Stanley Black & Decker, Inc.
Q1 2010 Earnings Call Transcript

Published: 28 Apr 2010

[Operator:]

Good morning my name is Louisa and I will be your conference operator today. At this time I would like to welcome everyone to the Stanley Black & Decker first quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (Operator Instructions). Thank you, Ms. Kate White, Director of Investor Relations you may begin your conference.

[Kate White:]

Thanks Louisa, good morning everyone and thank you all for joining us for the Stanley Black & Decker first quarter 2010 conference call. On the call in addition to myself is John Lundgren, President and CEO, Jim Loree, Executive Vice President and COO and Don Allen Senior Vice President and CFO. I would like to point out that our first quarter earnings release which was issued at 7 am this morning and a supplemental presentation, which we will refer to during the call are available on the investor relations portion of our website and accessible on our home page of www.stanleyblackanddecker.com. This morning, John, Jim and Donald will review Stanley’s first quarter 2010 results and various other topical matters followed by a Q&A session. Because of the complexity of this quarter and the large amount of content the entire call was expected to last approximately 1 hour and 15 minutes in order to provide adequate time for Q&A. A replay of the call will be available beginning at 2 pm today. The replay number and access code are in our press release. As a reminder you can also download the earnings replay of the podcast from itunes and even set up the subscription for future replays of the calls we post. This should be posted within 24 hours. I also wanted to call your attention to Stanley’s 2009 annual toured and annual review website and videos that we launched yesterday. We decided to go online this year with a lot of our normal annual report content and we invite you to check up the site and explore the videos which feature conversations with senior management as well as the interactive charts and informational resources throughout the site. It’s a great way to become more familiar with the outstanding storey. You can access this through our home page. And as always please feel free to contact me with any follow-up questions you might have 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 especially involves risk and uncertainty. It is therefore possible that actual results may differ materially from any forward looking statements that we might make today, and we direct you to the cautionary statements in the form 8-K which we filed with today’s press release and in our most recent 34 act. With that I will now turn the call over to our CEO John Lundgren.

[John Lundgren:]

