3M Company's CEO Hosts 2012 Guidance/Update Call - Event Transcript

| About: 3M Company (MMM)

3M Company (NYSE:MMM)

December 06, 2011 8:00 am ET


Inge G. Thulin - Chief Operating Officer and Executive Vice President

Matt Ginter - Manager-Investor Relations

David W. Meline - Chief Financial Officer and Senior Vice President of Finance

Paul D. Steece - Head of Electrical Markets - Electro and Communications Business

George W. Buckley - Chairman of the Board, Chief Executive Officer and President

Stefan Gabriel - Vice President of New Ventures

Christopher D. Holmes - Executive Vice President of Industrial and Transportation Business


David L. Begleiter - Deutsche Bank AG, Research Division

Jeffrey Sprague

Unknown Analyst

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Krim Delko

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Terry Darling - Goldman Sachs Group Inc., Research Division

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Deane M. Dray - Citigroup Inc, Research Division

Matt Ginter

Well good morning, everybody. My name is Matt Ginter. I'm Vice President of Investor Relations for 3M, and welcome to our 2012 Outlook Meeting. Once again, it's great to see a really nice crowd here. The house is just about full but if you're just coming in, there's a lot of empty seats over here and I think our staff has put a lot of chairs and back, too, if we run out of room. So help yourself. Also, I'd like to welcome all those who are listening via webcast today.

We've got an outstanding lineup today. Kicking off will be our Chairman, President and CEO, George Buckley. He's going to share his insights regarding the current economic environment, what the implications are for 3M and he'll reinforce our strategy for accelerated top line growth. Supporting George and his message today will be Chris Holmes. Chris is Executive Vice President of our Industrial and Transportation business; Paul Steece, who's Vice President of our Electrical Markets division; and Stefan Gabriel, who's the President of 3M New Ventures. Inge Thulin, Executive Vice President and Chief Operating Officer, will describe our playbook. We're executing this plan; and CFO, David Meline, will detail our 2012 financial outlook. And of course, we'll have plenty of time for your questions and we'll wrap up no later than noon today.

A couple of housekeeping items real quickly. On Slide 3, you'll see our earnings release dates for 2012, they're January 26, April 24, July 26 and October 23. Please mark your calendars accordingly.

And finally, please read the forward-looking statement on Slide #4. During today's meeting, we'll make certain predictive statements that reflect our current views about future performance and financial results. We base those statements on certain assumptions and expectations of future events that are subject to risks and uncertainties. Item 1a of our most recent Form 10-K lists some of the most important risk factors that could cause actual results to differ from our financial predictions.

So again, thanks for coming today. Happy holidays to everyone, and let's get started.

So George?

George W. Buckley

Well good morning, everybody. How are you all? Excuse me, I've got a croaky throat. I've got something from the kids that came to the house during the Thanksgiving holiday. So if I croak a little or cough a little, do please excuse me. Expect you'll all be affected, by the way, by the time the day is out. So I'll do something for the healthcare volume in America.

It's obviously -- it really is very good to see you all; to look across the sea of people here. I see so many old faces and people we have great regard for and great affection for. We have a job, you have a job, but nevertheless, we really do have great affection for you; and are glad that you're here to listen to what we've got to say.

So my job today is to try to decode and decipher what the heck is going on in the economy. It's probably in the end not a lot more complicated, at least in the way the economy affects 3M. It's probably not more complicated than you might think. But there are some elements of it that I think can be quite confusing, which I am going to try to decipher and demystify today when I go through my slides.

So here's the first point, interpreting the current sales environment. And in particular, how adjustments in the inventories channels will affect the outcome. I'll go a little bit over our strategy and vision, as I typically do at this time of year; the path ahead. Inge will show us how we're going to operationalize, execute that strategy, shall we say. And David will go over the financial outlook in 2012. And then I will conclude with some remarks.

Here and there, I think those remarks will be helpful. They may even be a little bit different than some of the things that you're seeing out there in the marketplace. Remembering that 3M is a very unusual company. 3M is a company that sells a lot through distribution, so we tend to see relatively fast response to changes in the end-market economy. And secondly, we are a mostly consumables company. So we're kind of a real-time pulse of the economy. As the economy changes, increases, decreases, moves, hedges, we see that perhaps faster than anybody else out there in the marketplace.

Well after the hurricanes in Alabama that shutdown our Decatur plant, optical films plant; and the earthquake, then the tsunami, then the atomic sort of disaster in Japan; and now we hear again we have yet another one these things in Thailand. Massive flooding that as far as you can see a lot of automotive plants and electronics plants. You can see up here from the screen that 25% of the world's hard drive production is located in those flooded areas. And the expectation is that about 40% capacity will be reduced from this particular event. So it's a huge blow perhaps to the electronics industry. And the distributors' already suffering from wounds from earlier contractions in demand. So very, very difficult.

And the impact for us, by the way, is about a $20 million operating income in the fourth quarter. So an additional burden that we're seeing on the world economy. It may well be, by the way, that many of these plants never actually again start up because when you're a semiconductor business and you have clean rooms and things like that which you're affected by flooding in the end, you may as well just move them somewhere else. I think we're going to see a lot of that kind of activity in the outcome of this Thailand issue. So very, very difficult situation again and made a worse situation, a situation of Japan a little bit worse.

Now in our third quarter call, we talked about -- there's a lot going on in a place like 3M. You have every end market you can conceive, every product you can imagine. And we try to distill that down to a bit of guidance for you because we want to try to be helpful. We don't want to try to bob and weave. We want to try to be helpful to give you some indications of what the main issues are. And we said that the main issues were really a weakening Western Europe and a weakening -- seriously weakening consumer electronics market, but then progressively spread into other aspects of electronics. And here you can see some of the data in these various market segment. And what we've done is we've highlighted these 2 columns here just to sort of take a look at the fourth quarter versus the third quarter year-over-year and you can see if you go down this thing, in semiconductor it's about the same sequentially. In data storage, it seems to be getting a little bit better. The industrial test seems to be getting a little bit better. Smartphones getting worse. Feature phones, the sort of, kind of you call them dumb phones today. Feature phones probably getting a little bit worse here. Notebooks getting a little bit worse, tablets getting a little bit worse and touch panels getting a little bit better. So it's a mixed bag. Some things getting better, some things getting worse but all in all, this is one of the great sources, shall we say, of current pressure in the world economy because it starts here. But this is a connected system and is reflective of ultimately of other demand that might spill over into different end markets. And so this is another, in its own way, a little bit of a canary in the cage for the world economy.

Now one thing which is unique about this kind of economy is it turns very, very quickly. You'll hear sort of prophecy of doom tell you that the market is going to collapse by X or Y, that TSMC's utilization rates are going to be down to, say, 62% or 42%; and they'll be there almost forever seemingly. But in reality, this is one of those industries there's a very, very short product development cycle; very, very fast turns in the industry, typically about 12. Product life cycles of 1 year, 1.5 years; this turns very, very quickly. So when it turns -- when it does turn, it will turn very, very quickly.

So let's look at the quarter. Well, it's obviously an environment which in some ways has gotten even more complicated than it was before. We've got certainly no sense of any settlements of the turbulent global economic situation that we've known for some weeks, in fact, maybe some months. So Western Europe I would say seems to be getting worse, so that's bringing some uncertainty that wasn't originally in our thought processes. Foreign currency now has essentially become a headwind rather than a tailwind, which it was before. Perhaps something which is quite important here is the estimated fourth quarter Thailand flood impact is about $35 million in sales and about $20 million in OI. Nevertheless, a little better news here on the tax rate is marginally improving from 28% -- from 25%, forgive me, to 28%. Net of all of this, we're saying we're still sticking with our original estimate in a worsening environment as we see it today. So hopefully, this will reassure you that we have a handle on the situation.

When I was looking on the Internet, I'm always searching the Internet for sort of ins and outs of what's going on in the economy. So I stumbled across this particular one accidentally, but I absolutely loved it because I thought it was appropriate not just for a time like this, but for a day like this. I'm going to read it to you. This is John Kennedy's so-called New Frontier speech that he gave at the Democratic National Convention. It was his nomination acceptance speech back in Los Angeles, California in 1960, 50-some-odd-years ago. I'm going to read it to you out now. We are not here to curse the darkness; we are here to light a candle. And I think this is one of the challenges that we have today. And hopefully, we can do that as we go through our presentation here. And Kennedy here refers to Winston Churchill, one of my other great heroes of history. He says, "As Winston Churchill said on taking office 20 years ago: If we open a quarrel between the present and the past, we shall be in danger of losing the future. Today, our concern is with the future. For the world is changing. The old era is ending. The old ways will not do." And Kennedy was absolutely right. This is very appropriate for today's market.

Talking a little bit about the economy because I think, in the end, it's what's on the top of your minds most. What worries you most. Lots of connected issues, we're trying to slow down, how bad, how long, how deep, what's going on out there. The Japanese tsunami and all the knock-on effects; the earthquake, the power shortages and ultimately, the challenge in dealing with the tsunami. Now Thailand flooding, and weak economies in Europe. Sovereign debt's obviously the kind of the big nuclear hand grenade, shall we say, out in Europe. And it is really a very, very difficult situation to assess for most people. In fact, we've seen all of what I sort of hinted at earlier, I think we need a sort of a plague of locusts or something like that just to sort of help. I mean ordinarily, we do quite well when there's pestilence. This is not quite pestilence, so we need a little bit pestilence here to sort of drive sale.

Now to many people, this sovereign debt issue, I think, is the big sort of, I don't know, bogeyman out there. And there's lots of opinions. It was quite racy opinion in The Economist just last week, but I have to say, and maybe in the end because I'm an engineer, I'm not full well-qualified to think about this, because I deal in logic, I deal in analysis. And so most connective things to me have to be logical. But it's my view that this is not like '08, '09. This is not perhaps the same kind of clear-and-present danger economically that '09 had. And I think it's very visibility -- the very visibility this sovereign debt issue is what makes it less likely to happen in the end, because I personally believe all of the governments of the world who can see this getting a lot worse, but we will in the end, if necessary, have a kind of an all-in strategy: United States, Canada, Great Britain, Japan, China, everybody is going to go in and say, "We're not having this happen." So I think though it seems to be very visible and it feels like as I said there in the slide there, I can kind of come in car crashes. So mostly, we've all seen -- there will be this -- you see, I can see I'm going to hit these lots of things that I'm hoping to avoid, but I know I won't. If feels a little bit like that. So my view is still here, it's very visibility is what makes it less likely to happen in the end. And I think that setting that right one event to one side, the economy is much more likely to grow slowly than collapse. That's our view. So we are in a slow environment, no question, but I don't think we're ready for the nuclear option here.

Now having said all of that, there's an awful lot of economic work to do. We all know the world economies are in turmoil. We all know that many national balance sheets are broken and revenues going to have to be used to rebuild those balance sheets rather than spending them on stimulus money or perhaps on expanded social programs. And perhaps it signals a world which is very different going forward than the one that we have looked at and support. And perhaps the Western version of socialism maybe changes a lot as we go forward.

But there is this, there's a simple Keynesian principle that says, "There can be no sustainable economic recovery without an increase in end-market demand." And if you link that with the idea, you can, can China pull the world out of our recession, can China -- is China our savior? Well I'm just an engineer, as I introduced myself, just a dumb old engineer, I'm not an economist. But I tend to think about the world in simple terms. They are producing nations and they are consuming nations. And I can assure you if the consumers aren't consuming, the producers won't be producing.

Having said all of that, the best bet are the loaning nations, the producing nations because that's where growth is most likely to be and that's where we are. We're all over that. And if and when that unfolds, as I think it will, we're going to be in exactly the right place to respond to it.

Now we did admit earlier that I'm an engineer, so we could have a test right now and ask you what that diagram is. You're dealing with the data every day, by the way, it's a Brownian Motion diagram. The market that we see out there -- this ever-steady-state world, as I said, it really -- of course, we try to get this in our planning, in our long-range planning, the 5-year planning, the 10-year plan, we always have this obnoxious, simple, monotonic growth. It's an illusion. No company ever has it, no market ever has it. And you really have these elements contributing to the kind of confusion to the growth, many different things. And national market growth, and this is we kind of an average screen function that's got more cyclic tendencies but it's got stochastic tendencies, too. It's got randomness and it's got heterogeneity. So this heterogeneity means the tendency of the stuff to be different basically. A lot of poop going on, if I can say that politely.

National attrition. That happens in every market, every company and we are no different than anybody else. But we counter that by replacement of our Class 3 products. And we can calculate it. This one we call and calculate so well, perhaps except for the cyclic elements. Above market organic growth we extract, we strive to get the elements of our growth which after attrition is taking its toll and we replaced it with Class 3, produces some net growth and this is Class 4 and 5; and we'll see that in just a few minutes.

Acquisitions obviously are -- how should I say, I mean they are just a record of history. Net price simply we can just record it. Easy to do.

Supply Chain Transients. That's a very interesting one because we all know they exist, but I don't think I've ever seen anybody try to give you a systematic understanding of what they do and how they can impact growth for the company. I'm going to do that because they are the same old thing, at least at the moment, a mask, the underlying strength of the company like 3M and actually the underlying strength of other companies that suffer.

Black Swan events. And in our case here high-impact, difficult to forecast, rare events. And really, a thing that will fit in a sort of black swan here is our TV [ph] market that seems to do all kinds of strange different things.

I changed the slide here to green and red. The red stuff is a little bit harder to calculate or impossible to calculate. The green stuff is relatively easy to calculate. So when we give you a forecast, we have gone through each of these elements trying to build up that forecast and add credibility to the numbers by following a certain kind of methodology that encompasses these sort of things.

Now let's look at the economy. This is global insight data, and let me -- it's a sort of a complicated slide. And you guys look -- you see, it looks like a complicated slide but top half has GDP, bottom half has IPI. This is history. This is the current year by quarter. This is the following year. You can note a few things here. I want you to pay attention in a few minutes to that 1.6 number for the United States in the third quarter. I also want you to pay attention to these other 2 things. Look at this thing. This is worldwide IPI dropped in the first quarter, the second quarter, by 240 basis points. 240 basis points. I mean, essentially the world's IPI dropped by nearly 50%. And you can see how it cascaded down into the other areas: for EMEA 5.7 down to 2.9, 50% drop. A 50% drop in economic activity in one quarter; absolutely cataclysmic changes. Same here in APAC, 5.8 to 3.4; Latin America 4.90 to 2.7; and Canada 5.7 back to 2.3. So almost 50% drops, or more than 50% drops, in all of those particular markets for us. Again, just keep in mind that 1.6 up there. So these are the origins of the transients that I'm going to talk about in just a few minutes.

Now this may be the most difficult slide, so I'm going to try to go through this slowly and systematically. At companies who -- like ours, who have a large amount of their sale, it's about 70% or 80% in our case, of their sale that sell-through distribution. And remember what you've got, it's kind of a visual here, an end market and different inventory storage points. Perhaps in our system, by the way, as many as 10 but typically about 4. So you've got the end market, inventory storage location, primary, secondary, tertiary, quarterly and then the OEM. What has happened in recent years is any changes in the end market demand are sensed obviously by these inventory storage locations and they just shut this thing off like shutting off the light. Just shut the big valve down and demand down. So what happens in the OEMs further up the supply chain, you see exaggerated responses to that. And typically in our particular case, those amplifications are about a little under 3 -- 2.8 in fact. And so when you see those changes, especially if they're sizable changes, you see a very big effect. Now I give you, obviously in the economy, you see kind of sort of incremental ups and downs as it goes along. Even with the fixed multiplier, if there a 0.10 of a point change in the economy and you've got underlying 3.5% or 5% growth, you really don't notice that. So they're not that evident. But when they get big, they get very, very important.

And I put up here couple of pieces of data for you. This is us, 3x. We were talking to a very large German steel company lately about the same phenomena. They say their numbers are 4, 5 or even 6 in this amplification. And when I was back in the recreational boating business, it was 1.6. So it's real. We all know the logic works.

Now this is maybe the hardest of the lines on what you said there with me here. So we had, if we went back to our earlier chart, we had IPI in the first quarter of 5.6 and it dropped to 3.2. So we had this negative transient in the end market of 2.4%. Now if you take that multiplication thing that I talked about earlier, multiply it by 2.4%, you get 7.2%. So what happens is, we are selling into a pseudo-market that's 7.2% lower than the actual market or in this particular case, 5.6% minus 7.2% gives you -- it looks like an effective market of minus 1.6%.

Now separately, we talked to you about how we go about achieving above end-market growth. We've focused on Class 4, Class 5 additions. Class 4, Class 5 NPVI for us is 17%. It's not actually accurate doing it this way, not perfect anyway. Divide it by 5, you get 3.4%. So you know on average in that 5 years that we added 3.4% of growth in our current sales. You add that 3.4% growth to the minus 1.6%, you'll get 1.8%. You have this pseudo-market, you're still standing above market which corrects it, and we reported 1.9%. Pretty cool.

Now I'm going to show you how the thing looks diagrammatically in just a second here. Here we are, so we got the first quarter 5.6%; the second at 3.2%; a delta of 2.4%. Later quarters which I've just strung in here. And this is what happens to the end market under these sorts of conditions. There's the green, there he goes. It goes down, absorbs a lot of inventory and then ultimately resets. So what if this number is 3 quarters out? It doesn't recover back up to this one, but it recovers to this one. And what's going on, of course, is this: the systems got too much inventory which is indicated by the integral under that code. You remember we used simple calculus stuff from high school. And so what we've got is that's the excess inventory. This, by the way, was the reported number and this is the inventory they've got to take out. So in an ideal world, if everything's fully corrected, this and this area has to be cool and that's what's actually happening here. I hope that's not too confusing. Hopefully, it will give you a view and maybe you already knew this, but I think the fact that you can get an idea from these numbers, these BX [ph] multipliers, in one industry 1.6, 4 in other industries.

We'll give you an idea of what actually happens during these transients. Just to emphasize that, this is the third quarter United States Bureau of Economic Analysis reports and I'll read their rendition out for you. Inventory investment decreased more than in the second quarter and subtracted 108 basis points. 108 basis points from real GDP growth after also subtracting 28 basis points in Q2. So here it is straight off their report, this is their thing that I cut and paste. And I'll remind you this 1.6% that we had earlier for the United States in the third quarter actually the real growth in the asset space was 1.08 bigger than that, had it not been for these kind of inventory transients. So that's what's going on. So when you look at 3M as a company and you think oh, my word, holy crap, excuse me -- I didn't mean to let that word slip out. Just shows that I'm human. It just shows you that the underlying growth is firmly in place. But you have these adjustments in inventory that take out growth in the year and depending on where they fall relative to a year end, it may impact a whole year, they may impact the half year as you go forward.

