3M Company (MMM) Q2 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the 3M Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, July 26, 2011. I would now like to turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.

Hello, everyone, and welcome to our second quarter 2011 business review. Today, we'll review our most recent results, along with an updated outlook for the rest of this year. The PowerPoint presentation accompanies today's conference call, which you can access on 3M's Investor Relations website at 3m.com. Today's slide presentation and the audio replay will be archived on our website for an extended period of time. With me today are George Buckley, 3M Chairman, President and Chief Executive Officer; and David Meline, our Chief Financial Officer. Please take a moment to read the forward-looking statement on Slide #2. During today's conference call, we will make certain predictive statements that reflect our current views about our future performance and financial results. We base these 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 list some of our most important risk factors that could cause actual results to differ from our predictions. So with that, let's get started, and I'll turn the program over to George. Please turn to Slide #3.

Thank you very much, Matt, and good morning everybody. Thanks for joining us today. We really appreciate it. For the numbers, this was another very good quarter for 3M. Sales rose 14% to $7.7 billion, an all-time high for any quarter in our history. We were on track for $30 billion plus in sales for the year. Operating income was $1.7 billion and margins were nearly 22%, with 5 businesses above 20% for the quarter and the sixth one knocking on the door. We posted earnings per share of $1.60, an all-time record in the second quarter for us, and we returned $1.1 billion in cash to shareholders via a combination of share buybacks and dividends. Free cash flow was $1.2 billion, and we converted 100% of net income to cash in the quarter. What is most impressive is that we achieved these results in a quarter that had more than its fair share of challenges. If you'll recall that in our April earnings report, we described some of the headwinds that we expected would affect the second quarter, and in fact, they played out largely as we expected. We knew the second quarter was going to be the nut hole of the year. And if we could do reasonably well going through it, we'd likely do okay in the balance of the year. For example, in Japan, we expected and outlined that the knock on effects of March's earthquake would be at their worst in the second quarter. They're getting as the year went on. We estimate that this temporarily reduced our sales growth in the quarter by just under 2.5%, margins by 50 basis points and earnings by $0.07 per share. We expect that these impacts will weigh in the second half of the year, and in fact, there is reason for hope beyond that as the reconstruction phase begins. We're also more optimistic on the recovery of insurance claims. Also in the quarter, as we anticipated, we experienced fewer orders for optical films, LCD TVs. The LCD TV business is a cyclic business with the periodicity of about 2 years late over the general economic cycle and it's simply going through one of those down cycles that reflect the inventory corrections, and ultimately a less robust consumer end market. Recall please that last quarter, we describe the LCD deep channel as full, and with about 3 weeks excess inventory on hand. And we know that this always comes pricing attachment rate pressure. This is a business where the retailers make 4% margin with 15% to 20% down price annually or 4%, if you like, in 1 quarter. Retailers and set manufacturers must correct quickly in these situations to stay in business, and in fact, they did respond with sharp production cuts in the second quarter. When they do, it gives us fits and starts. On the whole, our optical films sales declined by 22% in the second quarter, causing a 1.3% drag on organic growth. LCD TV, however, remains a fundamentally good industry, driven by innovation, and OEM seeked to partner with 3M to make that innovation happen. And overall, optical is a fine business with $1.6 billion in annual sales with operating margins in the 20s. However, we do sense some weariness among some of the OEMs, as TV prices begin to approach bottom and the asymptote of total cost in price is reached. I believe in the future, the market will bifurcate or trifurcate into performance, mass and entry markets. There are very definite signs that one or more manufacturers will begin focusing only on the high-performance segment, and ultimately, we're being more value-add, more features, better pricing and some overall stability to the market. This is a market primed for a new entrant with a unique value proposition. But for now, LCD TV is less than 40% of our optical film mix and other applications such as smartphones and tablet PCs continue to grow very nicely. I will start this next part of my talk by reminding listeners that I'm not an economist. But on the economic front, there is no doubt that Q2 data suggests global economic growth moderated. And we felt that within our results. You have to be careful not to let the Japan and Optical issues cloud the 3M data. Beyond those