Thanks, Kate and good morning everybody. Let me just start by saying this had the potential to be a confusing and very noisy quarterly release, due to the obvious fact that the Black & Decker transaction closed three weeks before the end of the quarter. So I did want tot thank those of the legacy Black & Decker and Stanley finance teams first of all for closing three sets of books at least in a very short period of time and for extraordinary efforts in that regard as well as the finance and IR teams for pulling together what we think is a clear presentation. But as Kate said she will be available as when management is necessary. Later on in the day and later on in the week to clarify anything that’s still outstanding at the end of this call. So lets get started, diluted EPS was $0.70 and that did include and $0.04 negative impact based on the acquisition, of ADT France which closed on March 9. It excludes one time charges. We did reference the ADT transaction in the press release, so we are not going to spend a lot of time on it this morning other than to say it is strategic and to fit extraordinarily well with its GDP, general protection our French Electronic Security business and as Don will discuss in his guidance, we still believe that this acquisition is going to be meaningfully accretive $0.07, $0.08 in your tree on the expanded share base. So diluted EPS including the charges of $213 million was a loss of $1.9 and again Don’s going to give you more of a granularity on the charges and their composition in the quarter which we believe to be quite clear. The gross margin rate excluding charges was 39.4% and excluding Black & Decker with the impact of Black & Decker for the three week stub period the rate improved 120 basis points versus the first quarter 09 to 40.8% and that is a first quarter record for our company. Free cash flow was positive $37 million excluding charges and payments related to the transaction. Working capital was encouraging as well, reaching 7.3 turns excluding Black & Decker and 4.6 turns on a pro-forma basis including both companies in those results. CDIY segment, our largest segment profit improves to $83 million and that is up 189% excluding the charges. Industrial saw a nice rebound, profit rate improving 280 basis points to 13.2% again excluding the charges and as I had mentioned earlier ADT France closed on March 9. It’s going to be a great addition and complementary to our existing conversion securities solution platform in Europe. The integration which I am sure everyone is curious about into how its progressing, we think very well and we are going to talk a little bit more about the synergy target and our estimates and Don is going to give you some detail on our 2010 guidance for the combined company which is now at $3.10 to $3.33 per share excluding the one time charges. So moving to the first quarter results of the combined company very simple and straight forward a 46% increase excluding the charges as you can see to about $2.70 for one Q 2010 and the charge is related to $213 million or translated to $1.79 a share on the new share base reflecting the timing of the acquisition. So, on a GAAP basis, a loss of $1.9. The only thing that might look a little odd is the minus 1.4% tax rate. Just very quickly it’s a one time event the charges had an impact of about 35.2% on the tax rate not all of those charges were tax deductible. There is also an ADT net operating loss impacting about 3.9% and the impact of the tax extender benefit impact which is about 2.6%. That gets you to a normalized rate of 27.3% which is why we have highlighted that and that’s what Don will talk to in the guidance in terms of that should be your expectation going forward. Looking at margins on the next page we think it’s important to note pretty strong gross margin of 39.4% for the combined company, as noted in the press release on a legacy Stanley basis continued its positive trend about 40.8% on a standalone basis. So we remain encouraged with the margin performance and Jim’s going to talk about some of the drivers of that as he reviews the various segment results. Operating margin remains fairly constant around 13%. So, we’re in a good place as we begin to go forward and combine these two companies and report to you on a combined basis. The cost synergy drivers are I think important to everyone. This chart is essentially unchanged from what we have presented on two or three occasions. So I won’t spend a lot of time on it, other than to emphasize a few points. We continue to feel confident in our $350 million estimate for synergies, but there have been so many questions as well as the cost to achieve it at not exceeding $400 million over the three year timeframe. But there have been enough questions on the $350 million but I just wanted to shed a little more light on it. As Don will point out in his guidance we are going to realize about $90 million of that $350 million during calendar 2010. So the majority of the year one achievement that we previously put in our model of course we only have nine months. But in the nine months 2010 we’re looking for about $90 million of benefit. But relating to the $350 in total first of all it’s a very big number and as a consequence it’s not easy. And I think its important to point out, if one just does, back of envelope math against the purchased base or the cost base and comes up with a number, it’s really important to note, there’s a couple of very large areas where there is absolutely no overlap at all between the two legacy companies. I mean one example and a good one is batteries in the purchasing area, our legacy Black & Decker spends about $300 million a year on nickel cadmium and lithium iron batteries Stanley spends essentially nothing, its anecdotal but its just an example of an area where there is no overlap, and on an business basis, the convergent security business is $800 million in revenue with essentially no overlap whatsoever with the legacy Black & Decker business. So the base against which to focus on the up further synergies is actually smaller than one might realize at first blush. And the $350 million is a fairly aggressive number. Second the cost to achieve synergies in excess of $300 million may render the returns for those programs or those investments and those expenses unattractive. So while the number could be driven higher it may not be in the best interest of the company to do it and last but certainly now least as Jim will point out to the extent we achieve additional cost synergies we may well choose to reinvest to those synergies in growth initiatives as we referred to in our press release. We intend to grow this combined business as soon as we’ve got our synergy targets fairly embedded in the P&L. Looking at the status of integration over the first six weeks, we are quite pleased with where we are, let’s hope it’s on some of the major milestones, the first being customers and employees are very-very simply said our primary objective is to protect our core. We’ve executed on a goal of a smooth close in the first thirty days as a combined company going well. We’ve been proactive and positive with communication with employees and customers, numerous town hall meetings and market visits, Jim myself, Don Allen and the senior management team have spent as much time as ever in our careers