So what do we expect from this simple logic? So you're going to get a little bit of more mathematician, engineering speech here. Why is it that sometimes these economic forecasts are wrong? Why is it that these guys seem to put out these forecasts and have what we think are these complex economic models and they don't get it right? Well first of all, our chief [ph] Roger, who's an economist, I tell him really, actually you studied history because economists are the only people that we know anyway that get a chance to revise their forecast 3 times. And when you look at -- we actually took it out here, but we had a chart here that showed growth forecast going from 2010, 2011, 2012, the various banks, various economic bodies, there's sort of the big sort of swath of these things that the only thing that you guys should agree on your economist was the forecast of 2010. So a very, very wide forecast.

So when you model economies, there are a number of different ways that you can do it. The way the really smart guys do it is they rack a lot of different equations, they describe the flows of trade across multiple boundaries. When you solve those equations, they naturally predict what mathematical item values, these natural frequencies and that's the cyclic behavior of an economy. That's not what happens in current econometric models. They take 14 or 16 quarter models and they're always reliant on the last piece of data to update the gradient and the new gradient. So what happens is whenever there's a sharp turn, you're off because you've got a set of data that doesn't have a sharp turn in it. You can never predict it. So you need the sharp turn to have happened before you can actually roll it into the data and begin to expect extrapolation method. And you can imagine if you've got a turn like this or a point of inflection or peak, if you're just using extrapolation methods, you're always going to be in error. And that's what happens in these econometric models that exist today. And so as a consequence, they're prone to very large error when economic turns take place.

Going back now to our transients, we don't actually really know how efficient the challenge of clearing those transients, because we actually need to know that if we can't at least make a stab at it to know how long the inventory drawdown will take place and how long that will suppress growth. In 2009, we assumed a 50% inventory channel. I mean you can't infer something from a 4-turns channel, there's no question about it. There's a highly nonlinear phenomenon because if you think about what happens when a channel's up 80%, demand dropped 80% and it was previously say a 3-turn or 4-turn jump, you cannot use that number because the ability of the channel to clear excess inventory is very, very weak in those sorts of circumstances. So it's a sort of -- has a bit of it all depends element through this. But in any event we -- in our forecast here for this coming year, we assumed likely being 2009 and it worked very well in 2009. A 50% efficient channel should tell you it would take about 2 quarters to clear a big transient of that kind. Since we saw the first signs of slowing demand in late June consistent with that 2 channels to give you 2 turns, which happened to be 2 quarters or 4-turn, we expect that this will persist until sometimes late December. It's not precise. We don't know with that degree of accuracy. But we'd expect that kind of transient to last until the end of December, possibly leaking over into the first quarter.

Now I showed you that earlier but if this assumption holds, when that transient dies down, the end market will rebound. But it's reset to a low level if the IPI number is 3% instead of 5.5%, it's gone down to 3% or whatever else the number is, it doesn't go back to the original 5.5%. And our current sales ratio showing this kind of modeling to be valid and we'll predict a number 4 and well within the expected raise that we've given Wall Street in the last time. So I apologize for this complicated slide. I apologize for a lot of complex concepts. But it is what the world is. The world isn't necessarily always simple and this is how, at least as we see it, how it works.

Now there's nothing like a little bit of real data to actually prove the point. Here's 2008, 2009 downturn and there are 3 sets of data on this. There's the global insight actual estimate, global estimate in blue, actually it's little babies here and tracked by that blue curve fit there. The actual, whatever actual means for the economist, that means there's several quarterly revision probably, are the ones which are in red and it's followed by this curve here. These are 3M's actual numbers. Now look what happened here. First of all when the changes were relatively small, global insight kind of got it right and that's exactly what you'd expect for the extrapolation model. But when things began to go bad, when the economy began to collapse, you can see what begins to happen here. They get it right here, the get it badly wrong here. Their estimate is somewhere flat, the actual was probably negative 1. And here it gets even worse still. Their estimate is about 4. The actual was about 7, maybe 7.5. Look at the next quarter; they're forecasting 6 because the model is continuing to update the gradient. So they're forecasting about 6, the actual economy dropped 14; 14. And so on and so forth, it went round.

Now take a look at this. The same is true in 3M sales. They were forecasting flat. Our sales were down minus 11; minus 11. This has got to be something systemic. It's not the world, it's just sort of downturn and sort of run away from Mars. And the same is true here and here. Actually, there's another thing to notice from this. Notice that this blue curve and the red curve are largely in phase [ph] but look at this one, lead [ph]. And if the observation that we always have is that 3M's sales lead the economy, that we are the canary in the mine and this particular historical data shows just that. But let me just show one other little thing here. As -- just to sort of emphasize the 3x multiple thing. When the market dropped by 4 points from here to here, guess what happened to our sales in the following quarter? Dropped by 12. Yes. So the model works and you can see it works over here and it's a pretty good model that gives you an idea what happens in terms for 3M.

Now there's another little thing which is baked back in there is even in steady state, even without large changes in the economy, if you take a look at this is a very simplified IPI cycle that, I think here, makes the difference between these mean and this it's average growth over this cycle. What happens if you have a custom market index cycle here, a 3M cycle, which is a little earlier, it explains completely the early-in, early-out nature of 3M sales. It shows you quite readily what the cause of the problem is. However like all these things, I feel like I'm advertising, buying some knives -- and wait, if you just call in right now, we'll give you -- well wait, just right now, the reality is even a bit more complicated than that because we are going above the market. The fundamental underlying growth rate of 3M is going above the market. So this is actually what happens. It's not on this place to the left, but it's lifted. And you can actually see conceptually. Remember, this is a concept. You can see conceptually we could drop significantly and yet the other guys are still rising until they crossover here. So this is actually what happens and this lift is the growth above market produced by the Class 4, 5 growth rates. So this is actually what's happening. If you need some kind of a model to think about how 3M behaves, this will tell you how 3M behaved.

Now is it real? Let's take a look at some real data. Well if you go back, let's pick a couple of quarters here. I'll pick on the third quarter 2003. Notice 3M sales, the red one here, is going down. The market's not going down, it doesn't go down until the quarter, a quarter out later here. We turn there. The market doesn't turn there until another quarter. If you go over here, we began to turn there, depending on where you want to put this line. The market itself didn't begin to turn for about another 2 quarters. So we are kind of a precursor of something happening in the economy because we're still growing. But you can see the same kind of issue over here. The market is still increasing. We've already begun to show decline. We do tend to lean the market -- lead the market because of the kind of nature of that particular piece. So what do we do about it? How does 3M respond as I said here in this kind of world of uncertainties? It's really not that complicated. I want to sort of set in your mind a concept that there are many versions of the future, and none of which are preordained and all of which can be guided or influenced by positive direct action by a company like ours or any company for that matter. And so in an innovative company, it's still very much largely in our own hands. You all know that I love George Bernard Shaw. I love this particular one from him, this quotation. "The people who get on in this world are those who go out and look for the circumstances they want and if they can't find them, they create them." In other words, what Shaw was saying is those people best able to forecast the future are those people best able to create it. So that's this company. And you all know the incredible capability of this company in innovation. And regardless of the circumstances, we will continue to invest in innovation and you'll see shortly a slide that will prove to you it's a very, very good thing to do.

But really, this speaks to the relative ability of a corporation to deal with the market turbulence. Great cash generation and conversion capability and good at innovation and the ability to consistently [indiscernible] and adapt to that new circumstance. They're the things that best assure long-term survival and like many of these things, I actually love this book from Nassim Taleb, "The Black Swan event for a turkey is very different from that of a butcher." And clearly, as consequence, we have to figure out how to be a butcher and not a turkey.

Now I'm now going to go over the top part of this specific chart, but only to tell you having gone over what I've done, all dynamical systems have these transients. We must not be confused with the thinking of the growth of this when this happens it isn't, it's just the transient. It will die away. It happens. It dies away and the growth just comes back. You just depress the growth in sort of the effective world market. And by the way, how does that happen to you but not other people? It happens to everybody. It just so happened in our model, it tends to happen in a shorter period of time. If you were selling large earthmoving equipment, if you had any portion of that -- your sales and sales piece and in distribution, it would happen exactly the same in that particular model as well.

And then kind of boring old stuff, what do you do? Well, we're like any other company. We respond to drift down in demand by line-rate reductions, productivity improvement, inventory drawdown, payroll and discretionary cost reductions just like you and your companies do. We are no different than that. We offset sales attrition by replacing all product at or about the same rate, they erode. That's of course is about 15% NPVI, 15. The natural erosion, by the way, crosses about 3-8, 3.8% annually. We drive incremental growth by penetrating new markets. We are Class 4 and 5 NPVI. And we can raise prices in most markets but unfortunately, in the distribution model, the sort of supply chain we have, it tends to lag increases in raw materials. So you tend to see us capturing up on price, not leaning in advance of price. And if you need any further emphasis on what I'm talking about, here's your sort of base sales in blue. You have Class 3 products attempting to it, replace the attrition. You've got the market lifting, a little bit of price, a little bit of economic growth worldwide and then you layer all the parts of Class 4, Class 5. That's what's going on in the model that we're talking about here.

Talking a little bit about strategy and vision. This is our vision: 2016 out for the company, $50 billion in sales, still Premium margins, still premium returns, growing faster than our fastest growing competitors, double-digit EPS growth, good dividends so we get superior TSR performance, we want to be leaders in new markets and go-to-market, engage with our customers, adaptive because you can be creative, but you're not adaptive. It can really hurt you. I've seen this in Kodak. One of the most creative and innovative companies in the entire world yet their inability, there's a time because of that culture to adapt to some of those changes in the end ultimately led to their demise. So you have to be prepared to adapt. And we want to get our reputation known as the innovation company. You might know that again on the boost [ph] survey, we won #3 most innovative company in the world. Again, second year in a row. Who saw that? Some people.

So in a sense, not a lot has changed. And we laid out our strategy for you guys 6 years ago, and it really has not changed. We had a good strategy. We stuck to it. We executed it relentlessly. Those companies that have got a strategy this year and a strategy next year, I mean that sends a signal they don't know what they're doing. So we've been very consistent in the development of and the execution of our strategies, kind of the what and the how, going down here.

And here's where it's shown. Of course, you get these transients that we talked about and sometimes reflected on the times that I've been in the industry. And by the way, yesterday was my sixth anniversary at 3M. And I certainly remember first getting here in this sort of relatively low-growth environment, trying to figure out what was needed to be done. Here's what our growth rate had been. This is all in this currency acquisition, the whole kit and caboodle. We managed to begin to drag it up bit by bit as we were rebuilding the company 6-1 [ph]. But when we chose to reinvest in the downturn here, it appeared that, that reinvestment and the winning over of customers and the constant reinvention of our company catapulted us out in growth here. And if we have a tough situation next year, I don't think it's going to be this tough. But if it is, we will follow exactly the same model and we think it will produce exactly the same results. Something we're so proud of, our New Product Vitality Index is going to be around 32% this year. I just, again, reemphasize back down here when it was 21%, 7% of this was optical, about 2% of it today. So the real number was 14%. Fred Palensky, our Chief Technology Officer, thinks it was actually a lot lower than that. So somewhere we've driven out 4 NPVI between 2x and 3x in this past 6 years. And our guys have done an absolutely marvelous job of doing that. Congratulations to them.

Now the other thing that happens is we get asked the question, "Well, you've got a lot of new products in the market. Surely, you're going to get lots of sales from it." It's quite interesting that new products don't have a kind of an action at a distance like a magnet. Europe suddenly feels the effects a long way away. Products enter a market and they don't enter a market in an instantaneous fashion. It's a diffusivity [ph], a diffusion from the sort of likes of them going through your wall or that horrible spot of ink on your white sweater that sort of suddenly seems to be a millimeter across, 15 millimeters 5 minutes later and pretty soon it's all over. So that's a diffusion problem. That's how new products diffuse into the marketplace. And most of observers feel over optimism, they overestimate the rate of adoption of the new product. And depending on the degree of innovation, industrial products can take decades to reach full potential. So they might have fallen out of the actual 5-year NPVI calculation. The good news for 3M is this infers very high latent growth in the NPVI and new product pipeline that you haven't seen before.

Now this is a Bass diffusion modeler. I think many of you probably know Bass is old of 1967, where he was the first sort of man to lay a foundation of these sorts of things. And I actually did the modeling for a very famous smartphone who doesn't actually have a brand on it today and it was released in 2008. I actually asked the question, how long do you think it takes to get 80% of the market? Most people say 1 year, 2 years, 6 months, 9 months. It's actually 8 years; 8 years for that product. So even if a product's innovative, it's copied and replicated, because that particular form takes about 8 years to fully penetrate into market. The 80% of available share. Now what's it like for an industrial product for 3M? Well this is the same model, it takes about 16 years. So when we are making, showing you numbers of our NPVI, our New Product Vitality Index, we're calculating numbers down here in the first 5 years. And we have all of the stuff still to go. So if you continue to promote it, continue to polish and there's just loads of the stuff of the pipeline that is ready to harvest in many, many years to come. So the work that our folks have done in getting this done, this is the harvest that is ready for the future.

Another thing that I know it caused a lot of consternation when I first introduced it 6 years ago, but this famous strategy has worked absolutely superbly well. It was a wonderfully defensive mechanism, but also offensive mechanism for us in each of our business, and it's just basic to be replicated everywhere. We don't have time to go over these sorts of things today, but I can assure you it's everywhere. And the guys have done an extraordinarily creative job of adapting to different circumstances this particular strategy.

Looking now about whether we're making any money at it and where the growth is coming is sort of 3 tiers. This is our classic place that we have been and always will be. And here's the kind of sales growth that we've had in the last 3 years in the C tier, the B tier and the A tier. So the big worry was that we damaged margins pretty relative. They really haven't shifted, they really have an optical stuff in here, but we really haven't shifted very much over the years. But it's really been a resounding success.

Now I'm going to show you couple of slides here, 3 slides I think actually, of my colleagues who are going to come and talk about the reinvention of 3M.

This is on Abrasives. Many of you have heard me wax lyrical about Abrasives. I just absolutely think this is absolutely magnificent. How do you take abrasive business that's 110 years old and fundamentally reinvent it and then use it as a cudgel to beat the living daylights out of the competition through just a deck of products? And Chris will go over some of these things, but this is a typical abrasive grain. This purpose is on shockproof that cut like a razor blade, that cut like a shark's teeth, I suppose. Absolutely magnificent, and Chris will go over that. I just think this is, I'm so proud of this and it's what you can do in a company like 3M. There's never any business which is more abundant than 3M, there's just one waiting for reinvention.

There's another one. We've talked -- I have talked many, many times about this particular thing. I think when I first came to the company, sales here were about $6 billion. We are completely sold out for 2 years now. It takes a while and Paul will show you a chart showing the build up of volume. This is an aluminum overhead line. I was actually -- where's my weapon of destruction? Here it is. Just in case I have any trouble with anybody. This is actually a sample of that particular cable. This cable will carry about 2.5, maybe 3 times as much current as a conventional conductor of the same size. There's a consequence. If you're in a position where you need it right away and you can't get it right away, use fingers down there, if you've got longer crossings. Anyway, Paul will go over those in detail. Quite magnificent product and working extraordinary well. I think we got, what, 6,000 miles of this in service now, without a single failure.

I don't think, here's Stefan, I'm going to introduce Stefan, too. When I first came to 3M, I, of course I'm a little bit paranoid, so I'm always worried will the system inside 3M generate the kind of new ideas for the future that we need? So that using an inside outlook, should we try to construct an outside inlook? What about all those possible markets that we're missing? Is there one that could build a new segment for 3M? That is the kind of thing that Stefan has been doing through small investments, and he'll talk about that.

So with that I'm going to hand over now to Chris, Chris Holmes. Chris is in charge of our Industrial and Transportation business, and he also was the man that actually led the abrasives business until he got kicked upstairs some while ago. Chris?

Christopher D. Holmes

So I noticed when George said Chris Holmes, Industrial and Transportation business, nobody shifted forward on their seats. No excitement or anything else like that. My goal in the next 15 minutes is to change your view on Industrial because it's a really cool space and 3M has done some very, very special things. Sorry Tom, I can fix that, don't worry. Point that came up. Okay. I just wanted to get all the way over here. Thank you.

So the first thing I have to do, though, is kind of lay some foundation with you and that's a 90-second tutorial on abrasive. So kind of pay attention, this is important. Everybody, what we're cursed with, everybody thinks they know abrasives, sandpaper, right? It must be really simple. It's a multilayer coating process, that's all you kind of need to know. There's 2 important things, precision repeatability and mineral. Step 2, if you were to look at the minerals that are used in abrasives and par for our performance against costs. In the bottom left, you have soft and cheap. In the top right, you have hard and expensive. Abrasives uses the ones in the red circle there. Those are the Abrasives, that's what they use. Within that segment, we have mineral. All we control historically is size, not shape. When Cubitron II came along, as George mentioned, and that changed the whole game. I'll explain a little bit more about that. When you take those minerals, if you use them, they break and if they break, if they're soft, they break into big chunks. If they're medium, they break into medium chunks. And if they're harder, they break into smaller chunks. Last thing, it's a trade-off between cut and finished. It's always a trade-off. If you start on the left-hand side, you have a lot of cuts and very poor finish. And there's a whole -- you've used cost abrasive and there's a whole bunch of things you can do to make that happen. If you go across to the right, you can have great finish, beautiful, shiny finish. Poor cuts and there's a whole bunch of processes that made those things happen. And then you've got some things that kind of don't fit in either category, they're kind of in the middle. Okay, so now you know everything you need to know about abrasives to be dangerous.

I actually was here in 2007 and I told you some of the abrasives story. At that time, I started off by telling you it's an old division. 109 years old at that time and the image that, that conjures up in your mind as I walk up here, except I didn't have the shirt on -- I need this picture, is this picture, 109 years old. And we kind of baffled that because when George shows that slowly getting in using -- slowly penetrating the entire market with the products you have, in 109 years you do have things that you don't sell any more. At that time, I met the same kind of looks in the room when I said that before. So then I said this time, a $14 billion market growing everywhere, all of a sudden a little bit more interest in terms of what we're doing. So what do we do to try and get better? The first thing we did is really rebuild our fundamentals and that starts with 3M, with operational excellence. In fact, do things really, really well. So quality and service and cost.

There was a tool within the 3M called the core and adjacency map, and it's a prioritization tool. It says what's really, really important to you, focus on it, prioritize around it and work on that side of things. And we very much did that and we put a few of the things on here that we did at that time. So we told you about acquisitions we made and we tried some trial acquisitions in super abrasives and bonded products. We also tried moving into the power tool business for abrasive finishing. So we were building those very, very focused, prioritized near the core. And we're doing those steps. We got ourselves to a point where we're growing 8% in sales and in 4 years we've doubled our operating percent, doubled our ROIC and we got 5x the economic profit. So fast-forward from that to today. So this is a story in 3M Abrasives, industrial, how we've gone. As George mentioned, we used the downturn in 2009 to really get healthier. We continued with our investments in terms of technology and moving ourselves forward. And you can see the different ram terms of our growth rates going forward. A little later, I'll tell you about the exciting things that come with our acquisition that's added on there in 2011 as well.