more obvious impacts, it appears that consumer related end markets, particularly consumer electronics, are feeling the effects of stress. With our product to market mix, we tend to see those impacts come and go quite rapidly. As a team, we have a collective view that things were just a little bit harder in Q2, no collapses, no catastrophes, just that bit tighter. We've all seen this economic phenomena before and very clearly so in the last 2 economic cycles. Both recoveries were initially very fast and experienced big jumps in profits, then, too, in oil and commodity prices. Last time, it was also complete by higher interest rates. These various forces plus things like increased consumer savings rates, all impact the consumer's ability to spend money on other things. As these transient ebbs and flows occur, the economy often takes a breather or pause, if you like, as it gradually adjusts to the new realities around costs, interest rates, credit and prices. Economic recoveries are never linear, and along this recovery path line are intermittent periods of slow growth, still growth, mind you, but only slower. This is how we view today's situation. We believe that global economy's in a slow spot for a while, but will reaccelerate again as commodity prices ease, fuel cost reduce and spending is redirected elsewhere in the economy. So nothing has fundamentally changed, and we are well positioned to capitalize on that growth and certainly more so than others. Even with these challenges, we posted double-digit growth in the second quarter in 4 of our 6 businesses, with particular strength in Industrial and Transportation at 25% and Safety and Security and Protection Services at 20%. Organic volumes rose 3.2% for the quarter, impacted, of course, by Japan and H1N1. And without these transient headwinds, volume growth was closer to the 6%. TVs added another 1.3% drag to this total. I do not tell you this on an excuse or exclude basis, I do it solely to help listeners understand the underlying strength in our model remains good. As the coming quarters roll out, Japan's effects will subside and pass. H1N1 is already closer rolling off, and LCD TV will do its normal cyclic thing coming back as innovation producers of new products and consumer spending increases. Currency was, again, a help to us. But even with that benefit, we had 5 or 6 businesses increase their sales in local currencies. Selling prices increased 0.8%, a noticeable improvement versus the first quarter, reflecting a lot of good progress by our business leaders to offset raw material increases. And finally, acquisitions added 4 points of growth year-on-year. So these are the highlights for the quarter. All in all, I'm well pleased with our performance, and please now turn to Slide #4. On last quarter's call, which was shortly after the earthquake and subsequent tsunami in Japan. We provided our early review of the potential impact on our business. I thought it would be helpful to provide our latest update today. On the whole, things are progressing about as we expected. From a sales standpoint, demand has been stronger than anticipated in the automotive OEM and also in energy-saving window films used in the construction and repair of residential and consumer -- commercial buildings. Offsetting this to some extent has been consumer electronics, where our OEM customers slow production in the second quarter to work off excess inventories. Weak end market for demand, for LCD TV demand was also a factor. In terms of cleanup and reconstruction, the Japanese government approved 2 budgets totaling $60 billion. From that amount, funds have been released to support temporary housing construction efforts and to partially support the cleanup. There remains a massive amount of debris that needs to be cleaned up before any rebuilding can be done. So it's unclear exactly when that rebuild will begin. But efforts are methodically in motion, which is not surprising given the magnitude and complexity of the required effort in Japan. As things improve, we have of course working to capture additional sales for our businesses. But here, I highlight 3 focus areas in particular. The first relates to cleanup and repair, where we expect to see some nice demand for our Personal Safety products, as well as do-it-yourself consumer goals used to repair homes, buildings and factories. The second area relates to energy savings, namely in the area of energy reusing protective window films. And finally, as the rebuild goes into motion, we expect to see some demand pickup in our infrastructure-related businesses such as traffic signage, telecoms and utility solutions and commercial construction. In the second quarter, we estimate that the earthquake and its aftermath ended up costing us about $160 million in sales, which, as I mentioned, hurt our total company growth rate by 2.4 percentage points. The corresponding loss in pretax[ph] profits was $80 million or about $0.07 per share. These estimates are largely in line with our expectations. It appears that the second quarter will be the worst of it, and we expect a modest $0.01 to $0.02 negative impact in the second half of the year. At this point, these estimates do not include any possible insurance recoveries. This should tell us that we will be successful in recovering a meaningful