in front of our employees and in front of customers. It’s a very important part of the integration and we will continue to do that for the foreseeable future. And importantly let’s avoid pitfalls we have thus far no major pitfalls and no major surprises, now that we are five weeks post close. Focusing on the cost synergies we have finalized the bottoms up synergy identification process and that will be presented to the executive steering committee in late May. As a reminder Brett Bontrager on the Stanley side who has got a wealth of experience in major integrations for Stanley and Tony Milando who was formerly head of operations for the worldwide power tools and accessories business co-leading this integration process, they are reporting to a steering committee of six people that include Jim Loree, myself, Don Allan, Mark Mathieu, Massimo Grassi in Europe and of course Nolan Archibald from Black & Decker who brings all the experience from that organization to bear on the synergies and the targets and what’s a good business decision and what isn’t. That group meets quite regularly, there are 13 sub-teams focused on either businesses or functions. And as those of you who are familiar with our company know it’s a very-very important part of the rhythm and rigor with which we integrate acquisitions and we’re putting the best team we can on the field to ensure that this process continues and that its given the utmost detention from the top of the house right down to the folks executing the programs. Thus far all our findings have supported that $350 million target. Regarding the execution, we rigorously attract the cost synergy extraction and are quite sure that we are quantifying appropriately and not double counting. We are eagerly and rapidly deploying the Stanley fulfillment system on the Black & Decker base. I am really pleased to say that Black & Decker had a focus on operational excellence, it was their internal terminology, the elements and the fundamentals of SFS are being embraced, I think there is broad scale understanding of the benefits it has had the legacy Stanley over the last three to four years. And that it can have on the business with a very similar geographic and customer base. So far so good on that, and last but certainly not least we’ve identified or beginning to identify the revenue synergies and corresponding plans to get them. And I think it will come as no surprise that once the cost synergies are identified and we’re clear that they are on track, it’s more inspirational, it’s more motivating, and it’s more fun to grow the business than to take cost out of it. So there’s been tremendous support around this initiative. So, so far so good, we are underway. No major pitfall. Looking very quickly at the geographical breakdown the purpose of this chart is to say that combining these two companies didn’t have a tremendous impact geographically on the companies on a standalone basis. Specifically the large purple section of the pie showing 56%, Legacy Stanley, Legacy Black & Decker were between 55 and 57% of their business in the U.S. prior to the merger. The primary difference being Stanley had a slightly larger presence in Europe and Black & Decker had a meaningfully larger presence in Latin America. But when you combine the two companies, you see that the U.S. is about 56% of the revenue, Europe is 25% and then Latin America, Canada, Australia adding to 14 and Asia and the Rest of the World adding to, excuse me, the Rest of the World including the 14 and Asia about 5%. Looking at our businesses by segment, again I think just two important points to make here on this chart. Even as a combined entity, we remain a diversified global leader and second, it is not a departure or an abandonment of Stanley’s strategy to continue to diversify into higher growth emerging markets and businesses. Specifically, if we look at CDIY, which includes the legacy Stanley’s CDIY business, the legacy Black & Decker worldwide power tools and accessory business and the Price Pfister business which historically Black & Decker reported within hardware and home improvement, it makes up 58% of the combined total of the company on a 2009 revenue basis. Security which is basically all of Stanley’s Legacy security business, both mechanical and convergent, plus Black & Decker hardware and home improvement less Price Pfister, making up about 25% of the business and industrial which included Stanley’s industrial portfolio and essentially the MR Technologies business making up 17% of the business. The chart in the bottom to me at least is very important and it’s very important that everyone understands it. In 2002, the large home centers in mass merchants, 7 customers represented 40% of Legacy’s Stanley’s revenue and the largest customer represented 22%. By the end of 2008, as Stanley diversified its portfolio, those numbers became 13 and 6% respectively. Adding Black & Decker, 2009 base on a pro-forma basis moves those numbers back to 31% of the combined companies business as through U.S. home centers and mass merchants and 12% through our largest customer. Not a tremendously concentrated business I think by most standards and while, we can say it’s a step back, all it does is put Stanley where it was at about 2006 in its evolution. Its certainly not an abandonment of Stanley’s strategy diversified, its simply a reflection of the math and that Stanley’s been able to merge with a great company and a great set of brands at a very opportunistic time in the cycle. Our strategy going forward will remain exactly as it’s been in the past and as we’ve pointed out on many times to continue to grow, to continue to diversify our portfolio and take some of the volatility out of our end results. Looking quickly at first quarter revenues, I think the good news is here they are stabilizing versus the dramatic declines of 2009. The chart on the top I think shows that clearly from a holistic point of view but more importantly if we look at the segment results, what we see is the four sequential quarters for both revenues and volumes starting in 2Q 09 going through the first quarter and the first quarter results of course, reflect the addition of 3 weeks of Black & Decker, so the CDIY business and the industrial business are a little bit less representative, Jim’s going to talk about that in just a minute but I think the important point to note is that within security, the rate of decline is slowing down dramatically. The mix is strong, customer attention is as good or better than it’s ever been. And it’s obviously a less volatile business than CDIY or industrial, it serves Stanley extraordinarily well on the last couple of years with a less perceptive decline. And as a consequence the recovery, the market based recovery within the security business will be slightly slower. But we are highly confident that it’s there and in the mean time a very strong customer attention and a very solid mix in terms of recurring revenue. It’s keeping on the margins of that business and a very-very safe place. So I am going to turn it over Jim Loree who is going to take you through both per segment results and add a little more clarity on the legacy businesses because we think that will provide some good insight into how the companies performed on the standalone basis right up until the transaction close.