We used 4 steps to get better: Step 1, operational excellence, foundation. You've got to have a good foundation in everything in life. So we worked really hard to prioritize what we were going to do and then work on improving it. We also worked hard in that area in credibility. Credibility means the customers, the distributors to 3M, everybody. So really became very, very credible in what we did. And we also did a lot of localization. So investments in other countries, in other places and driving that close to other customers as possible. Second thing, we wanted to invent a new future so who would we go to at 3M but R&D. So we tried to win science. We targeted where we were going to go with that science. We looked at new opportunities, we focused among the things that we had to do to win. I'll show you some examples of that a little later. We energized that community. So as you can imagine, we didn't have anybody who've being there for a whole 109 years, but we had some people who acted like they were. So we had to really get back to that part of what we were doing and come out with a better way to do things. And our results would say we have done that. We also allowed ourselves to move into the adjacencies and look for other opportunities to drive forward.

Next, we had to develop a winning mindset basically. Part of that is if you have a vision and you buy into that vision, you believe where you could go to, it does make a change because if people feel they can win, they start to win a bit more and we started to do that and we developed some very exciting marketing that really appealed to our top business partners and frankly, ourselves. And the last thing is build relevance. So building relevance, if you look at fully defining that core, to really look at what else do we need to be very strong, to be as good as we can be. We tried that experiment in bonded and it was really interesting for us. Bonded abrasives are basically resins and minerals compressed together in a wheel format. Just a different way of doing things, but it gives you different capability. The experiment looked really good so we were looking for how to we get more into that technology because it was going to give us access to new markets, hard to grind substrates. And as the world gets these things that last longer, they want harder and harder things to be finished. We understood our environment very well. George will explain this a little bit more later, but we looked very hard at the mega-trends. I mean, it's kind of interesting. You say, "Well, the mega-trends abrasive? I mean, doesn't this seem a little cave man? Well, the thing with abrasives is, everything in this room was touched by abrasives or the thing that made it was touched by abrasives. Every market you can think of needs abrasives to make it successful. If you happen to come up with one that didn't, when that person is going to do their job, they drive it, they go there in transportation that we finished, they sit at their desk that we finished, they sit on the chair that we finished and they use a tablet or a laptop or other sort of interactive device that we finished. So we really participate with everything. And just a couple of examples will be, if you look at the energy crunch, as exploration increases, as renewable energy increases, they are big markets for us and they're big abrasive users. If you think of changing demographics, everywhere from pharma and making new drugs to implants, hips and knees, et cetera. If you think of hips and knees in the olden days, they would last 10 years because frankly you got them at 50, you died at 60. Nowadays you get them at 30 and you plan to live to 100. So do you really want to change out that implant every 10 years? I don't think so. So that part has got to last a lot longer so it's harder and it's a much, much better finish.

Think of low-cost luxury. We want it shiny and we want it to run better, so fuel efficiency, et cetera. In the olden days when you got a new car, they told you don't drive it fast for 1,500 miles. Now they say rip it out to the parking lot, it's fine. Well part of that is because of 3M technology and bringing better finishes to the cams and crankshaft. If you're looking at expanding urbanization, those people are big customers for us. So as people get busy building towns, building roads, building infrastructure, then our volume goes up significantly. So these things are really helping us drive volume. How do we do it? George mentioned the pyramid process. If you think about in Abrasives, it's got to be specific. So we looked at the markets we were serving, we looked at competition, we looked at what was there and I'll show you an example later, and we said what do we need to do to win in A and in B and in C and then we went about product leadership. We have to have good products. In the end, it's about having good stuff and so we worked really hard on developing and getting to a point where we could honestly say we have great stuff now. And remember you tie that with that fundamental foundational piece of credibility. All of a sudden, you have a very salable platform. Next, you want to invest in the future. What better example than taking something that nobody else really had already and making it way better. So that piece about people only control size, we control shapes, too. And we actually control a whole bunch of other things to make those little suckers stand up, which isn't so easy. So then what do you do next? Expand into adjacent spaces. So I mentioned bonded abrasives a couple of times. We see this kind of technology playing significantly in this space. So we needed a platform to really drive that bonded abrasive segment to what we do. And then to be even more relevant to our customers, looked at what you can do to add more value. So we got into Power Tools, which we hadn't been in for the previous 109 years of our time and drove the Power Tool business as well.

So you look at that prioritization map now, there's a lot more on it. But you know what, it's still consistent. We're still prioritized for that center, blue and then the second blue outside it. It actually includes one there that we actually divested because it was outside. And so if we believe in the philosophy, we should live by that philosophy. What does that do? It drives new product vitality. So products in the last 5 years, remember when I was telling you about 2007, we were actually at 7% NPVI. And at that time, we convinced ourselves that if you've been around for 109 years, it's probably irrational to think there's other new stuff that's going to come in on top of that. But look what happens when you change your mind. We'll be over 30 actually this year in 2011, so a substantial improvement. And the other thing for the oldest business at 3M, we use a significant number of 3M's technology platform. So we're a showcase for lots of new things. So things invented in dental come into Abrasives. It's kind of freaky.

Let me give you a graphic example that really, really drove what we did. This is a market called castings and forgings, if that matters to you. It's like big pieces of metal. We get specific, so we look at A and B and C and we look at specifically what are our products in that space, how does it work, what's its price? What's our competitive product? You don't need to define the market really well, just tell me who is winning in it. Tell me who has all the share. If I know that, I can figure out what I need to compete in that side of the market. We take the product we have, the Cubitron product we have historically, that one with the mineral size, mineral shapes all different and we said you know what, it doesn't work there. It needs to be better and we need to move it down the pyramid in terms of pricing. We did that. 20% better than it used to be and we reduced the price on it. But we brought in a brand-new invention on top of that on top of the pyramid, Cubitron II. I'll explain a little bit more about Cubitron II in a minute. Is that good enough in the pyramid, does that give you what you need? Probably not. So we invented a mid-tier product and a C-tier product. So now we have great coverage of the entire market space. We can go into an account, we can sell value. If the customer says buy one cheap, we have cheap. We can save you money if you move about the pyramid but if you want cheap, we'll give you cheap. So we have both. We have every solution that somebody could need.

George mentioned Cubitron II. It really went from normal to not normal at all. It's a tremendous move forward in business. It's a revolutionary performance. And when you list its value proposition to customers, it's extensive. Maybe focused on the last 3; save time, save money, save resources. You take those things to a market, it's kind of amazing. It's very successful externally. That revolution performance drove this. Cuts 30% faster. Imagine if you could do every job you did 30% faster. That's kind of cool. But you know what, it probably gets used up faster. No, it lasts 2x to 10x longer. So that's really a lot of value. So the operator likes the faster, the purchasing guy likes the 2x to 10x longer. It cuts cooler, so it gives you more capability. You can actually machine things you couldn't do before. It's a new space. And guess what? You don't have to work as hard to do it. It takes 1/3 less effort. So that's kind of the trifecta.

And so for the first time ever in Abrasives; well I don't know if ever because I'm not 109 years old. But we've got fan mail from customers. This is from an actual test when a customer, an operator, saw it for the first time with this purchasing guy next to him. I like it. I don't like it, I love it and if I can't have it, I won't come in tomorrow. We don't get that in Abrasives very often. It's kind of cool. So that's nice, great product, wonderful thing to have right? So you've got to get leverage, it's not just about winning in one space. So what do we do? Well 2011 sales for Cubitron II, plus 270%. That's a nice number. I like that. But in addition to that the confidence that drives, the presence that drives, the attitude that drives takes us to a different place with customers and distribution because right now if we gave you something that good, you really don't want to have a look at this, too? Oh yes, yes, I want to look at that, too. So we can pull other things. So what we're finding is our other new products instruction, delivering at least twice the yields we historically used to deliver to customer and success in terms of the sales arena. You think of that impact on 3M branded products. You have something that good has become an adjective. It's become a describing word. It's kind of a cool thing. Everybody knows it and everybody wants it. And then last but not least, and very important to me actually, you end up with a very charged-up premium Abrasives thing. They really think and believe they can do anything they want. And frankly, I kind of believe them, too. We changed from the guy on the top to some very, very different looks now. This was actually an initial marketing campaign and you see this is the envy of China for 3M and this is in lady market from Thailand. So it's become kind of viral with inside 3M and that excitement is really driving some really cool things as we go forward. So you look at this market, it's rebounded from 2009. It's back up to $15 billion, is the market-based estimate. We traditionally played predominantly in that flexible Abrasives section, although we did double in Bonded Superabrasives and conventional bonded.

With the acquisition we made earlier this year, in March this year of Winterthur, we now have the capability to take those things -- technologies into a different channel. If you look at -- we now have broad access to these 2 parts of the market, high-growth markets, including solar, wind energy, aerospace and AOEM. [indiscernible] equally gives us some geographic presence in different places, also has some great gaps in places we're really strong. There's some great synergies back and forth. So you see it takes us more into automotive, precision parts, seal industry, precision metal finishing and hard to grind products. That's the way the market is going, so our technology helps that go forward. And you take these 2 brands and you put them together, there's great synergies and they both weigh. So they can help us with some stuff. We always wonder why you did it that way and we're doing the same for them. So some mineral into their technology it's going to be dynamite. It's going to be game changing as we go forward. Just imagine the opportunities we can drive as we go forward there. Very, very successful integration today, going well ahead of plan.

So if I tell you about the business then and now, what they told you in 2007 is shown there. So now I'll tell you, we have a $2.3 billion global Abrasives business, up from $1.6 billion last time. The industrial piece is now $1.5 billion, up from $1 billion last time and the growth rate now 10% plus against 8.4% last time. So some significant things as we go forward.

So when you look at this, I hope in my time here, the 35 minutes I took over Matt, I have shown you that the oldest business at 3M through operational excellence, 3M technology, innovation or magic, as George would say, has now developed into a place where we have a very exciting growth future. That's 3M Abrasives. Thank you.

Paul D. Steece

Good morning. I'm here today to talk to you about a component of the Electrical Markets business at 3M. And just to remind you, I was up here about 3 years ago to talk to you about Electrical Market. We are more in the infrastructure business as part of ECB. So our customers are people like power utilities, large industrial electrical contractor business as well as commercial.

So let me share with you a great story about ACCR, which George touched on a minute ago. ACCR stands for Aluminum Conductor Composite Reinforced. So what is it? It's a high-voltage overhead transmission conductor. It's capable of carrying 2 or more times the electric current than conventional conductors. So why is that important? I'll show you some examples. And why can it do it, and I'll explain to be in a minute. It's designed as a drop-in placement for conventional conductors on existing lines, very important. If you can draw on existing towers, you can save a lot of investment by the utility. In a lot of utilities they use existing right of ways, which is also very important, because it minimizes environment -- the impact on the environment and community.

So let's talk a little bit about why. The capacity of most transmission lines is what's called thermally constrained, so the more current you put down the line as the demand increases, the more that conductor heats up, it expands, because the core of a conventional conductor is sealed and then it begins to sag. So you can see in this picture that those conductors are hanging off towers over a river, and there's a limit for how far those can be -- how close those can be to the ground. So once you get too much current going down and these heat up and sag, you've got limitations on what you can put down that line.

So our conductor has what's called a composite core in the center, an aluminum oxide composite material, much stronger, much lighter, which allows you to put more ampacity down that line and on existing towers. And it's become very cost-effective, because you don't have to build new towers. Can you imagine building new towers across this river? You'd need more concrete structures, and the time to do it would be significant.

So why is this a great opportunity for 3M? Well, it's huge market. The $60 billion market globally growing at 5% CAGR. That's all transmission investment. If you take a look at the high-capacity conductor segment, which is a component of that, it's still a very attractive market at $750 million, but growing at double the rate of the conventional market. So we see a $1.3 billion market out there not too far in the future.

As I mentioned, it's a very effective solution because you can upgrade existing lines that are constrained by the amount of current you can put down them. And again I mention the bottom 3, reduces permitting faster and easier to install. Can you imagine building those concrete structures across the river, constructing towers and then hanging conductor? Quite a bit of difference. This just shows that the market's global.

You can see there in the great recession, the market decreased, declined. But by 2011, we've more than recovered back to a much higher rate of opportunity for us and we see this continuing to grow significantly. This part is North America, this part's APAC, Middle East Africa, Europe and Latin America. So there's an opportunity for us everywhere. And when I show you examples of what we've done, you'll see we canvass the globe.

So what's the potential here? Well, we believe the value proposition is very strong. And again, I've emphasized several of these things: existing lines; challenging installations where you have a long span or a water crossing; congested cities, where you can't get new towers into places like Mumbai in India, where you have to burn more power, but you've got to use the existing towers to do it.

We believe that this offers us at least the $200 million opportunity by 2016. We have projects identified. We have customers identified. We have programs, as George mentioned. We've got a significant amount of business that sets us up well for 2012 and 2013. And then how do we take it beyond that level in this greater than $1 billion market? And the way we do it is a very traditional 3M way to do it. We cost-reduce what we make, process improvement, productivity, new processes for manufacturing. We took 40% of the cost out of this product over a 3-year span. We've got to take it further, and our team fully understands that. And the great part is that the innovation that 3M provides to improving processes is alive and well.

So what about this market? So you say, "But, geez, I heard about this 5 years ago at some conference." Well, George made a great point. Sometimes the uptake is significantly long. Why? I've been involved in this industry for a long time. And I can tell you, it's a very conservative industry. Why? Electricity and reliability are essential. You've got to have it, you want it, you expect it every minute of every day. So reliability is key.

The approach to new technology is "show me it works. I want to make darn sure that it works." And you look at the bottom, you can see, for a 7-year span, we spent the bulk of our time doing test pilots, field trials, so a utility would put up 2 kilometers of cable, and they'd want to watch it and study it and see how it performed.

Well finally, over a long span of time, we have now convinced the marketplace that we do have a strong value proposition and the uptake is very good. And you can see this ramp. And George mentioned, it can be a long time. You have to have some patience in here, knowing full well you're confident it'll take off. These are the number of installations you can see for 2011. Those are done deal. And you can see where we're going next year.

Also, we now have a 10-year history of 70 installs, 1,500 miles of conductor in the air, 100% success rate, 0 failures and numerous repeat customers. And in the utility industry, that's a critical issue. When utilities buy once, it's to test you out. When they buy twice, it's because they believe that you might have something good going. And when they buy numerous times, they believe your technology is reliable, which is very, very essential for them. So you can see it was a slow uptake but once you're in and they believe in the technology, we believe it's got a lot of leg.

So 45 million, this year alone. We have doubled our capacity with investments in CapEx that are under construction, as we speak. So it will be ready to operate by about the third quarter of next year. And with the strong pipeline of projects, we're confident we'll be running that equipment every day.

Let me give you some examples of what I was talking about. So the first install was at Xcel Energy in Minneapolis. This has been up in the year since 2001, operating flawlessly. Western Area Power Administration, oftentimes referred to as WAPA. So WAPA had a project where they had to -- they either had to put up new towers or they could retrofit with ACCR, because they had some limitations on what they could do. So in this particular program, the utility saved $8 million in construction and 16 months of time in order to just drop the new ACCR conductor on existing towers.

You talk about reliability and length of time. This is my favorite. This is National Grid in Massachusetts. They have a copper conductor in the air since 1924. That's 87 years, operating just fine. By the way, these conductors are made out of aluminum now and have been for many years. But at the end of the day, you talk about reliability? Well, now they have issues. They need to get more power through these areas. So the best solution was to put up ACCR on the existing towers. Less permitting, less land rights that they have to get access to. So they expect something to work 87 years.

Here's another one of my favorites. This is the South American Utility where we had an issue where I talked about sag and clearance. So here's the old conductor running across a port, ships getting bigger, limited access. So in order to keep this port going, they have to solve their conductor problem. They had 2 choices, take these towers, here and here, raise them maybe 40 feet, which is doable but extremely expensive, or take the old conductor down -- here's the old conductor still up, it'll come down, and put ACCR up. So we immediately provided them a solution to keep this open and get the power down here that they needed. And this is real. This is how this industry works. You wonder if people really do climb on these, and the answer is yes, they do.

But here's a case in Brazil, where we had to -- they had river crossing and the flooded area, so put another tower in the middle or string ACCR. Became a very easy solution for them, and they saved a lot of time.

Here's a case where they needed a large ampacity increase in Shanghai for the 2010 World Expo. We allowed them the minimal outage time to run that power into that area. So they chose us for that timing issue. Here's Mumbai, very typical what you see. Congested cities, tower's up, no place to put other towers, so our conductor has gone up in India.

Tough weather conditions. Here's a good example in Siberia, where we ran conductor in. And the temperatures were awfully chilly, but the project was completed successfully. Here is one at BC Hydro in Vancouver Island, Canada. And again, here's the issue. How are you going to go in here and access the area, build towers, et cetera. So we ran a span greater than a mile, so greater than a mile of continuous conductor because of the strength that our product offers, made us the best solution for them to pick.

So in summary, 70 installs, 10 years of experience 100% success rate. We're just about everywhere. A recent present we just completed was in the Congo, which is a far-reaching opportunity for us, but it was a great program. A joint effort between our French team and North Africa teams to realize that business.

So what else does it do for us? Well at the utility, I mentioned reliability is crucial and you gain credibility through reliable product offerings and great technology. So we recently, in the last 2 or 3 years, have entered the high-voltage, underground cable accessory business, as well as high-voltage termination business in some stations. And because of the confidence that ACCR is building at the utilities, it's allowing us to take these new innovative products in our NPVI index and take them into these applications. In addition, we have other products in 3M not in the electrical division, but in sister divisions, where we can take these towers that tend to corrode and provide a corrosion protection product that 3M has to allow these things to last longer.

So in summary, transmission market's strong and projected to grow for the foreseeable future. We believe we have the highest-performing conductor in the marketplace and has now gained market acceptance, although you saw the upfront window. Six years of doing field installations for trials, not a lot of revenue there. But you can see how it's taken off. The demand has increased significantly. We've made a very committed investment to double our manufacturing capacity so that we're able to meet the demands of the market. And we think there's a significant opportunity to take this to levels that perhaps are even higher than I showed, perhaps. But we're working the game plan. And it's been a very successful program thus far, and I look for the bright feature as we move on. So more amps, and more confidence.

So with that, I will turn it over to Stefan Gabriel. Stefan will talk about new business ventures. And I'll tell what I'm going to do, Stefan. I'm going to get my prop out of the way, so nobody gets hurt. Thank you.

Stefan Gabriel

Good morning, everyone, and thank you for having the opportunity to talk to you again, the same as last year. It's just 3 years ago when we started the corporate venture at 3M. And as George mentioned, we were winning this German innovation award and well, you get awards like this not for just being nice, just because we differentiate a lot from other corporate ventures. We are very strategic. We are very lean. We have a very lean process. And we try to identify across the most exciting innovative companies and business opportunities in the world.

