything we can, obviously. We're not going to overextend our sales from a credit point of view with distributors in markets that are relatively volatile and weak. So there's only so much you can do in terms of financial support, and we're certainly not giving significant extended terms or anything like that. You'd certainly see that in the working capital if we were doing that. So what it really boils down to is distributor training and end user kind of support, so through advertising, through having feet-on-the-street, working with the end users to try to stimulate demand and construction projects, those types of things, creating awareness for the products in the market. But this is just going to take its course. We're not going to jam these products into channels. We're going to allow them to gradually kind of take root and let the products speak for themselves. And I'd say we've done a pretty good job about 1.5 years ago of sort of sprinkling the resources into the various markets. And what we're also doing right now is we've done a study of our sales force effectiveness in managing this distribution channel across all the different countries. And we're looking at the emerging markets right now as sort of a portfolio of countries, and we're saying, "Okay, we had -- we added about 300 feet-on-the-street, 200 salespeople, 100 marketing people during that time frame." And now we're kind of looking at that resource allocation and saying, "Okay, number one, where are the folks effective? And are there certain folks who are more effective than others?" Of course, there are, so some rank ordering, some performance evaluation, some changing out some of the folks who are nonperformers. And then the other piece of the activity is to look at some reallocation of resources based on the economic outlook for various countries. So for instance, we wouldn't want to have a -- an army of people in Venezuela trying to sell products when there's no market. So those type of resources could be reallocated to countries such as Colombia, which are -- which is very, very robust right now, so that kind of process, looking at the whole picture of doing the resource reallocation. So no incremental costs of any significance, however, more effectiveness. That's really what we're looking for. But this is not going to be a -- given the market status that we are in right now, this is not going to be a huge sensation. Don't look for 20% growth because of the new products or 10% growth. This is going to be -- will keep us in the game, drive market share quietly, market share increases steadily, methodically. And then when the markets come back, there'll be a lot more share for us and lot more growth.

Yes. Importantly, Doug, the key is, as Jim said in his presentation, made in the market for the market. In our history, if you go way back, and you followed us a long time, we would make western-specification products, then we try to take 10% of the costs out and sell it for 20% less. And it was a strain on margin -- it's not quite that simple, but it was a strain on margin nor were the products at a price point that appealed to the distributors in some of these emerging markets where wage rates are so much lower and things of that nature. So the acquisition of GQ which we've talked about, leveraging that capability across a broader portfolio, our Design To Value program where we're truly starting with a blank piece of paper, building these tools from scratch with no extra cost or no extra feature that the end user isn't willing or able to pay for. That's what's driving this. And as I say, it's early days, but we're encouraged thus far.

Our next question is from Liam Burke from Wunderlich Securities.

IAR was very strong, particularly in Europe and the U.S. Was there any particular vertical that showed inordinate strength? Or did you just see strength across-the-board?

I mean, there was -- I wouldn't say across-the-board. I mean, mining is still weak. But generally speaking, pretty strong. General manufacturing, very strong. But lot of strength in various verticals.

And our next question is from Jeremie Capron from CLSA.

In Rich Kwas', I'll say, multi-faceted question, but it was an important one, and as Don was processing, he didn't get to it on the sustainability of CDIY margins. It's probably worth a word from Don before we close.

Yes. So Rich was asking about the 16.5% margin we saw in Q3, what's the sustainability? What does it mean going into 2015? What I will tell you is that for this year, as I mentioned in the guidance, we'll probably see 60, 70 basis point improvement in the CDIY margins year-over-year, and it's due to a lot of the great things that Jim walked through and that we've discussed through the first 9 months of this year. We expect continued improvement in the margins going into '15. As we all know, quarters change and fluctuate. But on a full year basis, we would expect that we would continue to see improvement. I think the next step and hurdle is we want to try to move them towards 16%. We will see a little bit of pressure against them next year because of the FX that we talked about and maybe all the cost actions don't get allocated directly to CDIY. But even given that, I do expect to see some year-over-year improvement.

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