[Jim Loree:]

Okay. Thank you John, let’s start with construction in DIY, the story here was very positive, twofold, Legacy Stanley drove a 470 basis point improvement in the OM rate on a negative 2% organic volume growth. And Black & Decker performed exceptionally well adding $30.9 million to operating margin and having an accretive impact on the operating margin rate. So let’s break it down if we move to revenues we came in at 561 in this segment with an 85% increase 82 points of which were associated with BDK, five points currency, thus the minus 2% organic and that was about minus 1% price and about minus 1% unit volume. Segment profit was up a 189%. If you take out a substantial contribution $39 million from the acquisition, if the actual rate was 14.2% and still a very impressive performance for the Legacy Stanley business as I said a 470 basis points. If we get in to the specifics the U.S. revenues and European revenues organically were both slightly negative, the Big-box customers in the U.S. continue to have tight inventory controls. Did not see a lot of rebuilding there, orders were modestly positive and new product development was strong, with the introduction of the Bostich hand tool line and Legacy segment profit improved 54% due to the dramatically lower over head that resulted from the significant cost takeouts over the last five quarters or so. Working capital was a good story going from about 2.5 turns a year ago to 6.8 turns with a $55 million inventory reduction versus prior year and only a $4 million increase in inventory sequentially versus the fourth quarter. So I think this is a very strong story here we will get into a little bit more color on the pro-forma Black & Decker performance in a few minutes. But I expect the next chapter for this segment will be operating leverage and as we look forward we are looking for a little more volume growth and as we get into the year so we should see some good operating leverage as we go forward here. So stay tuned for that. Now interestingly as we look at security this quarter. One would say it was a challenging quarter, we expected that but ironically if we had this quarter two or three quarter ago we would have thought it was a pretty good quarter. So what’s essentially happened here is security continues to kind of plug along it was really the foundation that helped the company get through some of the difficult construction DIY industrial market conditions and it continues to be very strong and stable. Revenues were up 11% all of the growth in the quarter was due to the addition of HHI into the results. Legacy Stanley also benefited from the ADT, France acquisition which contributed three points and currency which contributed 3 points and currency which contributed 3 points especially get to the minus 6% organic growth. If you divide that or look at the components of that, both convergent and security of the electronic business and mechanical security, we’re both down roughly 6%. There were different stories, Convergent was relatively simple story, modest volume decline, slight RMR increased couple of points. Stable operating margins, pretty much business as usual trying to get through the difficult market conditions but a nice aspect of the quarter for them was that the National account budget seemed to be loosening up a little bit which is good. However the core business which was the foundation of their volume story in the last year or so was week, so you had kind of a change in mix there due to that. On the mechanical side, the volume decline was also expected but the operating margin did dip from about 20% in the prior year first quarter to 16%. Again a two-fold story here, absorption issues and the factories clearly contributed to that and then secondly some SG&A investments for growth, primarily for growth in Asia and for feet on the street in U.S. Got ahead of the growth curve which is not unexpected and perfectly fine, so that caused a temporary dip in the operating margin rate and we don’t see that as a continuing issue. Now industrial I think was a very positive story. I think its also indicative of the first signs of what a few points of volume can do for operating margin growth in this type of a business what we call operating leverage and also a nice contribution from Black & Decker’s Emhart Technologies business which itself is rebounding in a very big way and again we’ll talk about the Black & Decker activities in just a minute. Revenues were up 22%, 16 points of that was from the MR contribution, 3 points currency, organic growth was positive, 3% and that led to a 54% segment profit increase and without the MR contribution a 25% segment profit increase which is fantastic and that would have been about $30 million of segment profit attributable to the Legacy industrial Stanley business and if you go to the segment profit rate, we increased from 10.4 to 13.2%, 280 basis points and about a 100 of that was associated with the Emhart contribution, so 12.2% operating margins for the core Stanley Legacy business there. So pretty much the story on the volume was a rebound in Europe and at Proto with Europe up 6% in volume and Proto up 14%, we all know what’s happening in the industrial markets, it’s a strong story. I think a little bit of that obviously, maybe more than a little bit, was restocking and when we look at the GDP, its not quite up at those levels and then we did have some weakness in our Vidmar storage business and our hydraulics business, both the Vidmar issue being driven by government spending delays and the hydraulics just a cyclical business which is kind of which appears to be at the trough of the cycle right now. Now I’m going to change gears here for a moment and we’re going to look at the pro-forma Black & Decker Legacy segment performance. And when we look at this page and I can’t help but think that the timing of this merger was excellent. This chart shows the Black & Decker segments a rate on a full quarter over quarter, pro-forma basis. So this is how it would have looked had Black & Decker been a standalone business at this point in time and if we start with PT&A which is power tools and accessories which was a very large part of their business as you can see, they have 6% growth 1% organic growth, North America was the weakest part of the story although the consumer products group was strong. Europe had a nice performance with positive 3% organic that was very encouraging. And Latin America was up 11% and Asia up 13% both bright spots. So good story there, hardware and home improvement shown here as HHI was up 12% mostly organic, U.S. Lock Set’s primarily the quick set Kwikset Baldwin business was up 14% and Price Pfister was up 9%. Nice product introduction, in the mid point price point range in Kwikset, as leading to some outstanding success in the marketplace and also some nice rebound in the markets as well. And if there was any rebound in the market story within Black & Decker’s Legacy businesses it was in the fastening in assembly segment which is also known as Emhart Teknologies and this is a business that sells productivity to industrial customers primarily automotive OEM it’s about two thirds driven by global automotive production and about a third driven by industrial production. And the story of course in the quarter was that the at the global vehicle demand was up 42% around the world with North America is up 62%, Europe up 25% and Japan up 53% thus Emhart which has historically been a mid teens operating margin performer, quickly rebounded from a trough last year of 2% to 14% very impressive performance from the folks at Emhart largely market driven but they took out a lot of cost in that business and they have got a cost structure that’s really in a good place. So truly a terrific performance from our new colleagues from Black & Decker, this morning there were a lot of questions about how could this margin be so rich. And the story is very simple these folks took out about $300 million, slightly more than $300 billion of cost from the last five or six quarters before the merger. And their cost structure is in great shape and a little volume is going to go a long way towards big profit improvements in that part of the business. Another great story for the quarter in my view was working capital in the legacy Stanley business. You may recall for those of you that have been following the company that Stanley closed out last year at 7.9 turns we typically will have at least a point reduction in the turns as we go in to the end of the first quarter with the seasonal bills and so forth. We were able to contain that to a much smaller increase, closed at 7.3 turns and that’s up from 4.8 last year so a real nice performance there you can see good news in all fronts, inventory down 25%, receivables down 14, payables up 10% that’s good. Total 34% reduction from 762 down to 504, but I just want to emphasize that these improvements are process driven by the Stanley fulfillment system. And we don’t have the time this morning to delve into Stanley fulfillment system in great detail or the folks that aren’t familiar with it. However will note there is a new section in the web-based annual report that we are issuing that we’ll give you a lot of insight into Stanley fulfillment system if you are interested in learning more about it. But as we move to the next page here we can see that there is one huge opportunity and John alluded to it earlier and that is that rigorous deployment of the Stanley fulfillment system across the newly added Black & Decker entities will provide a huge opportunity for the company. As you can see the combined working capital of the companies although with a nice reduction from last year is right around $1.9 billion and that’s comprised of $0.5 billion of Stanley, Legacy, working capital and $1.4 billion of Black & Decker Legacy working capital. Now a little math, if we just annualize the first quarter for illustrative purposes, we would have $8.8 billion of annualized revenues. If we could get to the 7.9 turns that we ended the year at, that would free up $1.1 billion in cash, I mean it would free up $800 million in cash because it would be $1.1 billion. So 1.9 minus, 1.1 is 800 million but I will also emphasize that this is, well its an objective, it is also a journey, and not an overnight sensation, as I mentioned, SFS is process driven. It took us 3 years to get from 4.5 turns to 7.9 but we as John mentioned, have begun the journey here and it is a very do-able journey with a very positive outcome and now I will turn it over to Don Allan, our Senior Vice President, CFO to go through some of the financial aspects of the quarter.