So we are very global, but really manage to do investments within 10 to 12 weeks. And this is really fast. And we have found already some very promising businesses for 3M and connected them very nicely to the business units. And I want to share with you some of these examples. And it's -- of course, it is about identifying more disruptive early-stage technologies and setting a small footprint in these areas. We just invest some small money, between $1 million and $5 million each, to get some footprint and learn and understand these technologies a little better.

Most of them have -- is with platform character, so this speaks opportunities for a number of numerous businesses to share within 3M and that's what we do. A little bit, we close the gap between research development and business development, more looking to the -- imagining the future, looking into the future of 3 to 5 years investment and trying to get some footprint in these new exciting technology.

And well, I don't need to explain why we do corporate venturing in general, but it's more testing some new opportunities where we have no core business right now, but where we decide to head on in the next year. We do minority investments because it's, of course, just testing the markets, getting footprint but not taking over the whole company right now, but it could be extra strategies [ph] to integrate the whole business, as it might be applied to 3M.

We have invested in a number of focus areas and they all fit very nicely with the megatrends, of course. And on the other hand, the structure of 3M is very similar, and so they apply very much to the big business unit the same.

Out of these selective investments and I was presenting some of you last year already, I want to show you some more examples of some outstanding opportunities. And they are really exciting, so I will bring some videos to you as well to get you a little bit closer to these technologies behind.

The first company, and this was the one I've showed you last time already, is GTG. And GTG is a company that really reinvented digital out of home. They are not in the billboard business. As you know, we'd expand that. They move hardware and synchronized content with this [ph]. But the strong belief is that in the market, that public media and public advertisements are growing fast instead of print media or TV media and TV advertisement.

So what they do is they look into these exciting areas, and we see the video. The first one, you see green billboards. They're the winner of the award 2005 for the billboard showing content synchronizing, moving fast. This is a bus station in Taipei. It will be open next year. And this mega-tower in the Munich airport. And what is exciting about that, they come up with completely new revenue models. This will be a -- this is the underground station in Berlin. They come up with completely new revenue models, doing revenue sharing 50-50 with the airport or the bus station. And so they started to go into communications concept for big corporates, as well as this exciting inter-access communication with the people working in your corporation.

Okay? So another company, it's very exciting. And I didn't show that to you last time because we've just identified that. It's a company -- they let mushrooms grow. And they have a chance to now replace styrofoam -- and replace styrofoam 100%. This is a renewable materials platform, very nicely being able to be attached to 3M. Some feedstock from shells of nuts are their substrate. They add the mushroom liquid. And overnight, within 24 hours, up to 5 days up to 10, they grow packaging material.

And Dell decided very quickly to pack their computers and you see that very quick. They pack Dell computers in ecovative material. And of course, you can imagine that there are a number of packaging ideas. And so it's not only less of packaging, it's less of being -- building cases for our products as well. So some famous companies like Apple, they are very much excited, as this is material that they could use for having shelves or cases for their products.

Another opportunity is 'txtr. And 'txtr is really -- we found this company in Berlin -- is really an outstanding team behind -- coming from Nokia. And they started this e-business -- eReading business platform, which is a software stack which is right label for all of the OEMs, which differentiates from Amazon, in the way that they don't do devices and they don't do hardware. They just have a cloud technology, owning content and selling this content to the numerous companies producing laptops or other device. And we already identified for our library systems technology, our library systems business, a huge opportunity, over $100 million opportunity, to replace old library systems business and using this kind of application to download from public libraries and giving public libraries a new future, being able to lend a borrowed eBook in the U.S. So this is a very nice opportunity. But I will show you one more what they are doing.

If you can imagine, you have a small device like that, which is a pure reader, of course, you all know that, Kindle and stuff like that. But imagine your manual and cards is not printed anymore. It's on a device like that, and it will be easily attached with your mobile phone. Within one second, you are able to download from your mobile phone the manual for automotive and be able to read, repair your car, whatever you want to do with that. And of course, it not only applies to the automotive. You can think of a lot of products, like washing machines. Or maybe one day -- you have heard of Beagle. They call it the Beagle, I heard at home, for all the manuals you will have in your house.

Okay. So the next is Printechnologics. And Printechnologics is a really outstanding technology. You really need to listen very carefully. I think it is a technology that can replace the barcodes, right? It's a company close to Berlin, who come from photos and clipboards [ph]. And what they do is they print electronic on paper, and they overprint this electronic. Similar usage as [indiscernible], but you can see. You can see these puzzles [ph].

And for example HP. We talked to HP. They have huge problems with copier printer cartridges, because people in other countries copy the packaging and put it in false products. So this is a huge opportunity. And I will show you a video of some applications. And there are many, many more to come. And one application, for example, is this -- I forgot one thing, this technology can be read with any mobile phone, any smartphone by the touch. So this smartphone just identified the right printer cartridge. Another opportunity is in this imprinted packaging of this soup, you can be attached to Internet to read, for example, a manual, how to cook something or how to do anything, how to get information about the product. There are numerous other ideas of what it could do.

Basically, the biggest publisher in Germany said, "Well, this is the first opportunity for us to connect print media to digital." And they are very much excited about this opportunity. Then we estimated advertising with the Coca-Cola, connecting just a paper card from the newspaper with this digital opportunity with the Internet. And there are many more to come. And of course, everyone knows how to connect via paper thing with your Facebook device, showing where you are right now or things like that. So many opportunities, so many things to come.

So -- and in general, I want to -- I think you have seen that, in general, I want to tell you there are many, many more things that's so exciting to see. We look at something like 400 opportunities every year, identify 100 and invest in maybe 10. But it's really exciting to see what's all coming up and how many really worldwide global technologies are there. And next time, I will show you some more. But I think it's really what we will do. We'll go on identify this outstanding technologies and opportunities for 3M that bring growth to our company.

George W. Buckley

Thank you, Stefan. This thing is really a -- it's very difficult, of course, to tell you about ideas for the future, but it's extraordinarily important. If you think, say for example, just on one of those examples that Stefan showed you there, Printechnologics. We can actually print an RFID tag for 700%, you can track a chocolate bar. So this opens up a brave, new world for track and trace. It begins to get us to the point where the consumables, the infrastructure is really a very viable thing to go forward.

So we're an innovation company. And I want to just talk for a little bit about the future, at least as we see it in terms of products. Ask yourself if you stopped today and you look back 10 years, what were the things that changed your lives the most? Communications, telephones, computers, laptops, long battery life, perhaps microsurgery, global trade, perhaps global terrorism, a whole bunch of different things. And it's those devices, by the way, that are going to be the platform for the future. So what you're going to see going forward is all of these and more of the size. So what things are likely to change your life most in the next 10 years?

In fact, here are some of them but remember, this not an exhaustive list, this is just a sort of teaser to sense, so to speak. All of the above items are likely to change your life, except at an ever-accelerating rate, more communication, more information and evermore, electronic customer interaction. We actually have devices that we're working on that will track you -- track your purchase intent and feel that when you make a sale, link what you did with your eyes and decision-making to the actual sale. Coming to a retail store, you saw -- robotic helpers in everyday life. Radical new electronic display devices combining wide functionality and interactivity, almost anything your mind can turn itself to is going to be out there.

We just briefly touched on these all-pervasive, track-and-trace technologies. Many of these available today, but with some of the firms [ph] doing now, we have the advantage of making it really, really cheap. And because it's really, really cheap, it's really, really doable everywhere.

Voice facial and biologic recognition in individuals everywhere. They'll condition and activating your home, your office, your car, everything, everywhere. Big Brother is really going to be watching you. And so there's kind of an Orwellian change in the life, I think, that we have. Obviously dedicated, I think, to very positive things. But ultimately, it will affect who knows what about you, where you are and so on and so forth.

Here is a path to less positive issue. I think that we're going to have to be in a position of persistently high unemployment for a long time and the -- always what follows on that are the building of the black economy, crime, social dislocation and I think again rapid acceleration of petty crime in the United States. Again it sounds kind of bad, but it's a business opportunity for a company like 3M oddly, given the kind of things that we're in.

Cleaner air. We know what happened over the past few years, cleaner water, safer food. All of these are big trends -- megatrends in the world. We're in every single one of them and -- but we intend to make great business out of them.

Custom-made replacement organs. We actually had one company that recently came to us, seeing if we invest in this, we haven't decided what to do on this right now. But very important, I think, development for the future of medicine.

Bionic implants for hands and limbs. We've a couple of examples of these, really quite remarkable changes. But I do point out for those that who can afford this. So lots of stuff, electronic, medical, tracking, asset usage is going to be very important going forward.

And we've got a little booklet that goes over many of these sorts of things that -- and we send -- I know we sent a little gift out to you guys, I think, in a bag, Christmas present to our supporters and investors. And you see this in here, a very interesting book that will go over many of the details of these segments, wonderful, wonderful new opportunities that are being identified and even some big segments of our business.

Natural resources, obviously, changing types of consumption. Government, lots of rapid technology changes, shifting demographics in various parts of the world, towards Muslim religion and also toward Hispanics as an ethnic background. A lot of nasty stuff we're working to hit this year, wired everywhere and obviously, the continued emerging markets that's unfolding in the world. Every single one of these has got massive opportunities behind them. And we're pretty much in every single one of these right now, or in some way or another.

If you see this, this is what we call Smart Grid, 12% growth; biocompatible materials, 6%; nanotech drug delivery, 37%; dynamic glass, 65%, ultra light materials and transportation, 25% (sic) [20%] growth; biopharma, 11%; bioplastics, 11% (sic) [17%], power harvesting, this is wave power, the next new thing out there; low leakage water systems -- did you know that 50% of the water into your system leaks, when it comes from the water treatment plants, 50%. And the quality of water delivered to you is absolutely horrible. If you saw the pipes that were delivering water to your home in New York City, you would just only buy bottled water. I can absolutely assure you from here on in. And you're bathing in that, too. We've got a lot of work going on here in very advanced mathematics that extract information from data that you're recording about your body; desalination, intelligent transport. All of these huge growth rates that we are beginning to enjoy and piggyback.

Just going back now to this position of growth. How do we go about reducing all of what we've told you down to a subtractical detail level.

And Inge now is going to give you a little rundown about we are going to make this idea into reality. Inge?

Inge G. Thulin

Good morning. I learned immediately -- for I threw a bottle of water, immediately when George made that indication I've heard. I'm a very fast learner. So that is important, isn't it? So good morning. And it's a pleasure to be here.

What I will do here in the next 30 minutes or so is to talk a little bit about the operation relative to how we will operationalize our strategies. And the way I will do that is to lay it out and talk about 5 building blocks that we use in order to make sure that we can come and execute the 4 strategies we have laid out in order to drive the vision, which is to become a USD $50 billion business that you saw -- showed. And it's about our business portfolio. It's about our capability in terms of research and development, meaning an outcome of innovation. It's about marketing excellence, which an important part of our commercialization. It's, of course, about manufacturing and supply chain in order to get closer to the markets and the customers and then the talent pool that we use, which is important all over the world for us.

So the way we look upon this is we've heard about the $50 billion that is our vision here, and the 4 growth strategies that we have laid out since 5 years and are still in place and are working very well for us. We are laying on 5 enablers, which are very important for us in order to be able to deliver on our growth strategies and also to drive operational excellence. And I will talk them through today with you one by one in order for you to get an understanding of how we are working them but they are, of course, about our portfolio and prioritization and resource allocation, which is the basis for all planning. And we'll talk about world-class research and development, which puts 3M in the middle of the plan for everything we do. We'll talk about marketing excellence, which is very much connected in terms of our capabilities to deliver on the plan and then how we are building out supply chain. And then finally, we will talk about a very important piece, which is around the talent pool around the world. So think about it as enablers driving the strategies coming through the $50 billion vision that we have by 2016.

So let me start to talk about the portfolio prioritization and make the comment that we have an outstanding portfolio, both from a geographic perspective as well as by business perspective. And I would talk about them one by one in order to give you a feeling relative to the capabilities we have. And I think it's important to recognize here that we have 68 wholly owned subsidiaries around the world, and we have 35 to 38 divisions and business units that are working together in order to execute the plan.

So let me start with the business side. And you can see here, our biggest business is Industrial & Transportation which stand for 32%, followed by Health Care of 17%. Consumer & Office and Display & Graphics are 14%, both of them, and then you have 11% to 12% in between Electro & Communication and Safety, Security & Protection Services business.

So let me start with our biggest business, which is Industrial & Transportation and a business that has been totally rerun during the last 5 years. And as you can see here when we go back to 2007, we had a business that was $7.7 billion. And this year, we would be over USD $10 billion to align this business. Just remarkable way of growing. And you can also see that in the recession time, that we immediately -- 2010 came back and over-performed to the 2008 performance, which means that we get, of course, we're not immune for the economy. We get it down, but we got out very, very fast. And you will see in all the businesses here that, that is what is happening except for one. But it's important to look at one and to say, "Well, we look at that biggest business part, it's around 7% CAGR as we move ahead.

We have continued to strengthen our platforms in adhesives, tapes and advanced materials. And you heard what Chris talked specifically around his business in abrasive, that he lead before. There is no doubt when we travel around the world that I'm doing a lot, that our relevance into this space has changed dramatically during the last couple of years due to a combination of more new products organically from us and acquisitions we have made.

The most buildout in high-growth markets is renewable energy and filtration, and we are, of course, expanding our footprint into developed economies. As you know, developing economies, that they are coming very early in that cycle as an investment relative to manufacturing, as we know. You can also see the portfolio in terms of geographical split here. And you can see the biggest divisions here, as we have it in the portfolio.

Now if you take what Chris talked about, it's very important that some of those elements in our relevance are really changing our relevance into customer basis. And you look at one market, which is around automotive -- have been totally changed for us in the last 5 years. The relevance not only in auto to be able to get content on cost, which are probably today rates 5x, is also the way we can help automotive industry in terms of the manufacturing processes.

I mean, it's a perfect the business for us when you start to think about it. This is a business that's moving globally, and we are everywhere around the world. It's a business that try to really drive research and development in order to go for lightweight and fuel efficiently, which we can help them with and it's a business that's really have big needs in terms of innovation, as we go ahead.

So very good for us and a big opportunity. It's now today led by an individual with a name Ishi San [ph] from Japan. But this business is really global and is paying very well for us. And you can see our business in terms of -- what we can address in the period ahead, we believe we'll go from $19 billion to $24 billion. So very important part of the Industrial & Transportation.

The second biggest business and very strong franchise for us is Health Care. Very good margins. And we have a very strong position in what I first of all will call hospital supply, which is a combination of the infection prevention and the skin wound care. We are also very strong in oral care, where we have had 3M there for a long time. And then in the auto businesses, we have added through to Immunitech this many years back and now added Incognito in Germany and Abzil in Brazil. We are building out this business very well. And then you can see that we have some smaller businesses, but growing very fast and big investments going into food safety and health information system.

You can also see here our portfolio is very strong in United States and in Europe. Meaning we are very strong in the developed world, really big opportunities in the developing world. And when we look at quality in terms of how businesses are building out in the developing world, I said industrial will go very early in that process. Health Care and Consumer & Office is coming later.

So here's a huge upside for us as we go ahead relative to Health Care as I said. If you take the hospital supply combination of infection prevention of wound and skin care, the acquisition we did recently which is around patient warming is really paying off very well for us. It is going into the division around Infection Prevention, and it has to do with patient warming that it try to keep the patient at the warm level in order to make sure that they avoid costly infection on the surgery phase.

Good position in United States, and they start to take off very fast in international market as well. This is a regulated area, in a way, but the developed economies are now coming up to this as well, and we see that specifically in West Europe. So this is a good play for us in order to really get the bigger play into Infection Prevention and wound management, in addition to be able to grow in the developed world, which is an important component for our business.

Consumer & Office is a business for us, where we have a very strong position in United States. And we have built a very nice position in Latin America. And we're underway to do the same in APAC, specifically with the investment in China and India. Europe has been more of a challenge for us due to a different competitive landscape. And what we have done recently, in fact, made an acquisition in France with a company called GPI Group, which has been a do-it-yourself market, will be a very good platform for us not only to expand our business in France, but broad based into Europe.

It's a business that is growing in this period. You can see again here, it came out after recession in 2010 from 2009 and over-performed in a year, so very good performance. And I would describe this as a business that we at all time talked about Post-It, Scotch Tape, Scotch-Brite. Today, I think we can add Filtrete, Command, ACE and Pintoura [ph]. So we have expanded on a global base with some new categories and new brands that are really strong that we can capitalize on as we move ahead. And big opportunities again, of course, in the developing world due to the fact that's where you move early on in order to build brand assets and positions.

Safety and Security and Protection business is a business that we have build out to acquisition very much here in the last couple of years and been very successful. And we have done multiple acquisitions, specifically in the security plate. And you can see here, we had a very clear strategy to expand leadership position in Personal Safety as well, which we have done.

You can see again here very strong position for us in United States and in Europe. These countries and regions that are regulated, where safety and protection is very important. The beauty for us here is when we have a strong position here as many of those companies are moving overseas, we are with them. But this is a global business, if you like, and we are able to capitalize on that.

Now what we have done here is in the last couple of years, we have made a couple of very good acquisition, Aearo is one, and in Aearo family, there is a very strong brand with the name Peltor. So you take Aero and Peltor and you add it to Vernel [ph] that we did early 2000, we have a very strong position now into what we call work safety market. And we are now starting to capitalize on that, and be able to get -- we have a totally different footprint when we talk into those global customers. As I said earlier, they are moving around the world, and they would like to work with someone that they know and trust in this very important space, which is safety and protection for individuals.

Display & Graphics has a couple of components. Commercial Graphics is doing very well with personalization and corporate identities, a business that has been growing very well the last couple of years and moved up dramatically relative through the relevance. Data business, TSS, which has been through license plates and traffic signing, had a slower growth, very much at this point in time due to control of the government relative to funding of the roads, et cetera. And then we have the optical business that you all know very well where we have 2 components, one is, of course, the TVPs that David will give some figures on here shortly.

But we have another piece of that business that is growing very, very fast that is going into handheld. This business has a very high NPVI and above corporate average, which is very good for us. This is a business that is driven both on technologies and cost out. And this team have done a tremendous job to do the cost out and to be able to come with new innovation as we move ahead. And we believe that we have such a high NPVI in this business about corporate average, that is something that is very good for us as we move ahead because everything in this space, when you come into consumer electronics, will be driven by technology, innovation as we move overhead.

The same is for Electro & Communication, which is in fact has the highest NPVI in the company. And I'm sure you saw from George's chart, and I will show you in a second that all the activities account to 40% NPVI. This business is already at 41% as we speak, very good. That means that this business is really connected globally with the customers, meaning already speckling in, working the new solutions for the future. And as you can see it, key account coverage on a global base is the key in order to be successful in this business.