[Don Allan:]

Thank you Jim. First thing I’d like to do is start with our balance sheet on a combined basis. We feel really good about our financial position going into the new company and moving forward. As you can see at the bottom of the page, our debt to capital ratio is 35%. We adjusted for the hybrid instruments that we have at 31%, exactly where we were hoping we would be as we put the two companies together, post merger. A few other items of note here of significance obviously there are some large dollar variances on the balance sheet by merging the two companies when you compare to the first quarter of last year. The largest changes have to do in other assets where the goodwill and the intangibles are recorded at about $5.6 billion as well as the Black & Decker working capital components being added in there about $2.4 billion on the asset side of the balance and then equity, clearly the issuance of the equity associated with the merger of $4.5 billion is increasing our equity and that’s really what’s driving the debt to capital ratio coming down from where we were last year at this point in time. So we feel very good starting out our financial position as we move forward. For free cash flow in the first quarter, this chart depicts what free cash flow was excluding one time payments. We had approximately $92 million of one time payments related to the merger and if you exclude that effect, the free cash flow was $37 million. Operating cash flow was $59 million which was an improvement of $55 million year-over-year in the first quarter of 2009 and you can see that its driven by a net income increase and John and Jim just walked through some of the details in that area and working capital was significant negative in the first quarter in $90 million which is a normal of trend for both companies, they tend to have a working capital negative in the first quarter as certain inventories get billed going into the second quarter and then just the timing of the sales related to AR as we have a large sales month in March and that could drive our receivables up at the end of the first quarter. So pretty much as planned with our working capital in Q1. Touching on the ADT France acquisition on the next page, it’s not a large acquisition but it’s something important that we should talk about briefly. It really is a continuation of our strategy within security to expand our footprint internationally. We’ve talked to many of you over the last year or two that’s an important part of our initiative and overall strategies within security and this acquisition really allows us to continue to take that step forward. By combining ADT France and GDP together, we’re creating the largest market share company in France by doing that. GDP brings a strong core commercial orientation and then ADT has a very strong national account orientation. So by deploying these two companies together they mix well together from that perspective. The revenues are expected to be in 2010 to be about $125 to $135 million as I’ll go through in more detail later. Last year’s revenues in 09 were 132 million euro, about $175 million and the RMR component it is about 45%. As John mentioned earlier the accretion should be about $0.07 to $0.08 by year three as we look to remove about $35 million of cost by pulling the two companies together which would allow the operating margin to be approximately 20%. Once the synergies are completely removed. We feel we have a really strong and experienced management team in France that can drive this integration, improve their worth in the GDP acquisition that we did a few years ago and integrating them in to our worldwide business. And now then have the ADT France business integrated in to their local operations. The last thing I will leave you with there is a dilutive impact associated with operating margins related to the acquisition in 2010. It could be as much 150 to 200 basis points in 2010 to the CSS business and to the overall segment about 75 to 100 basis points. But that’s just a one year phenomena as we go in to 2011 and 2012 we would expect the operating margin CSS to get back to 20% bar that we have established. We feel very good about that acquisition as we head in to this year. The next page is really the way that we begun to summarize some of the trends that we are seeing in our three different segments and then after that I will walk in to the guidance in a little more detail. We start with the CDIY segment, I want to leave you with two or three thoughts here as we head in to 2010 and beyond. We believe that we are starting to see an improvement in top line in our CDIY segment. And we expect mid single digit growth in revenue and that would be total growth on an organic basis and including currency. It does not include any impact of acquisitions going forward. So this would be on a pro-forma basis. We also are seeing continued recovering and merging markets around the world. So we expect growth to be stronger in emerging markets in both hand tools as wells as power tools and Bostich around the world. We don’t expect the U.S. and mature markets in Europe as well to grow as significantly, but we do expect some modest growth in those particular markets. And as always we continue to be very focused on new product development, innovation and making sure that those roll outs help us drive more market share gains as we move forward. Industrial as Jim mentioned we are beginning to see a little bit effect of re-stocking throughout the supply chain. We start that in the month of March in particular in FACOM and Proto. And we believe these indications allow us to forecast or predict possibility of a high single digit revenue growth in this segment in 2010. This customer re-stocking is primarily the industrial portion of our businesses the automotive component has not been as strong but we do believe that it’s coming likely in the second quarter. In the Engineered Fastening business we saw significant increase in light vehicle production in the first quarter we expect that trend to continue compared to the prior year and the second quarter and the third quarter which would drive revenue growth. And then a small acquisition in Engineer Fastening called FIT which really allows us to diversify ourselves stuff little bit away from the automotive manufacturing environment in aerospace it is a strategy that will continue to look as we move forward as a company. Security talked a little bit about this already related to ADT, France but the transit I am listening here do not include the effects of ADT, France so revenue, we actually expect to decline slightly in our security business this year. This is late cycle business as many of you know and the economic recovery will come a little bit later as we’re seeing some of the economic recovery in our CDIY business and industrial, we expect securities to see it either later this year or early next year. So as a result, we will have a small single digit revenue decline throughout 2010. We are seeing recovery in the core commercial accounts and lagging international account customer base. Installation revenues continue to improve slightly but not significantly. I talked about the integration ADT France acquisition already and you can see the impact financially in 2010, there will be a slight drag in our operating margins as I mentioned. A clearly commercial construction continues to be a drag on this segment and it’s an area that we continue to focus on but we are also focusing on other verticals such as education and health care to try to offset the impact of that. While moving to our guidance for 2010 on the next page. Excluding one time charges and cost, we believe the EPS guidance for 2010 is $3.10 and $3.30 and underlining some of the assumptions in that you can see on this page, we start with the first section at the top, the remaining nine months of 2010, so this is just for the upcoming three quarters. We believe the net sales will increase 4 to 5% on a pro-forma merge company basis and that excludes the impact on ADT France and that will include the impact of currency which we would expect to be relatively immaterial for the remainder of the year but I’ll talk about that a little bit later as it relates to the Chinese RMB. ADT France will contribute a $125 to $135 million of sales and will be modestly diluted to EPS in 2010. We believe our gross margins on a combined basis for the next nine months will range between 37 and 38% and so you see the blending effect of putting the two companies together Stanley and Black & Decker as it mixes our Stanley gross margin rate down from the 41 to 40% category that its been in the last two or three quarters. But we also expect to experience some significant commodity inflation for the remainder of the year and if the Chinese RMB does revalue, that could be a significant pressure as well. So we’ve forecasted the potential for a 5% RMB revaluation which equates to approximately $42 million on an annualized basis. Exactly the timing of that and when that will happen is difficult to predict but we’ve assumed about 2/3rds of that in our guidance. With that being said with commodity inflation coming and revaluation of Chinese currency, we’re very proactive of looking at how we can pass on some of these increases to our customer base as we’ve done as a company for the last two to four years. It continues to be something that we’re focused on and we’ll continue to do that throughout 2010 but there clearly will be a lag in the timing of that as we’re tended to see during its significant inflationary periods. One fact I’ll leave you with related to inflation is that when you look at the steel components that we buy, to compare the average cost in the first quarter to the fourth quarter of last year, the increases have been about 7 to 10%. We haven’t experienced that as a company but if you look at what’s happening on the commodity markets, those are the percentage increases that we’re seeing. If you compare the first quarter averages to the third quarter of last year, increase is around 25%. So there’s clearly as inflationary pressures that are coming. We need to be proactive about how we pass those increases onto our customers and that’s something that we’re very focused on. Two other items to note related to this nine month period, the tangible amortization of approximately $55 million and as John mentioned, the cost synergy impact in calendar 2010 will be $90 million. That’s about 90% of that $90 million will impact SG&A. Looking at the full year, the bottom part of the page, our share count clearly is going to increase as a result of the merger but we also have the previously announced issuance of about six million shares related to our equity unit hybrid instrument that will occur in May of 2010. So the average outstanding share is approximately $150 million. The tax rate should be about 26 to 27% as John mentioned earlier, the normalized Q1 tax rate was around 27%. So really, we’ll be consistent with what we experienced in the first quarter. And in the impact of foreign currency, we would expect to be utilized current exchange rates. We would expect that to be relatively minimal. Now that excludes the effect of the Chinese RMB. Anything that happens related to that is outside of that secret assumption. And then last, the structuring and related charges is not associated with Black & Decker or ADT, France will be about $30 to $40 million. So the free cash flow assumption related to this, when you factor in these particular EPS guidance and excluding the effect of the one time charges and payments will be about $600 million for the merged company in 2010. The next page is a summary of the one time charges that we expect for the full year of 2010. And if you look at our GAAP, EPS forecast for guidance, we believe that we would be anywhere from a loss of $0.41 to a slight gain of $0.05 based on the exact outcome of these charges that was our remainder of the year. And they’re really broken down into three different components. The first is just restructuring cost associated with severing employees as well as closing facilities. And the range there is $245 to $295 million, $90 million of which we’ve actually incurred in the first quarter of 2010. Then we have one time cost of SG&A and the category that we call other net flow operating margins of a $100 million which relates to certain executive comp charges and investment banking fees and other advisory consulting fees that we’re utilizing for the integration process. A vast majority of that was actually incurred in the first quarter about $81 million. So we had $90 million of additional cost for the remainder of the year. And then last, an accounting charge related to inventory where we actually step up the value and purchase accounting. It’s a non-cash charge, will be a $170 million, $42 million of that was the report in first quarter. So, on a cash EPS basis excluding these different charges, we believe that the cash EPS will be $4.89 to $5.09. That assumes about $370 million of depreciation and amortization. So to summarize this morning’s call, we feel that we’ve been very, we made successful progress in beginning the execution of the integration with Black & Decker. We believe the $350 million cost synergy target is achievable. As I mentioned related to trends we are seeing selected customer re-stocking activity in our industrial channel and signs of a bit of a pick up in the end markets that allows us to feel that a 4 to 5% revenue growth for the remainder of 2010 is reasonable. We’re focused on strong new product launches to gain market share and boost that top line growth as much as we can. And as Jim mentioned, the operating leverage is something that we’re very focused on and we saw a bit of demonstration of that in the first quarter in CDIY industrial. And then last but certainly not least, SFS we believe will play a very significant role in the successful integration of Black & Decker as well as our objectives around working capital. So with that we conclude the presentation portion of this morning’s call.