It's also a business that is very big in APAC due to the components of it. But you can also see here in some of the businesses, specifically as for -- Steve's talked about, which is the electronic market that we have done some big investments relative to ACCR as we move ahead. So in business that if you think about the way George talked about it earlier, at the moment, capital reset a little bit, that will come out very fast. And the good thing for us, at least as I see it and we see it as a team is that we have such a strong connection with the customers around the world and such a strong pipeline and execution on new products, that is a very good sign for us as we move ahead.

So those are the comments on the 6 businesses, all doing very well, very strong presence in each market, very good margins. And I would say during the last couple of years, which I will phrase as the last 5 years, have really shaped up our competitiveness in all of the markets.

When you look upon it from a geographical perspective, you can see here United States is our biggest geographical area. And I've had the pleasure to also lead United States in 1st of May this year. As you'd probably recall, I lead international for almost 8 years prior to I took this position. And I'll just say it's something that I've looked into more carefully during the last 6 months. And in terms of pushing for effects [ph] you can see here, it's 35% of our business, meaning the biggest geographical area followed by Asia that is now very close with 31%, growing much faster, higher profit and very interesting, of course. And then you can see Europe, which is including Central East Europe and Middle East and Africa 23%, Latin America and Canada 11%.

Let's start with APAC. APAC is a big portion of our business. And you can see again, here the way we had build this out going back to 2007 of $6.6 billion, and we estimate this year that we will be over $9 billion in revenue. We have worked a lot with pyramid expansion in that part of the world, because there's multiple peers that is very important for us. We have regionalized manufacturing and supply chain. And we have a lot with research and development in the local base, buildout was very strong laboratory in China to specifically, but also start now to be about in India. But there are many places out there in Korea Taiwan, et cetera, where we have had businesses for a long time.

Of course, China will be a key element in the growth in the next couple of years, and it will also be a key for the growth short-term, meaning they are key to the economy and what we do as companies in order as we go forward. We can also see that of course, at the current time, what happened in Japan and now Thailand is, of course, tempering down real short term. But for us, we look upon this longer term and the capabilities we have. And you will see here that Southeast Asia will, in addition to China, build up as a very important element of our growth as we go ahead.

Now when you look from figures we have here for IPI, which is coming from global insight on November 23, the way we have build the plan going into next year, we are more cautious than IPI for a reason that George talked to, right? So we build a plan here where we are saying operational excellence key for us in order to be able to really deliver what we have said we have to do. And we will force as much growth as we can. But as long as we have uncertainty, we are building a plan we know that we can deliver. So you can see those figures slightly higher than we have built in. Just coming back to exactly the way we looked upon it as George slated out in his presentation.

Latin America, very strong position for us. You can see again here over USD $2 billion business. We estimate that to go to $2.6 billion meaning in this time period from $1.7 billion to $2.6 billion. Very strong leadership. And I think you saw Ross Miller here last year or the year before in terms of laying out that plan. And we are doing very, very well in Latin America, seeing that as this fantastic combination of entrepreneurship and operational excellence. And here again, we're able to drive very, very high margins in this part of the world and once again, coming down to local leadership, power to know what to do and do it in the right time.

We have strengthened our new product pipeline. We have built out laboratory in Brazil big time, which was important for us in order to capitalize an opportunity. And we have, again, accelerate our penetration for the pyramid strategy. And I will talk a little bit in the second relative to the pyramid strategy on what we are doing. And we try to be self-sufficient from the regional perspective. And we try to be that all places as we move ahead. But it's important that they can have the capabilities in order to produce and deliver locally and also have the research and development capabilities to develop solutions that we needed for that part of the world.

The economy, in fact, is relatively stable when we think about it today in Latin America. And growing middle-class very loyal and a good thing for us to capture, and they are very pro-American brand. So most of the things he is doing very, very well for us. And as I said, a very, very competitive team that are proud to work for a company like 3M and an American company.

Now Europe is slightly different, as we all know. And here, I'm saying Europe and I mean West Europe, Central Eastern and Middle East Africa. I've been here every year for the last 5 years. And 2 years ago, I told you that we were thinking of splitting out West Europe and Central East Europe and Middle East. That's more than 2 years ago, if you start to think about it.

Last year I told you we are doing it, but now I can tell you we did it. So in a way, we have been 3 years ahead of thinking what do we need to do different in Europe in order to cope with the situation. So what we did, we took West Europe, because that's a different growth [ph] and in Central East Europe and Middle East, and we split it out a year ago. And we have already seen some incredible benefits from that, because it is 2 different models with a fast growth Central Eastern Europe and Middle East and Africa, very slow growth in West Europe.

What we did at the same time as we split that, we also regionalized West Europe. So we had 20-plus subsidiaries there. And what we did, we went to a region in Nordic. We went to a region in Iberia. We went to a region in Benelux. We went to a region in Alpine. That's a big deal, because what is happening is if you take Nordic for a second, you have 4 wholly owned subsidiaries with 4 managing directors and 4 key operating committee members, that felt heavy on the front.

Today we have one managing director, and we have 10 people in operating committee. We have done that all over Europe in order to spring fair management, because in a lot of way, you get the stronger management probably and also reallocate some of those monies to be able to execute in the local base. So one of the challenges in Central West Europe is and what is very local, they speak local languages, so you need to be able to execute on the ground, in fact, to eliminate unnecessary layers in the organization.

The savings for this the first year for us is USD $10 million. And we believe in the plan moving forward here is from $70 million to $80 million. So we talked about it, we had an idea and suddenly ready to go. I'm here today to say we did it and it's working very well for us. Now it was very good that we did it, because there isn't much growth in West Europe. It is a market that we all know is that have some challenges. Still, it's a big portion for us. We have been there for a long time. We have very good teams on the ground.

And it's another thing that is very important for West Europe, is it's the home of 40% of the top 100 highly global companies. Big companies have their headquarter in West Europe. We will work, and we need to work with them.

And a central fourth leadership particularly in Automotive, aerospace, consumer, renewable energy. That's what is happening. We do a lot of certification. They demand a lot of things in terms of things for the future around the world. And by 2016, we still expect to be 20% of the GDP globally. So we will there, and it's an important part for us.

And I talked to you what we have done recently in terms of regionalized organization, driving innovation in the spaces that we believe we'll be and had a cost-effective manufacturing supply chain in place. So very important for us. Now you can see here the growth rate, if you look up on this period, not so impressive, but we have not lost market share.

And I've been traveling a lot in West Europe the last couple of years. And I think some of those buildouts that have been done in the businesses including what Chris talked about with Winterthur that have brands like Sleep Naturals [ph] that is made in also well-known other places around the world is just giving us the total different footprint there and relevance to talk to customers, so very, very important.

If you take Central East Europe and Middle East Africa, we are growing double digits, doing very well and even rolling into the plan next year, as you would see from David later. We think about 8% to 11% for Central East Europe and 12% to 14% in Middle East Africa. Smaller region, but very important for us relative to growth.

Now United States, the biggest geographical area for us, the biggest economy in the world. We have looked upon this, and we have challenged ourselves very much in order to develop very comprehensive strategies to United States and go after the globe here. And when I look at one, as I said the biggest economy in the world, and so the biggest geographical area. To put it in perspective, the 10 biggest cities in the United States are the bigger GDP and Japan. Japan is the third biggest economy the world. We have a very well educated and innovative society here. And we, as a company, have all capabilities in terms of research and development and manufacturing here.

We will drop to this big time, and we have put a lot of teams in place in order to revamp the strategy for United States. And you can see here that we have a plan that I think is very realistic, because we need now to form up the strategy before we really take the next step of execution. So very exciting for us relative to that business. So that is throughout the portfolio in terms of how we look upon it by businesses, mixed businesses and the geographical area.

Let me talk a little bit about research and development, which is a key component to 3M and has been the center of the plan, because there's multiple thing that is important here. That's -- one is, of course, output of NPVI, the other thing is this is also the reason, one of the reasons why we can maintain the high margin as a company. And I think it's a remarkable journey that we have done since 2005 where we've gone from 21%, and today we stand at 32% and Angold [ph] here is 40%. And this is a combination of everyone helping and moving in, some to a higher rate than other. And that's based on the market area. And so for is Electro & Communications is already at 41%, because that is what that market require. Some other businesses can run slightly lower, because there's a different type of dynamic in those market. But it's a very important element, and it's something that will remain the piece for us as we move ahead.

Here is the platform that we are working with. And under George's leadership, we really reinvested in 6 of them in order to really ramp them to the next level. And that was around adhesives, advanced material, ceramics, films, micro application and non-woven. Those 6 brands, in fact, helping out 80% of the company's growth. Well sales, not growth, company sales. But very important that they became re-ramped and we did that and George pushed big time in order to take that to the next level. And I think that's now why we see an incredible output relative to our innovation capabilities.

And there's many things that we can do, one thing is, of course, around sustainability. And we have a fantastic opportunity as a company to on the commercial side capitalize on this. And the reason is, first of all, you can see many things have gone on already, and that I cannot visit one single big customer on a global base today that not have sustainability on the top imperative for the company.

You go to consumer electronic, you go to beverage, you go to automotive, wherever you go, there's one of the top elements that they are driving in terms of finding the solution. And you can see here, we have already some really good work going on in energy systems, work going to CO2 recycling biofuels and bio-based products. And it's a combination of platforms that is moving this to a solution for them. So it's very exciting. And it's a huge market, exactly what 3M should bring in.

Now why this is so good for us is also we have very high credibility in this area. So if you look upon that one, that's about the commercialization side. This one is internal processes. Do we know what we're talking about there? We do. We do not need to come with a tagline and talk about this or that. We don't need to change the 3M red logo to a green logo in order to send a message. We know how to do this. As you can see, we started way back here in order to lay out programs and the 3 key program, which is around prevent pollution pace was a big thing and still working for us and you can see even [indiscernible] today, we still getting now very good awards for the work we're doing. And I think in front of you, you have an example of a product which is a real strong franchise for us where we basically changed the whole composition of that product in terms of going for more friendly pieces in terms of both paper and adhesive. And we took that on with one of the biggest brands, big sales, good margins and we made the change. So I think you have that in front of you. So very important and it is in our DNA, if you like. So when you think about it, the platforms or the basis for us the whole time is NPVI and it's all here in the middle of where we need to have the connection with the customers and do it both globally and locally. That's the type of engagement with them that we have to work in order to find out the best solution for global customer that we can scale around the world but also the opportunities to do it locally. Today we have over 80 labs, we have over 30 what we call CTC, Customer Technical Centers, all over the world. They are key in order for those smaller countries to be able to link back to the technology platform that we are working with.

So of course, research and development and innovation is very important and key, but they work very, very closely together with marketing. And marketing excellence is something we have ramped up here lately and the reason is that the competitive intensity have increased quite a bit. And for us, of course, we know the traditional competitors emerging or coming, and smaller companies initially that are building out their position in either far more East Germany, then becoming strong in East Germany, then becoming strong in West Germany, then becoming strong in Europe, suddenly are the global player. And then, of course, the nontraditional which is coming [indiscernible]. So we have 3 things that we have executed in order to mitigate this. The first one is the pyramid strategy in order to defend with competitive platform. It's the e-commerce and that is to use the sign as a competitive advantage.

Now let me give here a couple of comments relative to the pyramid and George talked about it that we laid this out initially. Well, it's very much a defensive strategy. You'll recall, we were very much playing up in this part of the pyramid and we had competitors coming in and try, and in some cases -- I mean in some cases took the market share from us and we, in many cases maybe left the market and started a new pyramid. So we started to lay out a broader base on the business in order to make sure we could defend ourselves. That is how we started and you can see I'm using respirator as an example. And what we also did at the same time was -- an important thing here was not to go down the pyramid. It's not to take the same product and try to commercialize them down the pyramid, there's a different component in different parts of the pyramid relative to the importance. So what we did at the same time, we developed this model, which we called competitive platform, which around cost, customer service, technology distribution, brand and marketing and people because they are different in different parts of the category.

So what's important to do is, just to make sure that the business has thought about it and also that we, as a management, could challenge anyone that tries to move in the pyramid. And as one of our colleagues are saying, you should earn your right to play down here. You need to have done everything right up here in order to be able to play here. So we take this premium tier, in the premium tier, first of all, all platforms are, of course, important there are some that are more prime for that specific segment. If you go on the high-end of any tiers, what is important there, in terms of differentiation, is, of course, technology, brand, customer service and people. They are very, very important into these elements, that is where the differentiation would count. And that was very much, to be honest, where we had played for many, many years, for this 109 years of the company. So to us, it still is important, but we have technologies, we will win.

Now, as you move out in the pyramid, [indiscernible] becoming slightly different, it's less about technology now suddenly, right? But it's still about brand and marketing, it's still about service and how you go to market. And costs, for us, now start to play a much more important element because we need to maintain the margin. And then if you finally go to Tier C, simply you can say cost distribution and customer service. In some cases, brand doesn't mean anything, right? Technology is not important.

So while we have that, we'll lay this out in order to make sure that in every tier of the pyramid, we are profitable on the same level as well in the top of the pyramid as in the end of the pyramid.

Now as we have worked this for a couple of years and I think the evidence is there if you go back and look upon the chart [ph] in terms of being able to maintain margins, as we move to the next step, we see now one more element coming in play to our competitive platforms and that is around design. And design is important for us not only the retail space, but in many spaces where we are operating. You go in the respiratory business. You go to dental business, et cetera. There is a big element of design and design will be pulled right in between technology and brand and marketing. We would see around, relative to that, then we will talk much more about it, at least internally. The important thing is what the customer will see. So that is around marketing and R&D.

Then when you look upon manufacturing and the footprint, almost 70% of the company today is outside of the United States. And of course, we need to be close to the customer, close to the market and we have built out this during the last 5, 6 years in quite some big pieces. And you maybe recall, I will show a slide shortly I call about SuperHub's, we will build out factories that will be able to produce USD $400 million for multiple divisions or more in order for us to keep the cost and drive synergies. And this year, 2011, is the first time in the company's history where more than 50% of the capital investment is going to international. It took a long time to come there, right? But the point was also after this point in time, we didn't need to take that last step for reasons that we still could utilize some of the capacities we had in the base, plus we were maybe not ready to execute in the execution of the plan. It was not a question of money, it was more a question of are we ready? Do we need it? But you can see here a lot of expansion of course out of the emerging market. Now when I talk about those SuperHub's, this is what we have done. We built out 6 of them in the last 5-year period and we have a plan for another 6 of them as we're moving forward. And you can see where they will go, they will go to emerging and developing countries. They'll go Central East Europe to Turkey. We'll go in Brazil. We'll going in to Southeast Asia. We'll go to India and to China. So investment in fast growing area and make sure that we get leverage as we move ahead.

Now this company is a company that tremendously strong relative to operational excellence and we're using something we call business performance system, BPS. And the key of that is for us to make sure that we really look upon all efficiency that we can do in an organization and it's everything around supply chain, timing, it's all around indirect cost, and on [indiscernible] rationalization, et cetera. But we're working this pretty hard and it's very and I think it's becoming even more important that we have some uncertainty in the economy now, we go here big time, right? In order to make sure we prevent any slippage in the system. And you can see Lean Six Sigma is a very important element of this in order to come here and this is just into our DNA. We're doing Lean Six Sigma every year, and you can see we have over 7,500 product on a yearly base that's addressing both cost and cash. And you can also see here that this have -- you see on the steady pace, it's very much the same level and these have saved the company billions of dollars [indiscernible] in 2006, right? And as you remember, we talked a lot about Six Sigma in the company, now it's Lean Six Sigma, very much into manufacturing, supply chain and so forth, which is working very, very well for us. And here's a couple of things that we, as a team, have laid out in terms of focus but we tried to take this from what I will call soft initiatives into harder [indiscernible]. We will look upon cost of goods sold and we are globalizing that as a challenge to all businesses, to the uses. We will reduce cost of poor quality, COPQ. We will improve cycle time and we will continue to drive for tax savings. In the last 5 years, we, in fact, have saved $1 billion in tax savings due to good planning. There's still a way to go and we need to go after that and we will. We improve business processes, we are yet in the process to layout an ERP from SAP and David Meline will talk about the benefits from that, what we're doing. A big driver for us relative to efficiency and then of course, we are always driving for increased employee productivity, which is the norm of the company. But also important for us as we move ahead and stepping up, I will say, to operational excellence and moving some of soft initiatives to hard objectives.

And then finally, what about human capital planning? Well, it's a very important part of us and local markets require localized talent. It's very important. We need to have an organization that understands what is going on in the local markets. Then being in 68 countries around the world, we have really a localized market. We have been driving our localization strategy in the last 5, 6 years, in terms of leadership, which have made a huge difference for us. We have people now around the world that speak the language, understand the culture, empower to make very fast decisions and in times like this, you would need to have someone that understand your market and are empowered to make fast decision when things will happen. So very important. We are committed to leadership and one of the things that I think George did very, very well in the last downturn, he made very clear to us as the management team at that time, there were 2 things that will not be compromised in this company. And I will still remember that meeting we had at the time where we had all of these brainstorming on what should we do now? George made 2 things very clear. We will not touch research and development and we will not touch development of people that [indiscernible] this company. And if you start to think about that is the future, right? That's the future. Around the people and research and development in terms of new innovation. We will do the same. We have had a lot of recognition here as you can see relative to our development program around leadership. And you can see what we did in 2006 because we had an award, but you can see what we did here and what we would do. And it's about training around entrepreneurship and growth, it's about training about even more growth and it's also training around competitiveness, right? Because this is -- when you look upon it, this is a market share gain in many places and we need to be very competitive and we will not lose. We will win.

So finalize here in terms of what I'm talking about through operationalizing our growth strategy, we have a very solid plan in place. We have broad-based innovation which remain the center of the plan. This is the key for this company and will remain in the center of the plan. The international expansion is an imperative and we need to continue to do that and we will shortly announce the capital [ph] of more small subsidiaries around the world and U.S. business strategies revitalized, that's an important part for us, the biggest geographical area and the biggest economy in the world for an American company. We will not lose here, we will win here. We have to drive the competitive differentiation, which we would do through the competitive platforms, which is now 7 by design coming in here and use the building blocks as the 5 [ph] enable us to come there. And then we will create space for growth through a 3M business process system. That's how we would do it. We would drive operational excellence in order for us to invest for growth because that's the best way for us to do it. And then of course, we will have an organization around the world that is very diverse and understand and can adapt, as a George said earlier, adapt to changes very, very fast.

So by that I end here, just show the same slide again in terms of our vision, what we would like to do from a financial perspective.

And by that, I turn it over to our CFO, David Meline that will talk about the financials. Thank you.

David W. Meline

Okay, thank you very much, Inge. I think I'm the last full presentation of the day, so let's go through it. All right, what I'm going to cover is briefly just touch on our long-term objective with one chart, and then go into the 2012 planning framework as well as our 2012 capital allocation plan.