[Kate White:]

Thank you all, its time for Q&A Louisa.

[Operator:]

(Operator Instructions) Your first question comes from the line of Eric Bosshard with Cleveland Research. Your line is now open.

[Eric Bosshard:]

Two things, first of all can you talk about the sustainability of the margin improvement which was quite remarkable in the core CDIY business as well as in the Power Tool business of Black & Decker, Power Tool business? Obviously you talked about cost improvement contributing to that but can you talk about the sustainability of what are pretty strong levels of profitability in those businesses?

[John Lundgren:]

You said two things Eric.

[Eric Bosshard:]

That's the first part. There's a second part as well which hopefully I'll be able to ask once you're done with that.

[John Lundgren:]

Jim why don’t you talk about COE and everything else that contributes to that?

[Jim Loree:]

Clearly the story as I mentioned in my remarks, has everything to do with the fact that on a combined basis, these companies you know took out well over $600 million of costs, close to $700 million of cost in the last six quarters before the end of the year. So that cost is obviously not all coming back and when the volume comes in, there is some cost add backs and both of the businesses but we’re here to enjoy some operating leverage and make some selective reinvestments in growth as we move forward and we will monitor and allocate those growth reinvestments as we go but the expectation here is that we’ve gone through a lot of pain both organizations over the last couple of years and we expect to enjoy the fruits on a more granular basis when you get into gross margins, both companies have a tried and true productivity regiment, somewhat different, we’re taking the best of the best and putting them together in those cases. I think Stanley has probably been a little more Legacy Stanley, has been a little more focused on pricing core competency in the organization and I think we have some opportunities to drive that through the new company and help drive some positive improvement in gross margins in particular in that area but I would also say that I think that inflation is something that we all need to be as Don pointed out, we all need to be cognizant that as this economy heats up, we’re already seeing the early signs of commodity inflation, so there will be some puts and takes here as we go and we’re probably not going to get a 100% price recovery just like we didn’t get a 100% price recovery in legacy Stanley since 04, we got 80%. We can get somewhere between 60 and 80% as a combined company, I think we’ll be doing quite well but it’ll be a lag time in that regard and that’s why Don’s guidance may seem a little cautious to some folks, including you Eric based on something I read. I think its probably appropriate, I think the margin rates that we’re at today certainly seems sustainable to us but you know we’re three weeks into our relationship here, so you know time will tell.

[Eric Bosshard:]

And I guess the follow up, when you originally presented the targets, I think the original presentation was that there would be, I’m looking at a slide that said $0.20 to $0.45 of dilution in year one and there’s a lot of moving parts with these numbers I understand but can you help us understand how this guidance is up from the core Stanley Works guidance for 2010 the stand alone guidance you gave out of 4Q and so it looks like your guidance suggests that this is going to be accretive, the combination will be accretive in year one and the original guidance was for dilution, hopefully that’s clear enough but can you just talk about what that is relative to where we started?

[John Lundgren:]

There’s a lot of puts and takes there. But Don will give you more granularity on that, we expected that question.

[Don Allan:]

Eric, your exactly right, its part of the November guidance we provided. We did believe that they would be dilutive in year one, but keep in mind as you know there were some pretty conservative assumptions around top line growth in that November guidance around 2%. Total growth for the entire combined company in year one. Now obviously we are looking at growth rates that are more around four to five percent. Additionally we are starting to see the effects of the leverage from that volume, so you can begin to see the accretive impact of that. And that’s really what’s driving that $0.25 to $0.30 improvement from what we were thinking back in November of last year.

[Eric Bosshard:]

Perfect that’s great, thank you.

[Operator:]

Your next question comes from the line of Jim Lucas with Janney Montgomery Scott. Your line is now open.

[Jim Lucas:]

Thanks a lot. And thank you for a lot of good material in preparation for this because I know a lot has to go into making this into a coherent form to us outsiders. First question, if we look within the CDIY business, you commented that you're not seeing a lot of orders in the home center channel. Could you comment on the sell-through of what you're seeing there? And then the second question big picture as it relates to synergies, if you could comment early read on revenue synergies, of what you're thinking there? And with regards to SFS, how long do you think it takes Black & Decker to get the rhythm that Stanley has from an SFS standpoint?

[John Lundgren:]

Jim this is John. I never heard four questions knocked in so quickly, well we don’t have you on the buzzer but, let me try them all and Jim will jump into help. In terms of restocking and sell through, it’s a little early as you know and everyone on the call knows the home centers close their fiscal books at the end of January which is always a relatively soft month for we as suppliers in terms of volume. So when we shift in February and March we do believe its helping with restocking. In terms of POS all I will say is there is nothing out of the ordinary yet. And I don’t want to say any more than that, the simple reason being without inventory there can’t be any sell through and inventories have been so low up until about March that we think POS has been constrained, of our lack of inventory at retail. So we’ve seen no dramatic increases, we’ve seen no decreases but the simple answer is it’s one to three months early to make any kind of I would say projection or draw any kind of conclusion based on that. And I hope that its clear, so modest restocking, constant sell through, we think we are going, it’s going to take a few months of inventories. Being at a more robust level in the stores before we can expect the kind of POS lift that we are hoping to see. In terms of revenue synergies its early days, we’ve been in I would say file and agreement across the two companies that they are there as I referenced they are more, it’s much more motivating and inspirational to work on revenue synergies. But I have to say first and foremost, we need to be sure the cost synergy plans are in place. They are being executed and that’s embedded. We’ve only recently since we’ve been able to put the two companies together at the very senior levels of management, top 12 people in the combined company established a process for identifying, re-sourcing and managing any potential conflict with revenue synergies relative to cost synergies. Because conceivably one could get in the way or the other so there has to be a way to establish the appropriate priorities and to the extent of conflict exists resolve it. As I mentioned in my introductory remarks, there’s actually a formal presentation at the end of May to the steering committee where we think we can, we will be a little bit more granular internally and that something material takes place. Obviously, we’ll be public about it otherwise we’ll just talk about the status in out next quarterly review. Lastly in terms of timing for SFS, Jim said it best. It’s an evolution, it’s not a revolution. This is not a silver bullet, its not an overnight phenomenon, it’s a very, very long journey. I’d like to think with the very willing audience and or if you will body and that’s the entire Black & Decker operating and management team. They’ve seen the positive impact it’s had for Stanley over the last three years. But I'll say our own experience. We started talking about it four years ago. We started really embedding it three years ago and it’s taken while the improvements been gradual, it’s taken three years to really, really, really see the fruit on those trees. So I like to think we can do a little quicker because we have some more. As Jim pointed out, we’re applying it across a much, much larger base. So that’s going to have an impact as well but I think it’s going to be 12 to 18 months before its appropriate to see any process driven changes that the result of SFS and I think you can expect steady improvement from there.

[Jim Loree:]

And I think everyone needs to understand that when you’re implementing $350 million of Synergies in a $9 billion company, while it may not sound like much on a percentage basis, its really all consuming and hence we’re putting off the revenue synergy, deep dive kind of planning process, a couple of months and SFS may take a little bit longer to implement their cross to platform because we can’t do everything at once. So we’re trying to sequence these things in a rational and orderly manner. But there is that huge opportunity out there and I think also the fact that there are fewer skewers in the power tool business than in the hand tool business will help us, the fact that we got the experience, the joint reference will help us expedite. But it’s going to be a very large undertaking and it will take at least, somewhere in the range of probably 18 to 24, maybe 36 months to get it done to that level. And the last thing I would just comment on the revenue synergies a little bit. I had the opportunity to spend about four weeks visiting far flung regions of the world and meeting the Black & Decker folks and learning about their business in great detail around the world and starting to kind of frame out what the revenue synergy areas might. And I think there’s five really significant ones and some more that I don’t know about yet that will kind of be surfaced during our betting process over the next few months. But they have a very strong organization in Latin America. They have production in Brazil which is expandable, they have a distribution center down there which we don’t have and for those of you that are familiar with Brazil, those are both enormously important assets in order to be successful in Brazil which is really on fire from a market growth perspective. So we will quickly, as quickly as possible take advantage of that opportunity to gain market share with the legacy Stanley business down in Latin America. The business leader down there is terrific. Likewise, in the Middle East and Dubai which covers the entire Middle East and Africa region for Legacy Black & Decker and now Stanley, Black & Decker. Very strong organizations in the Middle East as well and a good infrastructure significantly bigger and better than ours in the Middle East, we will leverage that as quickly as we can and in Asia, I think we find that both companies have fledgling operations there. When we put them together, I think we have sufficient scale to have a meaningful growth initiative in Asia and really leverage off each other and our distribution channel access and our talent over there, we were fortunate enough to retain both leaders from Stanley Legacy and Black & Decker legacy Asia and we have them now kind of divided up that territory within both of their regions, so they both are now we have twice the senior talent working in Asia and the emerging markets and then closer to home, I think well really, that staff the channel is something that Stanley has coveted for a long time and aspire to do better in and the Bostich hand tool launch is just an example of something that’s really targeted at the staff channel but when you look at the Black & Decker relationships and the staff channel there are stronger then and their history is more successful in that channel than ours and so we hope to leverage that and then lastly in the industrial channels around the globe, as many of you know, Stanley has transformed its market approach in those channels to really drive a global platform approach across the regions and Black & Decker, well it has this entity called industrial power tools, its really far more construction oriented than some industrial but Stanley has much better channel access into the industrial and automotive repair channels across the world and we expect to leverage that as a revenue synergy as well. So I hope that gives you a little color into some of the potential areas that could be very meaningful on a go forward basis.

[Jim Lucas:]

Extremely helpful, thank you.

[Operator:]

Your next question comes from the line of Dennis McGill with Zelman & Associates.

[Dennis McGill:]

Good morning, guys. Hi, the first question I was hoping, I believe you touched on the home center trends within the Hand Tool business, but I was hoping you could maybe talk about what you're seeing from point of sale and new orders particularly as you exited the quarter across all the businesses there including the legacy BDK that touches that end channel? And then I had a follow-up question as well.

[John Lundgren:]

I’ve said everything that we intend to say up about order and POS at this stage, it is as you know, it’s a very short cycle business, we’ve only had granularity at Black & Decker power tools, orders of POS for 3 weeks and as they say, at this stage restocking has been modestly encouraging but far less than in the industrial channels and its too early to have a view on POS because inventories are only being gradually restored and we have only 3 weeks of data to go on.

[Dennis McGill:]

Okay, fair enough. The second question, I believe in the press release you guided towards $600 million of free cash flow for the year. And I was wondering if you could maybe give us some puts and takes as far as what some of the bigger drivers there are and how we might think about that relative to I believe the $1billion or so that the combined entity generated last year?

[John Lundgren:]

We’ll talk, there’s a lot of one times in the billion Dennis and obviously the targets of billion plus on an ongoing basis which is a year 3 but we’ve had a lot of discussion on that, Don’s going to give you some of the highlights of where we came out.

[Don Allan:]

Dennis, the $600 million as I mentioned, was mentioned in the press release really has a very modest impact on our working capital included and so an assets what it is if you take the net income or EPS projections that we have, you add back the depreciation and amortization and subtract out CapEx, you pretty much get to that $600 million number and our CapEx tends to be anywhere between two and half percent of our revenue. So even though the kind of boundary you will get to that number. The opportunity for us going forward is clearly continue top line growth and we are seeing the signs of that 2010 if these trends continue then we will have more growth in 11 and 12 but you know working capital is also a significant opportunity for us. And getting to the billion required a modest improvement in the Black & Decker working capital turns of about two turns. And that was really part of that projection that provided back in November. The other thing to keep in mind is that the performance last year of both companies had had on a combined basis about $450 million of working capital benefit in it and we don’t expect that at this point in time and that will peak 2010 but as we move forward as Jim mentioned there is a big opportunity for $800 million of cash flow from working capital.

[Operator:]

Your next question comes from the line of Nicole Deblase with Deutsche Bank. Your line is now open.

[Nicole DeBlase:]

I just wanted to echo the comments thanking you guys for all the disclosure, I know it probably required a lot of work. So maybe first of all you mentioned a little bit how you're expecting a little bit about your price inflation expectation for the full year. Is there any way you could provide some detail on pricing, when you're expecting to take pricing? Is that something that happens in the back half of the year?

[John Lundgren:]

I guess Nicole always we try to be as far ahead of the curve as possible in order to maximize recovery of commodity’s inflation. Steel is as Don pointed out he, he quantified exactly how much it will be, how much we think it will be, what’s built in to our projections. But RMB is huge obviously with product both from our competitors and ourselves sourced from Asia, 5% RMB inflation, its $42 million on an annualized basis. The simple thing to say is when we see that inflation coming it will take one to three months for it to hit our cost of goods. We would be out trying to announce and implement pricing. The second we see it coming, if you assume a six month lag in some customers from the day we announced till the day we get it. We have a three months gap to fill and that’s what, Don’s trying to improve. So simply said we try to be equal to or ahead of the curve, we’ve done a good job, over the last three or four years driven by the central pricing Center of Excellence and people from that organization being embedded within each of the business units. And that’s were we’ll stay, we’ll try to stay equal to or ahead of the curve and both commodities and RMB inflation are going to be very, very big external factors or market driven factors to look at. Importantly as it relates to the impact of RMB inflation, we are not in this alone, anyone whether its private label of the home centers or a foreign competition in CDIY they are going to be impacted as much or more as we are. So while the numbers are big the forces in the marketplace will, our presence that will suggest we won’t be alone in the need to achieve pricing to maintain margin.

[Nicole DeBlase:]

Okay thanks, John, that's really helpful. And then maybe if you could comment a little bit on how Power and CDIY core growth in 1Q compared to your internal plans? I guess I was a little surprised by the volume declines given the mid-to-high single-digit growth we've seen out of both Danaher and Cooper this quarter?

[Jim Loree:]

Well let me start by saying that both Danaher and Cooper are far more industrial oriented than our CDIY business if you look at their before the JV’s their portfolios and when you combine it together it doesn’t change anything. So you have to really if you want to get a Danaher, Cooper, Stanley, Black & Decker comparison or at least Stanley Legacy comparison. You really have to kind of blend the CDIY and the industrial results and I think you saw the surge in our industrial business as well which was very comparable to what they experienced.

[Nicole DeBlase:]

Okay. That’s fair. And lastly for me, what sort of seasonal pick up do you guys expect for security in the second quarter?