So if you look first at -- we've heard this morning, again, a review of 3M's business strategies. I think very well presented and this really summarizes in a financial context how we drive the business towards some of the key financial metrics that we pay attention to. So if you look at, first and foremost, earnings growth, we set a double-digit target for ourselves on a consistent basis. If you look over the last decade, we've delivered an excess of 10% earnings growth on an ongoing basis. Return on invested capital is a key metric that we also track in the business. We set a goal for ourselves to sustainably be at or above 20% return on capital levels and again, we've consistently delivered on that metric over the past decade and beyond. And then finally, the big opportunity for the company is really around our continued improvement of organic sales growth performance. We've got a goal here as you know, of 7% to 8% through the cycle or about 2x IPI. We're making good progress on this and we continue to believe that this is achievable and this is the right goal for 3M.

Turning to the 2012 planning estimates. We have a plan for sales revenue of $30.2 billion to $31.5 billion. That will come from organic growth level of 2% to 5% in 2012. We're planning on sales to be -- pricing to be flat to positive 1%.

Currency we think will be a headwind in '12 based on the rates that we're looking at right now, so we've got it at minus 1% to 2% next year. And then finally in this revenue forecast, we've included both a 1 point increase from acquisitions that have been previously announced, as well as we've made a provision for another 1% to 3% additional sales revenue, which relates to the capital that we've set aside for additional acquisitions that we haven't yet identified.

From an operating margin perspective, we've set out a goal of 21% to 22.5%. So if you look on an operating basis, a 1-point improvement year-over-year on our margin and we've also provisioned here for unannounced acquisitions which would roughly pull down the margin we estimate by about a 0.5 point.

Tax rate, we expected 29.5% next year and the resulting GAAP EPS of $6.25 to $6.50, which if we exclude the pension headwind, will be an EPS increase of 7% to 13%.

If we look at this roadmap, which is basically translating those assumptions into our EPS walk, here we see the walk from the current guidance of $5.85 to $5.95 up to $6.25 to $6.50 for 2012. And we've also included, to give clarity around the point of margin, we see that coming from the combination of selling prices versus raw materials, productivity and also included there is the pension headwind that we foresee.

So now I'm going to go through each of those components of earnings. So first of all, organic volume. As I said, we've got a plan where we expect to see 2% to 5% organic volume growth in 2012. And you can see that consistent with what, in particular, George talked about, we've laid this out at the high-end, the low-end of the range. So first of all, if you look at our outlook for IPI, we've got at the low-end range bracketing 1% IPI growth globally next year, and at the high-end, as high as 3.5%. In those environments, we would expect inventory transients. In the event of a low-end type economic situation, we would expect inventory transients impact us negatively next year, which would impact our organic volume performance. And at the high-end, it will be more neutral for us. Share gains then, of course, is positive in both cases as we laid out.

If you look at the timing of the year, obviously the first half of the year, both because of the current economic situation in several of our sectors, as well as the comps, will be more difficult than the second half. If we further break down organic volume and here, just to be clear, I'm transitioning from pure volume to an organic local currency growth projection. So you can see 2% to 6% for the company, which is the combination of organic volume of 2% to 5% and our selling price is flat to positive 1%. So if you look at the different sectors, we're expecting the best growth in industrial and transportation and safety and security at a range of 4% to 8%, reflecting what's going on in the industrial economy and also the momentum that we have in these businesses. You also see Healthcare at 4% to 6% and Consumer and Office at 4% to 7%. Business is running steady and we expect that to continue. And then the 2 businesses with the most challenges right now, Electro and Communications, we've got a full year outlook of 0% to 5%. So again, a tougher first half with the recovery in the second half, and Display and Graphics at minus 2% to minus 5%.

Drilling down then on the Display and Graphics segment, what we're foreseeing next year is TV attach rate, so basically market share in this segment to remain at similar levels to where we are today at 15% to 20% of total sales globally. Other applications we see continued growth in this area, both in terms of the market as well as our penetration of the market. And if you add that all up to overall performance of the Optical Systems division, we expect to be down 13% to 16% in the calendar year.

This chart then shows what's going on in this challenging market, which is, again, we've talked about it in several of the meetings that we've been in together, but a continued shift away from the plug-in business, which is TVs to battery-powered devices which is smartphones [indiscernible] and notebooks. What you can see here over the last couple of years is we've had a shift in the market, so if you look at the plug-in devices, 63% of the divisional sales in 2010 were those TVs and monitors. We expect that to decline now to somewhat less than 1/3 of our total sales in 2012, and then being replaced by our penetration in the battery side where our value proposition is very good, where they look for thinness, display performance and battery life as being very critical. So you see the shift going on. It's been happening to us in 2011. It will continue in 2012 such that we expect that LCD TV will represent roughly 1/4 of the total sales of the division, so 25 out of those 32 points will be LCD TV. We've also shown on here, in terms of what we expect the division to deliver in terms of profit margins next year, we expect it will be similar to the corporate average in 2012.

Looking then at the outlook for organic local currency growth on a regional perspective. What we expect to see is basically bracketing double-digit growth again next year in Central and Eastern Europe, Middle East, Africa, Latin America and emerging Asia-Pacific. Western Europe, we expect we're showing minus 2% to positive 3% growth in the calendar year. And then finally, steady performance in the U.S. and Canada at 2% to 5% growth.

In terms of capital investments for 2012, we set out a plan here of $1.3 billion to $1.5 billion. This is basically continuing to drive investment for growth that we see for the business not only in 2012, but really in 2013 and beyond. So if you look at the component, if you take this split of investment between growth and maintenance-type capital in 2011 and '12, roughly 60% of our total investment is aimed at growth projects, which is up about 10 points from where we were a couple of years ago.

If you also look then on the right-hand side of the chart, about half of our growth investment capital is being deployed into these 5 emerging markets where we're building out our manufacturing base.

Foreign currency moving around a lot. This is our best estimate at the moment, which is based on November month-end rates. As I said, we expect a 1% to 2% headwind next year on our sales which will impact our EPS by negative $0.05 to $0.15 per share. You can see the exchange rates that we used here, $1.33 against the euro, RMB 6.4 to $1, and JPY 78 to $1. And these estimates include, we have a hedging policy where we hedge basically 50% of our exposure on a rolling basis, so the impact of that is included in the EPS walk.

Acquisitions. Many of you, when we visit, asked me about the performance of our acquired businesses, so what I thought I'd do today is give you a bit more insight as to what's going on in this space. So first of all, what we've done here is we've picked out the 6 largest acquisitions that we've done over the last several years. These represent roughly 90% of the capital that we deployed towards this purpose. So a little bit in excess of $2 billion net of cash and debt. The average sales multiple we paid on these acquisitions was 2x sales and EBITDA, 8.5x EBITDA. If you look then at the 2011 performance of this group, what we're now seeing is, versus the original plan that we used at the time when we validated the acquisition and then we drive towards meeting and exceeding that plan, as a group, we expect to over perform on sales this year by $113 million and over perform on EBITDA by $85 million. So we're really pleased with -- and I'll show in a minute the performance across that portfolio. I think the company's doing a really good job of execution in this area and clearly, it's supporting our strategies, solidifying the core, moving us into adjacent spaces and improving our top line growth.

So if we look then at each of those transactions, the first one being Arizant, which was talked about already in the Infection Prevention space, we've seen really good take up not only the U.S. but as this business is now being rolled out globally in our international network, we've got a very favorable performance versus the plan both in terms of revenue and in terms of operating income.

In terms of Cogent, this is the business which is in the biometric recognition space, so think about fingerprint scans and facial recognition. This business is in the safety and security segment. We're ahead on the revenue plan, quite substantially ahead of what we expected and OI is a little bit behind the plan as we've had some additional integration costs that have been pulled forward from the 2012 period.

The other one, Winterthur, Chris talked about Winterthur. This is the transaction that took place in the spring of 2011. Very good performance versus the plan both in terms of revenue and in terms of income running ahead of the plan.

A1 is a label company based in Japan. We bought this in 2010, which gave us a solid foundation in Asia-Pacific to pursue our label strategy. We have seen very good performance both in 2010 and again in 2011 in terms of exceeding the sales plan and also exceeding the operating income expectation.

Attenti is a business in the track and trace space. It adds to our RF tracking capability. We did this transaction late last year. In this case, what we've seen is that the funding available for these types of projects from the government around the world has been running lower than we expected, so we're running somewhat behind on both sales and revenue. And we're working hard right now to integrate this business into 3M and we've recently rebranded it to 3M because we can see that's an important component for our sales success going forward.

And then finally Alpha Beta, which is a Taiwanese tape manufacturer, we did this transaction early this year. It's running very successfully, again ahead of sales and operating income.

So looking forward, we believe that it's appropriate for 3M's portfolio to have a continued level of activity in the acquisition space. We're focused on markets and geographies that offer us good, long-term growth prospects as well as the opportunity to deliver the kinds of returns we expect from our businesses. How we go about this activity is really a combination of our bottoms up process where the divisions are encouraged to look for opportunities to fill gaps whether they'd be in product, technology, manufacturing or brand. And then we also, at the corporate level, have a top-down process looking at larger potential transactions that typically would cross multiple divisions. The hopper for us is very active right now. We haven't liked the pricing very much lately, but we continued to pursue acquisitions and as you can see, we feel very good about our success in this area.

Turning to raw materials and selling price. We've got a positive tailwind in the outlook for 2012 of $0.10 to $0.15 per share. We are expecting raw material inflation in 2012 to be up 1 to 2 points as we have a number of materials that we're still seeing some level of year-over-year average cost up. We're working now as we always do with sourcing programs to offset that cost inflation through things like dual sourcing and alternative formulations of our products. If you look at raw materials, they represent about half of our cost of goods sold or about 25% of revenue. And it's a pretty diverse set, so there's no single raw material that impacts our total company results.

In terms of selling prices, we've targeted 0% to 1% positive price in 2012. If you look at the pricing that we put in, in 2011, the carryover effect of that will be about 0.5 point in 2012. And so we've ranged the outlook around that as we'll continue to look at pricing where it's appropriate, in particular businesses or geography. And I think importantly, we see that the product pipeline is critical for us to be able to continue to hold onto price and deliver in this area.

Productivity, we intend to deliver $0.20 to $0.25 per share in 2012 from this category versus the 2011 running rate on costs. Obviously with, as Inge talked about with the weaker economic environment, this is always part of the DNA of the company. But in a time like this, we tilt the balance more carefully towards cost management. So this is things like looking at the manning in our factories, challenging ourselves on discretionary indirect spending and prioritizing the new investments that we're making in the business. So again, an important category for us here in 2012.

What we also are doing, which is from a longer-term perspective to ensure our competitiveness over time, is we launched last year a business transformation initiative that's based on an SAP platform. So if you look at the business as it's evolving, what we believe will be necessary, if you think about 3M as it is now developing today and into the future, it's a very dispersed global business model. You have R&D very globally dispersed. We have manufacturing increasingly dispersed around the world and what that means for us as a company to continue to enjoy the success that we've had, we need to standardize our business processes around the world, we need to have supply chain visibility like we've never had it in the past, we need to improve our speed and agility. So we decided in 2010, we kicked off this business transformation project. When it's fully deployed, we expect that it'll deliver roughly $0.5 billion annually in profit improvement for the company and we'll see a one-time cumulative reduction in working capital of about $0.5 billion.

If you look at the deployment plan that we're setting up, we're doing this on a stage basis because we want to ensure we're managing the risk of deployment as well as the allocation of our resources. So we've got a 2-phased design process that we're working on. The first design phase will be completed here in early 2012 and then we'll be rolling out, we'll be doing a pilot in Taiwan in 2012 and in Canada in 2013. And these businesses are type of mini 3M. They've got, for example, Taiwan's got 25 divisions in it so we can replicate in a smaller environment the entire system capability and ensure that it's working properly and designed well. We also have capability in the company as we have a number of SAP implementations that exist today in several countries around the world. So we have good knowledge of SAP that's already in place in the company. We then we'll go to a second phase, we're kicking off now actually to build out the full design with the full capability for all of the manufacturing processes around the company. That'll take place in 2012 and '13, and then followed by rollouts of that design during the next several years. So we want to ensure that we're successful with this. We want to ensure there's no business interruption that takes place. We expect, on an incremental basis, to be investing roughly $600 million to $800 million cumulatively on this project through 2017, and the maximum P&L impact that's going to impact us will be in the period from 2013 to 2015.

What I would share with you, this is actually the fifth SAP project that I've championed and it's quite clear to me that this is the best one in terms of really strong engagement at all levels of the company and around the globe. And secondly you see today, coming into this late, the capability to deploy and the risk of the deployment is much lower than it would have been even 5 or 10 years ago, just the information and the capability available around the world is very good.

Pension note-type expense. Our pension team is doing an excellent job again this year in a pretty tough environment. I would mention that our pension team was named the best large cap pension fund management team by Institutional Investor this year, so we were pleased with that recognition. They've done a very good job consistently over many years. Right now we're forecasting the worldwide pension funded status to be at 82% globally at year-end 2011. This includes an estimate of a return on asset performance in the U.S. this year of 6%. And if we look forward then, we've got a $0.05 to $0.10 headwind on pension. That's based on a couple of assumptions here: One is the returns that we get in '11; secondly, we are assuming here that we close the year at current discount rate levels, which is at about 4.4% in the U.S. which is down 84 basis points from the end of 2011; and we are also reducing next year our assumed return on assets by 25 basis points to 8.25%.

So next year, we're also having our capital allocation plan. Also, I'll show you the expectation of deploying $800 million to $1 billion towards funding to ensure we -- they are tracking towards our goal of keeping the pension fund adequately funded.

Effective tax rate. We're forecasting next year at 29.5% tax rate. This is up 1.5% from our current outlook in 2011. If you look longer-term and the guys have talked about it some, a very key focus for us in the company as we build out this global model is looking at also how we do that in a way that's tax efficient. So over the last several years, we've reduced our structural rate by about a point since 2007. So right now our structural tax rate is in the low 30% range. And then what happens is the annual actual tax rate will vary from that structural rate based on the timing of closeout of audits, as well as some individual tax planning events that occur. And we continue to drive and we believe it's a reasonable expectation to drive our structural tax rate to 28.5% by the end of the 2016 plan period.

Share repurchase. We're forecasting right now to deploy $2 billion to $2.5 billion gross next year towards this purpose. And on a net basis, we're expecting that to be $1 billion to $1.3 billion. If you look at that activity along with what we've done in 2011, we expect then to add about $0.15 to $0.20 a share as a result of this activity. If you look over to the last decade, we've been pretty consistent here. We've deployed $1.7 billion in share -- sorry, $17 billion to share repurchase over that period. And our share count is down 10% over that period.

So going back to the EPS roadmap for 2012, we think it's a very solid plan. We feel very confident of our delivery in what continues to be, we think, an uncertain economic environment.

Briefly on capital allocation, we expect to have available for deployment roughly $11 billion next year, which will be a combination of our year-end cash position of $4.3 billion to $4.5 billion, along with cash flow from operations next year of $6.4 billion to $6.8 billion. In terms of our deployment of that capital, it's always our view first and foremost to look for growth opportunities to deploy our capital. We've talked about capital expenditures. We have in our plan for next year $1 billion to $2 billion on the M&A side. We've talked about the pension in OPEB $800 million to $1 billion deployed for that purpose. But we do have some debt maturing next year, which we'll evaluate at the time of their maturity but here, we're showing $500 million to $600 million of maturity. And then finally from a shareholder return perspective, we talked about share repurchase and our plans there. And then we also expect to be raising our dividend again in 2012 and we've allocated $1.6 billion to $1.7 billion for that purpose.

Looking over a longer period of time, we've got a very good track record of returning capital to our shareholders on the strong balance sheet that we enjoy and good free cash flow capability enables us to do that. We've returned $30 billion of cash or 90% of our net income over the last 10 years to our shareholder base.

So in summary, we are committed to driving sustainable long-term value. We think we have a very unique and leverageable business model. I think the company is in really good shape right now. We're planning conservatively in 2012 in what we think is going to continue to be in uncertain global economic environment. Toughest for us. We can see that the first quarter is going to be tough as we've got a very difficult comp coming up again. Our capital allocation strategy is the right one for the business, we believe, which is funding future growth, while continuing to return our cash to our shareholders.

So with that, I will turn it again back to George.

George W. Buckley

Just a few other points and we'll quit torturing you. We think we have done a pretty good job these last few years at getting this company in the kind of shape that you'd expect in a company of this quality. And we've done it systematically, we've done it creatively, we've done it energetically. And I think we've introduced a few new models, things that have attached and fixed or fixing some of the things that we, like any other corporation, struggle with. And so we think we got a pretty firm and creative base. I think most people, based on the results that we've seen in the NPVI number would say yes, we agree with you, check the box, you've done a good job of rebuilding R&D.

I think we've done a magnificent job of implementing [indiscernible], I believe to say, implementing our localization strategy. This is in manufacturing, it's in leadership, it's in supply chain, it's in R&D. We are putting the resources where the challenges are for all the right kind of reasons and learning how to compete in markets that most companies that we come across don't know how to do. Many, many more competitive businesses, more angles that we're trying than ever before, we think we have sustainably and perhaps hopefully never to be changed again downwards, changed the growth rate of the company.

There's a lot of internal entrepreneurship as we've encouraged people to take risks with ideas. Of course in our company, one of the things that sometimes we're asked is, "Well, how do you know when to pull back from investments?" But the model is so strange in that it's so broad-based, has so many technologies. There's few real ultimate failures in our company. You can push an idea so far down the pathway, you decide nothing will work here, you park it for a year. Someone else picks it up and takes it all down to the platform. So it's actually a relatively low-risk model despite what you might otherwise think.

You see and you know that we've won many awards with our leadership capabilities. We built that as a platform. Jim started it years ago and we continued it. We also did it in ways that we thought were appropriate. And that's also come to be a bit powerful sort of -- I think in our -- and built just wonderful operation excellence. 3M was a great manufacturer, but we've brought yet more to it and I think we've done a marvelous job there.

Where we go now is very clear. I think we're very optimistic about growth. We're still very much of view that if you want to separate yourself from the pack, you have to find a way to differentiate, you have to find a way to discriminate what you offer from that, that other people around you offer. And so we're very optimistic about our capabilities to do that. R&D, of course, is one of the principal tools to do this. And of course, it's connected also with growth and with share. This is all connected and concatenated ideas.

They will, if we do all of these, continue to build these enduring franchises that we have and make more. There's some just around the corner right now. I think our Filtrete business will become the next enduring franchise of 3M and there are many others. We'll continue with our international expansion. You know what, it's the way the world is going. If these chances are overseas, then we're going to take them. We still have some challenges in the United States and Western Europe on growth. They have proven to be more difficult to yield to the problem. Nevertheless, we're certainly seeing good progress lately in this, and that looks like it's beginning to yield to a profit. So we think our plans are going to continue to evolve and strengthen appropriately to the marketplace.

What do we see? What does all this mean, what we've been talking about today? My own personal view is we're likely to see -- we're likely seeing an economic reset, a good set downward but then a period -- a long period of rebuilding. And I think they're all sorts of consequences that are going to come out as a result of this. I think that for nations to rebuild their balance sheet, cash that they might otherwise deploy in software programs or assimilating growth are probably going to have to be used to different purposes for a little while. And that, of course, is going to set up a framework where growth just continues to ease down. And coming back to my point about producers and consumers, if consumers don't consume, producers don't produce, this is something that ultimately follows a lot of other people down into slower ranging.

The winners -- I mean, who are these companies? Well I mean, the practical matter is it's the blue chips. And if you could just send it all down, it's the blue-chip companies with great brands, great people, great technology, great distribution, great international footprint, the ability to conserve cash to convert cash and these are the people, especially if you stop that with, they thought for capital allocation model [indiscernible]. This may be a little world for a little while, but we have lower growth and the better returns through some other mechanisms. So these in my view are the words, yes, we'll get a few sort of end runners, we'll get a few fast sprinters that will come into the fact. But I think the tried and tested, tried and true, are still the ones that ought to be invested in.

And last but not least now, just 2012 in summary, how do I see this? It's going to be my talk, whatever it is, 2011, best picks for 2012. There will be no black swan financial meltdown. We may sail close. It may be very frightening as we come to the edge, but I don't think it's going to happen. We seen recent factors in China. We certainly saw the slowdown and it happened quite quickly. But we believe it will stabilize. We've done a lot of checking and a lot of due diligence, myself and Inge in particular, a lot of work on this to try to make sure this looks like it's robust. So we think growth remains positive and then rebounds next year, sometime perhaps a little bit later.

Now I showed you that chart earlier today with an absolute blood bath on electronics. But it seems if you take a look at the wafer production rate, it seems to signal that we're getting towards the bottoming. In fact, you saw in that chart there were some sort of consistent quarter-over-quarter numbers about the same growth. So we actually think that there'll be an electronics recovery that will happen in the second half of 2012, but with the turning point of the first or second quarter. What I mean by that is when you're measuring year-over-year numbers, you're going back forward. It's not until you got that sort of rule of horizontal, but you start seeing year-over-year numbers improvement. When you're at the bottom, you have begun to turn. This is where the turn happens. This is where quarter-over-quarter improvement happens. So we think this is a thing that's going to happen early in the new year and will ultimately lead to a better second half in 2012.

The irony of ironies is that the U.S., even though is slow, still seems to be doggedly delivering positive growth. We have no reason to believe at all. In fact, it's getting a little better. With no reason to believe that, that is going to go in the tanks, unless there's some other nuclear option from one of these things up here. And Japan was really doing quite well in its recovery, where all the outsourcing in Thailand has put on those kind of a spanning in the work, so to speak, monkey wrench in the works. And that will probably slow Japan's recovery a little bit. And of course, it will have an attendance with Thailand to go with it. And depending on what manufacturers decide on electronics business, automotive, Thailand may lose some of these locations and it may yet drag out the recovery of Thailand. We'll have to see.

We don't see any new major downward resets in the end market demand. But there could be a few minor negative inventory turns. Every time you see a little bit of going down, you'll see these sorts of things. But we don't expect it to be anything really tragic. But negative growth, somewhere between 3% and 4% is what we're expecting. However, there's a little bit of a racist statement here. And I make this racist statement on the basis to what I showed you in history. We actually think that worldwide IPI is actually likely worse than that currently forecasted by many of the forecasting agencies. We think it's actually a little worse out there than what people are saying. When you net all of this together, this results in 3M growth somewhere in the 2% to 6% band for next year, as David outlined. And we think that -- it's obviously a tougher year for everybody. We think that 2012 is going to be a pretty good year for 3M despite the challenges that we feel very able to deal with.

So with that, I'd like to close my remarks and turn the meeting back over to Matt. Matt?

Matt Ginter

We'd have everybody up for the Q&A. And we're kind of right on time, so that's good. So all the speakers, if you'd come up, please?

Question-and-Answer Session

Matt Ginter

George would be right back. So why don't we just go ahead and get started? So Dave? And if I could ask, we've got microphones here and we're webcast. So just repeat your name and firm would be helpful.

David L. Begleiter - Deutsche Bank AG, Research Division

Dave Begleiter of Deutsche Bank. Inge, on the U.S., since you've been charged since May, when you look back, what's in the problem for the lack of U.S. sales growth? And if you can be more direct about the improvement you're making besides U.S. sales growth to be more overseas type metric?

Inge G. Thulin

Thank you, David. Well first of all, I think my view is you need to earn your right to criticize when you need to earn your right to come with a recommendation. And one other thing that we had done is to ask every big thing to go back and reprioritize in spite to analyze where the opportunities are in United States so that's just -- and I think that they are -- and they are doing that. One other thing that is happening and this is, I would say, it's the DNA of the company. First of all, we have a tremendously strong team in United States. That's one of the things I've seen; very, very strong. They have over a year, in fact, helped international in order build out the operation. So when you think about the company, what has happened, a lot of the very strong individuals have helped us to build out business as the capabilities internationally. That, by definition, have taken away a little bit of focus in United States as you think about it because all of them only have 24 hours. Now the other thing that is a difference in between international and United States, and this is coming back to the DNA of the company, and that is about the number of products that we've been able to commercialize. If you think about this from the perspective that we, as a U.S. company, this is where we form a rate and we started operation around the world. The behavior in international was to look first to United States portfolio, take that, commercialize it, and as they win, they also start to develop their own product, meaning they have a big portfolio to stay with. United States, that was the monthership, if you like, did not have that initially. It's certainly the behavior. So what we do here, we develop what we have and we execute. We are not so good in all cases to go out to international and pull that product. If you think about that, there is, especially as we start to work in the pyramid, there's many products around the world that can fit very well into United States. So I think it's a prioritization. It's not to blame anyone in United States because they have really helped international to build out the business. And that was the right thing to do. That's where the growth was. Then they see that, that was strange. I will call it behavior, right? It's a simple process. It's not natural in United States to go around and look what is on the international. I'm born and raised in a subsidiary in 3M Sweden. That's what we do the whole time. We went out and looked around the world. What can we take to Sweden to commercialize? And by the way, what can we develop here? I think that -- and we're in the process to -- and we put a lot of things in place and put high potentials that will go out and take all the needs on businesses so far. So that's what we are at this point in time. But as we went through the strategic planning process now this year, every business was asked to come up with a defined United States plan. So we will come there. It will take a little bit of time, but I think we all are very encouraged of the momentum. We got very fast in terms of how serious this is helping.

Matt Ginter

Steve Winoker?

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Sure. Steve Winoker from Sanford Bernstein. Let me just -- a few questions to clarify on the guidance first. And first of all, for the first few weeks, what's driving the biggest gap, the biggest part of the range in your -- for the range? In other words that $0.10 for a few weeks remaining, what's really driving that GAAP. And then 2012, as you've talked about expecting second half to tick up versus first half, can you give us just a little bit of quantification or understanding of how big the delta is between the first and second half so that we're not terribly surprised in your expectation between the 2?

David W. Meline

Yes, so the biggest variation that we might see in 2011 still certainly affects features fundamentally for us and that we've seen the thing moving around and we have no ability to control that whatsoever. And then the second thing is, for us, December is always a month which is one that has some uncertainty. If you look right now what's going on the dynamics, for example, in the consumer space as to how the year's going to close, we're encouraged by what's happening. But until we actually see the year end activity, that would be the second thing is really how we're going to close the year from a sales and operating perspective.

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division


David W. Meline

And in terms of 2012, we've tried to give you a sense as to the fact that we do see more pressure in the first half than the second half. If I look at our traditional trajectory, normally in Q1, we do normally experience higher sales sequentially and an improving margin. We don't see any reason why that won't happen in 2012. But clearly, we've got a number of areas that we continue to experience pressure in and I think we need to take that into account as well.

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And then maybe more of a philosophical question, George. Given the level of diversification across the portfolio, one of the great frustrations that investors have when they -- when I talk to them is their ability to multiply unit times price and get anywhere, right? But if you look at the top 5 products that contribute today and that you see contributing tomorrow, particularly in light that you bring out a great business again today, Cubitron, and we talked about ACCR again, which down was just $45 million. With those top, which is great, but still a small piece. What in your head are sort of the top 5 today and the top 5 tomorrow that we should be paying attention to year-on-year?

George W. Buckley

Well, I think the -- you go to the biggest business, the IATD, the Tapes and Adhesives division, is a great proxy for the company as well as for perhaps the economy. Electronics is clearly in there, Steve. It's not necessarily only one division. But it's, if we include optical in that talk was quite sizable. They are clearly, Eric, you should be working for. Very positive and which has happened in recent times is the build zones that the Health Care business seem to have got into in this last year and a half seems now to be healing and coming back out, whether this is the question that people no longer waiting for procedures or costs waiting longer for procedures. That seems to have sort of broken field a little, although dental is still maybe slower than we had thought. I think just the whole Safety and Security portfolio is going to be a very good one. But just to sort of -- just to remind everybody, we are a company of divisions around $500 million. We're not actually -- we're not a $5 billion and $6 billion divisions. So a lot of small things. So if you want to know what happens in 3M, there's a lot of small stuff. And so the diversity on one hand makes you seem more complicated to decipher what's going on but it actually makes your growth risk lower. And as long as you have the same kind of attitude, if you believe like I do, you believe in innovation as a fit to some of you, right down at the bottom of my soul, there is no reason that you cannot innovate. And we see some of these examples here. There's no reason you can't innovate in the places, in coatings, in tapes, in any product that we have sold. We will continue that, Steve. The possible few things, there really isn't just single sort of bellwether that you go on. There's maybe one interesting thing that you should ask about from time to time. And that is our Commercial Graphics business. You see 3M as a bellwether on the world economy. I think it's very good to see it that way and maybe some shipping companies you could see as bellwethers too. But our own internal bellwether is commercial graphics. So this is advertising, this is science, stuff on the side of trucks, stuff on the side of buildings. And it's not slowing down, which gives us -- it's not wholly U.S. business, it is a very sizable business in the United States. That's typically our canary in the mine, and it hasn't shown any sign of slowing down. So there are some signs of optimism, Steve. As David quite rightly pointed out, we should not go cock-a-hoop about this. And we've reflected that in the forecast in a way which we've described what we face. So hopefully, we found that right kind of balance. And if we get lucky, it will be a little bit better than what we said. But there -- here and there, absolutely, nuclear hand grenade from Italy, there are a few good signs although it is still tight. Jeff?

Jeffrey Sprague

Jeff Sprague from Vertical Research Partners. Two questions, maybe both for George. First, on growth. You laid out kind of a long-term vision in the $50 billion target. You didn't talk about kind of the longer-term really organic underpinning for that. I think you used the 7% to 8% last year. Obviously, no one's thinking that for 2012 given the backdrop, but what do you think about that longer term? And is that still a realistic goal?

George W. Buckley

Yes, Jeff, it is an interesting question when we found it for ourselves. If you assume that we can get an NPVI number up to around 40, that's what the arithmetic tells you, that you'd end up with a number around that. And so the question is, can we invent enough of these segments at a sufficient rate to be able to get that? And we ask Fred [ph] that question all the time, is this a realistic goal? He tells us it's tough, but it's a doable goal. So I don't think we should give up on that right now. There's an interesting thing that happens once we get to that growth number, and that is we probably don't have to continue to spend more R&D because perhaps choose to preserve some of that cash and do other things with it. We could possibly let margins blow up a little bit. But I think once we get to that turning point, Jeff, there's lots of very, very positive choices begin to come out, having once done that. You can say well, maybe 10 will be better than 8. But I think when we get there, we'll be satisfied to force the year probably. So I think it's still realistic.

Jeffrey Sprague

And just wondering on acquisitions overall. The ones that really seem to be the homeruns are right in those 5 or 6 core categories [indiscernible] and the like. Ones that are Alpha Beta, A-One, Cogent and Attenti seem fine. And maybe it's just the way it's right and not suggested a terrible problem there. But I think this has always been one of the challenges with 3M given that although you look very, very diverse, you're kind of a set a core technologies and how do you bring stuff on to that and really make it work. If you could just address that and what your pipeline's looking like and how you might move forward.

George W. Buckley

Really the pipeline is not that much different today than it is in the past. I’d say the pipeline's a little lighter than it has been, but only marginally lighter. I don't see us -- Jeff, it's something that you and I spoke about many, many times. I don't see this company going off and suddenly getting into making golf carts or making -- I don't know. I mean, we are in the [indiscernible] business, so we probably stay out of it. I don't see us doing anything radically different. We are very good at what we do. We are very good at this core. We're very good at adding things incrementally and I think that's likely to be the pathway. Here and there there's some place, I think, that we're going to take. We're going to take some place in Europe in the Consumer and Office business. We need more footprint down there, Jeff. Here and there, there are some strategies that we've looked at to make sure that we secure the enduring franchises that we already got. It's pointless chasing across the globe and then leaving behind the family jewels. So we have to do, in some places, do more to protect the family jewels. So you should not expect anything radical, irrational or stupid from 3M. It's just not in our way, and we'll keep on chunking this model, squeezing this model. It works. It's proven to work over many, many years. And I've tried to say to listeners before, if you're able to sort of listen to the heartbeat inside 3M, it's incredibly positive. People really believe in theirselves now. People really believe they've cracked the code and know what to do. We get these sort of turbulent times, and you get these transient issues of corrections in the marketplace that mask the underlying strength of the company, but they only temporary mask the underlying strength of the company. Once they die down, you'll see the same old pattern. And I think it's very, very positive, Jeff. Thank you for asking.

Terry Darling - Goldman Sachs Group Inc., Research Division

Terry Darling, Goldman Sachs. Wonder if we can talk a little bit about winning in Asia x electronics, if that's possible to do. Can you piece out for us what you think that growth will look like in '11, where you think you are relative to plan and how you're thinking about that growth in 2012?

George W. Buckley

David may have something to say about this, but you have to sort of always remember that in a sense, Asia is electronics. So it is the world's electronic powerhouse. But having said that, I'll answer the question the way that you asked it, the growth from the nonelectronics core is still very, very strong and I think likely to continue. Now obviously in the end, if -- this is a connected system, we all know that. You can't have suddenly something going on in the electronics market and it not wash its way to OBS signal or something else more broad but for now, the industrial features of the business. Some stuff with distribution, the same way we talked about here, okay, so a little bit of that going on. But it's not as mature there as in some Western markets. But generally speaking, industrial still remains quite good in China. Do you want to add anymore, David or Inge?

David W. Meline

Yes, I mean if you look at and focus specifically on China, we have seen a step down in the growth activity in the second half versus the first. So clearly what they're doing to try to modulate the inflation going on there, et cetera, but we saw a step down in Q3. It's pretty stable. It's low single, double digits right now excluding optical. We expect that to continue into the first half of '12 and then recover in the second half. So in terms of China, we think to be pushing on 20% growth next year on the local currency basis, excluding optical, is a reasonable way to think about it.

Terry Darling - Goldman Sachs Group Inc., Research Division

And Dave, I wonder if we could follow up on the guidance for optical margins flat next year given the revenue drop that you're calling out there. Can you just tell us what you're assuming for productivity improvement? And back to the analog, it looks like maybe it's 1/3 of the total company, $300 million that you called out. Is that correct?

David W. Meline

Sorry, so it's 2 different questions or same...

Terry Darling - Goldman Sachs Group Inc., Research Division

Well, presumably the productivity benefits in optical are part of the total company, so I think [indiscernible].

David W. Meline

Yes, okay, actually.

Terry Darling - Goldman Sachs Group Inc., Research Division

How much of that total company is just coming from optical? And then what are you assuming on price there?

David W. Meline

So optical, what we see and what I would say to you is we see, with the business, we try to get pretty granular on the way that business is shifting. So we do see it. We always say we plan the LCD TV business to be in the high teens on an ongoing basis. The fact is, as you've seen, the LCD TV business is now in some way disappearing from the landscape, right, 1% of our total revenue for the company being displaced and replaced by this penetration we see in the battery-powered business. Margins, when you add up those 2, come in at around the average for the company. In terms of how we're driving productivity, I would tell you we're driving it very hard in optical, in particular in the TV space because when you have that kind of a reduction in terms of the sales volume, we don't need the structure. I mentioned last time in the call we've taken out a bunch of structure in Asia in that space already and we've got some more that we're planning here in 2012.

Terry Darling - Goldman Sachs Group Inc., Research Division

And just the price assumption in the TV side of it?

David W. Meline

Same as what we've typically seen in 2012. We think that we'll have 10% to 15% type of price down in TV. And we plan the business in terms of driving costs down to enable us to preserve margin in that context.

George W. Buckley

Just one additional note on that. In the optical business, since I've been with the company, it is a -- you almost wouldn't believe if you saw it, what happened in that business. The guys in these manufacturing firms, because that's where most of the savings have come from, new films, higher yield, obsessive drives on waste, finding new ways technologically to get more brightness out of glass materials. I don't know the exact number off the top of my head, but I could roughly make an estimate that the cost reductions that are coming out of that business in manufacturing, Terry, probably is $800 million in 6 years. $800 million, can you imagine it? $800 million of cost-reduction in a business that was ostensively only about to, as today, 1.5 or something like that. It's absolutely incredible what these manufacturing guys at 3M have done. They have made continuing presence in that business possibly. It's almost a feat of magic.

Inge G. Thulin

On your first question on impact excluding opticals, if you look at the sharp data for 2012, is the low-end is 8%, high-end is 13%. So 8% to 13%.

Terry Darling - Goldman Sachs Group Inc., Research Division

[indiscernible] improvement year-over-year on [indiscernible]?

David W. Meline

I'm sorry, say it again.

Terry Darling - Goldman Sachs Group Inc., Research Division


David W. Meline

We don't see -- I'm trying to think of where we'll land because it's been the tale of first half, second half in optical, right? And consequently D&G -- we expect that D&G will finish around the company average for the year, and that we're guiding that next year as well. So I think I would think about as pretty stable all-in with all the pieces, yes.

Krim Delko

My name is Krim Delko with Orange Capital Partners. My first question is a clarification. In Inge's presentation, you're showing Latin American sales growth is flat in dollars, in David's it's 10% to 12% constant currency growth. So am I correct you're expecting about that much devaluation, so that's why it's flat?

David W. Meline

Yes, exactly. It's a -- the differences is the currency impact because of the weaker currency next year. What I was quoting was local currency growth including volume and price, so they are consistent in that regard.

Krim Delko

And you're basing that on what is your expecting services -- it's from the dollar relative to...

David W. Meline

Yes, continued. Well, the weakness that we've seen for example in the Brazilian real and also where the peso is right now, it's -- our biggest businesses are Mexico and Brazil.