[John Lundgren:]

It’s always the case that versus two in a, obviously not versus 2Q 09, but 1Q to 2Q, we get historically a good seasonal pick up in our mechanical security business. I think Black & Decker hardware and home improvement business will be a little bit less seasonal than Stanleys. Specifically, ours is driven hard as you know by two things in Legacy Stanley. The tremendous penetration we have on university campuses and mechanical locking and most of that takes place in June and July which spills into the third quarter where we get on to the campuses to change a lot of locks. That will be less Black & Decker’s mechanical security business will not be tremendously impacted by that. The second point being our access technologies business which we love tends to have a far greater performance in the second and third quarters than first and fourth and its all weather related. We have never had any slide availability issues when we go to install or in some cases, service doors or retro fit doors. That goes away. So what you’ve seen on the Stanley side historically, we would expect again whilst we expect very little of it on the Black & Decker side. Their mechanical security business is less university and large retail oriented. So essentially on our combined basis that the percentage increase which we often attribute to 100 to 200 basis, is cut in half just due to the business twice the size.

[Operator:]

Your next question comes from the line of Dan Oppenhiem with Credit Suisse. Your line is now open.

[Dan Oppenhiem:]

Thanks very much. You talked a lot about this in terms of the CDIY and the encouraging signs in terms of inventory circumstance happening much more on the Industrial side. In this guidance of 4% to 5% revenue growth for the remaining three quarters of the year is there any customer restocking built into that or are you assuming that it takes place later on?

[Don Allan:]

Well, there is obviously is a little bit of customer restocking built into that. And clearly, we experience a little bit of that in the first quarter. And then, what we were to expect that continue in the second quarter and third quarter but I would say that a vast majority of that is really end market pick up.

[Dan Oppenhiem:]

Thanks very much. And I guess the other question, just wondering about the, and think about the Power Tools. You talk about product launches helping to regain some market share. Do you think that as you deal with the Big-box retailers is your thought at this point that having the right products and those interests will help to you regain the market share, or is there anything different you're looking at with the relationship with them?

[John Lundgren:]

Absolutely. It’s about having the right product and importantly as the Legacy Stanley management team understands the Black and Decker power tools business better and there’s still tremendous amount of expertise within the combined company, Black & Decker had a core franchise to protect in nickel cadmium. So, on the one hand was slow to convert to the emerging technology of lithium-ion one of the reasons being the franchise that it had to protect. The products are available, the pipe line is full. These are the, this is the most powerful and sought after brand in the professional channel that’s the DeWALT brand of course. And we believe not due to the effect that we’re a larger company, we due to the fact that that we’re a larger company, we do due to the fact that Legacy of Stanley brands and DeWALT brands are the most sought after brands in the industry and we have every hope and expectation to gain share as a result of that as we’re able to put these two companies together and introduce our new products. You’ll recall from following Stanley historically new product launches take place in March and October and we start to see the benefits of that in the second obviously and fourth quarters. Every year about $100 million in revenue on the Legacy Stanley CDIY side has been generated from new products, we see no reasons why that shouldn’t continue going forward.

[Jim Loree:]

And these DeWALT folks and also Black & Decker power tool folks are very proud and capable people and they didn’t take it very kindly when they missed this window which has cost them some market share points over a year and a half and I can tell you that the passion they have for what they do is going to be manifested in some outstanding new products and I think they’re going to regain their market share both through product and also they had reduced a lot of their brand support in taking costs out and a lot of that brand support, its not a cost synergy per say and its not a revenue synergy per say, we are able to leverage a lot of our existing brand support assets such as our MLB programs we will see with DeWALT in four parts, probably already have and also in our premier football over in Europe, you’ll see DeWALT at the games now and so around the world in our Nascar you’ll see the same thing. So we really are beefing up the brand support, at the same time the products are going at a nice, I expect that will help the market share as well.

[Operator:]

Your next question comes from the line of Peter Lisnic with Robert W. Baird. Your line is now open.

[Peter Lisnic:]

I guess first question if we could just go back to the revenue synergies and you laid out those five as sort of the targets. I'm wondering if those are more, are they plug and play sort of initiatives. In other words, what sort of capital costs should we think about as you try to enter some of these or take advantage of some of these strategic opportunities?

[John Lundgren:]

Pete, there’s good news and bad news there. The good news is there’s essentially no capital required to do what Jim talked about and I think he articulated extraordinarily well and that’s the positive. The negative is a lot of experience sitting around this table and throughout our combined entities, say as logical as it is and as easy as it sounds, it takes two to three times as long to realize those synergies as Mike’s seen reasonable at first blush. A lot of cross training on product, a lot of the fact that folks know and understand their legacy customers and product lines, that they need to be properly incented to go achieve these synergies without losing focus on the core business and as if you will qualitative or subjective as that all sounds, Jim and I and all the folks at Black & Decker, particularly in the regions, have all had the same experience. It takes longer because it is not as easy as it sounds. We will get there with very little capital but its all about protecting the core while we layer this on and get out of them as soon as we can. We’ll have a better flavor for what those are and how quickly we might achieve them as we live together for 3 to 6 months as opposed to 3 to 6 weeks. So stay tuned and at some point in time particularly when we get the entire investment community together for an Analyst Day, who knows a year from now and we put out some new three year projections we will have a lot more granularity on that for you. But no capital, longer time than you might be tempted to put in your model.

[Peter Lisnic:]

No, totally understand. Thanks for that color. If we could just get back to the I guess the cash flow commentary where I'm a little bit, I see some optimism, guess you're doing $600 million in free cash flow this year. And Jim, you talked about an opportunity of freeing up $800 million, but you also laid out a target of $1 billion pro-forma. Can you, you sort of set the bars for us when you're talking about the cost savings synergies and how to think about that. Can you also give us some of the puts and takes and why we shouldn't be more optimistic than your $1 billion target on the free cash flow front?

[Don Allan:]

Peter this is Don. I think it’s really going to depend on what happens over the next few years and clearly there is significant cost synergies. Jim laid out some of the working capital opportunities that we have as a company. But also we have to keep in mind that those working capital opportunities will take some time to achieve. We feel comfortable that we can achieve a lot of them, but the actual to ability to achieve them in a 24 month period is much different than ultimately achieving them, so those are all factors that need to be considered as well as the volume pick up that we might experience as a company for the next two to three years, little bit of question mark. So there is different way that you can model it to be more optimistic clearly that we get you to something greater than a billion. But at this point in time we still think that number makes a lot of sense and as time evolves as we go forward we will continue to update as we see appropriate.

[Operator:]

That is all the time we have today for Q&A. I would now like to turn the call back over to the presenters.

[Kate White:]

Thanks everyone for joining in today. Again if you have questions feel free to reach out to me after the call.

[Operator:]

This now concludes today’s conference call. You may now disconnect.