Krim Delko

Okay. My second question is, George, you're very, I guess, vocal about the government intervention. I think there's a slide also here where you're expecting that those -- you got a mega trend that is going to continue. You're less vocal about Central Bank intervention. Looks like you're almost accepting that as a necessity, looking at your Italy nuclear bomb and all that, how do you see that as an industrialist from a risk perspective, inflation and all these things that can come with that? How do you see that going forward?

George W. Buckley

Well I think I've explained that the reason I think this will be on all-in by the Central Banks or governments, whatever combination it is -- of those -- it may be all of those. I am just convinced that the risks are so -- the conclusions are so cataclysmic, so frightening that whatever team or whatever group of people it takes to push this all-in strategy, I cannot imagine it happening any other way, otherwise the world's going to fall apart. So what does that mean for an industrialist? I think it probably means that possibly, on the one hand a lot of money, liquidity sloshing through the system, while on the other hand a lot of government funds being used to rebuild balance sheet. I don't know it that one offsets the other and causes inflation or doesn't cause inflation. But I think this a little bit like, I don't know how you're feeling about it. I'm feeling a little bit like this is having open-heart surgery without anesthetic. I'm going to be worried about my fishing holiday in May once I've got through this particular piece of surgery. So it -- I don't know if the world inside of this event, if it happens is going to be better or worse. But I think it's going to be better than the alternative. So I remain positive. And I think as long as a company like ours has a great goal footprint, people are going to be buying food, people are going to be building houses, they may be building differently, they may be building fewer of them, they are going to buying electronics. So I think that we are -- it's incredibly well positioned as a company with the kind of choices we have. Just imagine if you work pure play in a world like this, and your pure play was under attack like these guys in making televisions. We're not threatened by that kind of thing. So I have a strong belief in a firm's ability to adjust, to adapt, to reinvent as that kind of relatively uncertain world, unclear world, anyway, unfolds going forward. But I think this first step of putting to rest this contagion is very important. And I think it is the way. I just can't contemplate any other action by Central Banks or government. John?

Unknown Analyst

I just wanted to be clear on the new products. And so ACCR isn't really an NPVI anymore, right, because it's out more than 5 years, so all the growth we've got there is going to be above any growth in the NPVI?

David W. Meline

No. ACCR is in the mix because on each of these programs, there's generally some conductor design that has to be done in order to create the Next Gen conductor, maybe size differences or core differences, so it's in NPVI.

Unknown Analyst

It's reinventing itself to stay in there?

George W. Buckley

Yes, it's reinventing itself on each specific location where each utility they may have a different requirement.

Unknown Analyst

Okay. And then, George, the vast model that you showed really went vertical after 5 years. Is that typical?

George W. Buckley

Yes, that's correct.

Unknown Analyst

So if you got 1/3 of your sales today from things in the NPVI over the next 5 years, on an absolute basis, those total sales will be much larger over the next 5 years.

George W. Buckley

So you won't record them in the NPVI number because they've dropped down. Shannon?

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Shannon O'Callaghan, Nomura. George, on the NPVI, getting the 40% right, that gets you to 78%. But that doesn't happen until 2016. So if we still have what sounds like your view for a pretty slow economic growth outlook, how do we get to 78% before 2016.

George W. Buckley

Well remember the way that the arithmetic works, Shannon, if you -- I'll try to make it not complex, because we think about it every day and you don't. If we separate our NPVI into 2 principal blocks, Class 3, which is cannibalization. It's replacement of existing products in the existing markets. As long as we have a number large enough to offset attrition, that just continues to level set the -- it replaces the stock that's dying off. So it will then go to the Class 4 and 5, which a number like that might be -- it depends if it's 15 stable, 15 -- it has got more electronics in the mix, that 15 would need to go up in Class 3. But let's say it doesn't for the moment. That means you've got -- let's say 15 stays stable in Class 3. I've got 25 points in Class 4, 5, you divide it by 5. It tells me that I've got a good, at least 5 percentage points above market, I've got market at 2. So we're in that kind of zone of 7% in that kind of zone. The other thing, Shannon, that actually happens is when you use this particular approach, remember the NPVI number is a retrospective look. It's actually happening today. It's not a -- in the sense of forecast of the future, it's actually a look back of what you've got today. And you make that calculation as an average over 5 years. So you're really using data, an average that's 2.5 years back. So what it tends to do is it tends to underestimate the actual growth that you're getting from the Class 4, 5. So it seems to get right in the zone there, Shannon, and is it going to be a point? Is it going to be 7 instead of 8? I don't know, and would I be wearing sackcloth and ashes if it was 7 instead of 8? I can absolutely not. In fact, I’d be dancing in the streets, so...

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

And then just on the IPI forecast, I don't remember you sort of taking a stance and differing with a forecast before like this. I mean when you think across geographies, what data is in your model that you don't think yet is in their model?

George W. Buckley

Well, it's just history in the way that those forecast happened. As I've said, you're basically using these 14 quality, 16 quality models for extrapolation. And they work fine while you get relatively slow on duration. As soon as you -- and kind of a serious turning point, they tend to underestimate the turn and by the way on -- in the opposite direction. And so when we listen to the heartbeat of the economy, I mean, we try to reduce it just to Western Europe and to electronics, but it's more than that. It's a bit of this, a bit of that, a sign here, a sign there. All the points to us that suggests that the world economy may be worse than what we're actually covering for. Then we'll have to see whether that monthly question is right and that next time global insight put out another wrong number. Deane?

Deane M. Dray - Citigroup Inc, Research Division

It's Deane Dray with Citi. Question may be -- and George can team up. If we go back to George's description of the econometric base shift model, the multiplier effect that 3x has been part of the 3M story. But I beg the question whether you might be interested in dampening that multiplier. So as you look about reinventing, you look about adding businesses and where you want profitability and what regions, is there consideration to changing the mix to reduce that multiplier which will produce some of your earnings volatility, maybe just because it negatively impacts your right now, by -- you're going to be giving up some of that curve on the upside?

George W. Buckley

Yes. The thing always to keep in mind is these occur as a doublet. You have it down, and there's always a corresponding up sometime, right? So if you integrated the loss and the gain over a period of time, it would wash out. It's the same for everybody. Although our curve would be a little bit different for different companies, however, your point is a very good one. And what would you do in order to change that? What you have to do is get out of the distribution and get into more direct selling, is really the way that you would handle that. You might get out of businesses that are, by their nature, short cycle, and go into businesses that are a little bit more capital. So you might change the emphasis there, Deane, in the way that you could offset that somewhat. And I think it's a very good point you have made. And I've looked at it and I think what we're seeing just now in this cycle is a hair trigger. If you got this end market at optimal places of inventory storage location and then the OEM over here, they can shut it off any place in between time. And as people are so nervous about the economy and watching for signs and then you get in a sense overreactions, I think in some cases, that produce that kind of thing. In the end that may well settle down and normally -- let's also admit, in former times you didn't see these -- you didn't see a 50% drop in IPI in one course. These are unusual things that are happening at the moment. But it is what you're suggesting as a way of countering it.

Inge G. Thulin

And one of those elements is distribution talks. We are pushing that hub specifically in developing economies, right, because we have one element of the business model that is in the developed world, the way we do businesses at that point in time. Now as we move out to other places, we are challenged by ourselves relative to how much do we use distribution. It's a different way for us to go to market, et cetera, try to come closer in more vertical model, right? So that's one of the things that we will do.

George W. Buckley

What really always happens, and we know this Deane, in mature models what happens is ultimately, initially the power rests with the OEM, and your sort of influence rests with the distributor. What happens over time, companies like ours and many others tend to mistake the distribution channel for their customer instead of their helper in servicing the end market. And nearly always what happens is because the distribution service trying to find some way that could be more important to the customer. They have things to take on private label, and then ultimately, they become your competitor. And so one of the things that we've been doing, Deane, very steadily now this last 3 or 4 years in AC [ph] rather that industrial and transportation division is converting more distribution to exclusive distribution. So quite a number of our industrial distributors now are exclusive or mostly exclusive. So you don't have to necessarily own them, but you have to be ready for them and they have to be ready for you, so that's another way that we've been changing modeling. Steve?

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

Just thinking about the dynamics -- Steve Tusa from JPMorgan. Just thinking about the dynamics from fourth quarter to first quarter because you talked about a tougher comp year-over-year. You got some things in the earnings that I think are going to be more evened out over the course of the year. Some of these headwinds are going to be kind of consistent quarter-to-quarter. You're comping negative on -- modestly negative on organic growth in the fourth quarter. And you said that it's going to be up. But year-over-year, given you're flattened EPS today in the fourth quarter, it -- that would imply that things probably get a little bit worse from a year-over-year perspective in the first quarter. So will you be down in EPS in kind of the first half of the year? Or will -- I just want to make sure that people understand the moving parts because it looks to me like a pretty back end-loaded target there.

David W. Meline

I’d guess I’d make 2 initial comments, and maybe the guys will add. First of all, we try to be clear with you as to -- we do view first half, second half to be a little bit of the reverse of the story of 2011 because there are a number of these adjustments that we see continuing through into Q1. As George said on the electronics bit, we think we'll see a turn Q1, Q2. How does that play through? Quite frankly, we're making our best guess on that and probably anybody can guess on that. We tried to be clear on what's happening with the other businesses. And so I would say think about a weaker first half versus second half on a relative basis. Quite honestly, I'm not inclined to start giving quarterly guidance here off the cuff because we think that would be a mistake for us. But we're trying to give you an indication, as I said to you earlier, as to if I look at Q4 and to Q1, there's seasonal factors even with the same economic environment that would cause us to typically see some improvement in sales and in margins.

C. Stephen Tusa - JP Morgan Chase & Co, Research Division

Okay. And then one of our higher level questions for George. There's been a couple of questions around the 7% to 8% growth target. By looking back over the last couple of years, in 2010, you had this kind of $0.10 to $0.20 headwind from investment in your bridge. The last 2 years you've had anywhere from $0.15 to $0.25 in productivity in your bridge. How -- and growth has kind of slowed, and next year it's going to be below that 7% to 8% rate. So just kind of reconcile the action with the P&L and the level of investment versus productivity with that 7%, 8% gross target because it just doesn't seem to kind of add up over the long term with what you guys are putting to work here from an investment perspective.

George W. Buckley

Yes. So I think that's accurate which is as we go into 2012, we look at a tougher environment. And as I said, we're prioritizing very carefully the new investments in growth. And this type of thing we tend to modulate as we see the business evolve. So we've been investing. We've had the opportunity to invest in incremental programs quite heavily as we've come out of the recession in '10 and to '11. We're looking now as to making sure that we harvest those and really see the results coming out of those growth investments as we move into this current environment. And so we're -- it's true on the balance we're shifting as to our posture as between investment versus efficiency. We look forward as we see that turn develop again. But as soon as we can, if we're nimble and running the business, we can then rebalance that appropriately because we want to ensure that we don't miss the growth opportunity because we got out helmet on and we're in the trench, so that's why we talk a lot about looking at the way the economy's developing in our business because we want to be -- we need -- given the short and early cycle nature of our business, we need to react quickly when we see the churn coming down. And equally as importantly for us is we need to be able to react quickly when we see the thing starting to move in a positive direction, even though the economists might not have picked up it yet. Ajay, I'm sorry. Ajay?

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

Ajay from FBR. George, I just wanted to get your medium-term outlook on the Health Care business in the U.S., especially in the context of pressure on providers from the reimbursement issues existing with Medicare and Medicaid. I know a lot of what you do is consumables-oriented, but still if you could just talk about growth and margin there.

George W. Buckley

I think you know that my point of view is it depends to some degree on how extensive the Obamacare gets launched. If Obamacare is -- full Obamacare has been part of our future, I think there's going to be lots of changes. I think we all know the challenge. If you have a system under Obamacare and by the way, any similarly funded -- the government-funded Health Care has limited resources and unlimited access. So the trick here is to get some kind of rationing -- rational rationing that helps. In other countries they manage to do it quite well, but I think overall what it does it just continues to put pressure on hospitals. I think we will find more hospital bankruptcies, more hospital consolidations, I think that will happen. I think the average standard of care -- the average standard of care will go down. There will be a sort of bifurcation or even a trifurcation into care types. Those with money will have the top-level care, as they've always had. The average person that's got care will put -- their standard of care will probably go down somewhat. Some things won't be available and some things will. The other thing that -- I did this in a management meeting inside the company, and I did it partly to amuse and partly to shock. I said the future of Health Care in the United States is you have a problem with your leg in the morning, you'll go to a hospital, they'll chop your leg off with a chainsaw and dip it in hot bucket of tar and you'll be home in the afternoon. Now obviously that's not literal. But the point is what it stresses is a government who's paying for your Health Care is not going to want you in a $3,000 a day hospital very long. So they're going to be -- they'll limit procedures, they will limit payments and they will want to get you out of there very quickly. So I think it -- born in this is opportunity because you can't go home with a chopped-off leg. Even if it's dripping with hot tar, especially since it's dripping with hot tar. You're going to go to some kind of a secondary care centers. So there's going to be a growth of secondary care centers in the United States. So the government is going to try to get you out of those $3,000 a day beds into a $300 a day bed. And so there's actually big opportunities in some of these secondary care centers. And in due course, they're not going to want you in the secondary care, they're going to want you home. And so there are a whole host of other opportunities -- business opportunities that will be linked to those sorts of things. Now in terms of advance, so for company like ours, that really doesn't make a lot of difference to us. We can still be at any one of those, and we see the opportunities and we're already planning and beginning to respond to them. But the people who are in the very high end of Health Care, spinal rebuilding, heart operations, hip and knee replacements, I think there's just going to be continued pressure transplants, just continued pressure on the cost in those businesses. I think that they're going to have to think in some way about a multi-tier delivery system that in a sense akin to our permit systems, but please don't take it too far. We don't want like -- would you like a first-class heart transplant or the third-class heart transplant? They're talking about those [indiscernible]. But there's going to be ways that economies can be made. It appears to be made to different -- I mean, it's just the nature of commerce. There will be developments that will appeal to the each of those segments that will be appropriate for them. So I'm not necessarily negative about Health Care overall, but you have to sort of think realistically. And it's beginning to happen, of course. If you have the U.S. economy and let's imagine it global free and you have a segment of the economy growing at 15% -- at 10% to 15%, eventually they intersect. And so I think I made the calculation 32 years out, every single dollar in the United States gets spent on Health Care. It's a completely illogical conclusion. But what will happen is that will turn and those 2 lines: The U.S. growth line and the Health Care growth line will become back on topic. So if the U.S. grows at 2%, Health Care will go up 2%. But there will be pockets again inside those Health Care areas that will have opportunities to grow -- bucket grow, especially some new inventions, I think are going to -- how do I get more from less? All of those sorts of questions that we might get asked in the industrial space. How do we drive productivity? How do we drive efficiency? All of those things are going to be features of the U.S. Health Care system going forward.

Ajay Kejriwal - FBR Capital Markets & Co., Research Division

And then maybe, Dave, if you can talk about global IT platform a little bit. It sounds like a massive exercise. So what are the risks to business disruptions? And then maybe give us some sense of that savings, the $500 million that you talked about, what are the big areas we'd get that savings from and then what's the time line on that?

David W. Meline

Yes, right. So you picked up correctly. We want to manage the risk of the implementation, hence what is a pretty extended bulk -- the design phases we chopped into 2 pieces so that we could take what are our core activities, things like -- that you have in any subsidiary where you're doing selling and you have to keep track of the financials. So we did the first tranche, which we're now finishing and rolling out and testing out to make sure it works. And then we're doing the full implementation and design where we've got all of the manufacturing processes which is, as you can imagine, there's a certain diversity of manufacturing activity in 3M. So we need to have some designs that are applicable to different industries and processing types, which we're working on now in 2012 and '13. So very much of a -- we've chosen an implementation path that limits the risk so that if we run into problems either in terms of the initial success or delays that we're not putting the company at risk in any fashion. And we'll have to adjust. What I can tell you is the plan I showed you, I'm sure it's not going to exactly be that one, we'll end up changing the implementation. Some will come forward, some will move back. But I think generally speaking, the idea that we're going to do it over a fairly extended period of time is going to be accurate. In terms of the benefits that we see, really a couple. One is if you look at manufacturing and supply chain, we really have limitations right now on the visibility we get as we're handing off in a legacy system environment across potentially several systems between the customer order and the eventual delivery of the product. And so as we get better visibility in a single systems environment, that's going to dramatically improve our capability in terms of responsiveness, in terms of understanding where we are and scheduling. And that inevitably drives not only the ability to be more efficient on the cost basis because we don't have a number of owners of inventory and production planning in the supply chain, but we can consolidate that. I mean, it also gives you a better chance to manage inventory and profitability when you get that real-time visibility. So I've seen it happen in other implementations I've done. And as I look at the opportunities in 3M, it's quite clear to me that it sounds like a big number. But I'm very confident that we'll be able to deliver on that.

Unknown Analyst

[indiscernible] systems?

David W. Meline

That -- it has to follow. No big bangs, no quarter-end implementations if you can run through systems in parallel. And by the way, you never really know until you're riding the actual horse whether the legs are in good shape. I just heard a phrase from many of my colleagues here. I've heard -- my colleagues out here. Things might go wrong at boundaries and interfaces. If you have a very, very complex system with lots of interfaces, that's the place where it's going to go wrong. So you know where the big sites are for problems. And so you're armed with a couple of insurance policies, no quarter ends, no big bangs and you know where the likely big sites are. You can read out most of these stuff initially, but it is a -- it's a long, I don't want to say painful, but it's going to last 7 or 8 years or maybe longer to get all these finished. But in the end, we will have a company that we know where things are. We can manage our inventory a lot better. We'll know much [indiscernible] our cost, we'll be able to close faster. I mean there's lots of benefits, better knowledge of our customers, just and endless benefits albeit -- much of this is about a cost of doing business, staying in business.

Inge G. Thulin

And you talked about business interruption. I think it's important to characterize that this is not an IT product by definition. The whole management specifically, the leaders of the big [indiscernible], together with ACM International, we meet monthly in order to go through the progress, understand what is going on, giving inputs, et cetera. And it sounds like a long time and of course, we do that in order to make sure we do it the right thing. So I think first of all, David said earlier that he sees a very good buy-in by management. That's correct. The other thing, as David said, this is the fifth implementation of ERP he's on, right? So I think that's one another thing plus and we're very pleased to have David in our organization. He has been there before, he can see when things eventually can go wrong and we have also hired in people in the system that have done implementation of the SIP before. So it will take time, but rather that to make sure we cover our business needs first of all, right? So that's where it is.

Matt Ginter

Well, you've been all been very engaged and attentive and patient, and we're at 4 hours. I think we're going to call it a day. Thanks for your attention. Appreciate your coming. Have a safe and have a happy holiday.

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