proportion of these losses, but we have taken a conservative stance at this point, and we'll share more details as the situation in Japan unfolds. Let me quickly take you through the performance of our businesses. If you please now turn to Slide #5. In Industrial and Transportation, which represents over 1/3 of our company, we posted another excellent quarter. Sales increased a whopping 25% to $2.6 billion with all major geographic regions posting double-digit growth. In addition, all units within the business contributed to that growth, reflecting our strategy of broad-based investment and to getting more of our businesses growing. The weak dollar also added to sales, contributing about 7 points of growth in the quarter in TV [ph]. There were some real stars in Industrial and Transportation this quarter. Renewable energy, for example, grew its sales by 61%, so the recent investments we've made in Singapore and elsewhere are really paying off. Abrasives grew its sales by more than 50%, a combination of double-digit organic growth, along with the newly acquired sales from Winterthur, which we bought in March of this year. On a sidenote, for interest, our Cubitron II platform recently won the TechAmerica Foundation's American Technology Award in the manufacturing category, a real achievement by our people. As I stressed many times before, this is proof positive that innovation can be applied everywhere, and it works to differentiate the company no matter how superficially slow, uninteresting or boring a market might seem to be to some people at first blush. Our Aerospace and Aircraft Maintenance business also grew sales by 35%, and in 3M's largest divisions, Industrial, Adhesives and Tapes, sales growth was 25%. The list could go on. Profits in Industrial and Transportation increased 17% and margins were 20.6% for the quarter. Moving to Health Care now, sales rose 14% to $1.3 billion and, if you don't pardon the pun, margins remain very healthy at nearly 29%. Acquisitions contributed 5 points to growth in Health Care, which was largely attributable to our October 2010 acquisition of Arizant, a leader in patient and food warming systems for hospitals. This business continues to exceed top and bottom line objectives and quickly became earnings accretive. So thus far, we like what we see. Lastly, our market leading Littmann brand, electronic stethoscope was used on the space shuttle to transmit astronaut's heart sounds to earth. It's a very nice exposure for this important new product platform in Health Care. In Consumer and Office, sales increased 9% for the year, about half organic and half due to currency. We're doing all regions of the world with particular strength in Latin America at 23% growth, and Asia Pacific at 21% growth. Europe also drove 20% plus growth, also caused by currency, but still the business drove mid-single-digit organic growth in that region. U.S. growth was 1% year-on-year, comparable to the results from most major retailers and influenced by low consumer confidence levels and persistently high unemployment. I have pointed out in the past, and it's still true today that consumer companies in general are struggling to grow. So comparatively, our results are quite good. Our consumers in many places are strapped. Encompass in general is low. Our team continues to find new opportunities to expand the business. Profits in Consumer and Office declined 4% in the quarter, reflect the continuing ongoing investments in new products, brand development, marketing sales coverage in developing economies. These investments are delivering hugely accelerated growth in China, for example, where sales increased 51% in the second quarter, and in India, which grew its Consumer and Office sales by 29%. This, I think, bodes very well for the future. But even with these investments, Consumer and Office generated close to 20% operating margins in the second quarter. I should also mention that just this past week, we announced the acquisition of the do-it-yourself and professional business of GPI Group. This deal will give us an excellent array of complimentary products from brands in the area of DIY tapes, hooks, insulation and floor protection products, and importantly, will be become a critical beachhead for our DIY business in Western Europe. I know sales here are just under EUR 100 million. And we expect the deal to close sometime in the fourth quarter. Turning now to Safety, Security and Protection Services, sales rose an impressive 20% in the quarter, including about 7 points from currency. All geographic regions generated double-digit sales growth, with particular strength in Latin America at 32% and Asia Pacific at 24%. Worldwide organic growth in this business was north of 5%, despite a near 3-point drag for H1N1 related comparisons. On the other hand, we saw some additional sales of personal and protective equipment related to the cleanup efforts in Japan. Less than the loss of H1N1, it helped the growth rate regardless. Operating profit increased 23% and margins were a strong 24% for the quarter. Moving now to Display and Graphics, second quarter results were $973 million in sales, a decline of 7% year-on-year. Operating income was $222 million, and margins were just shy of 23% for the quarter. As I mentioned, optical was the biggest driver of the sales decline, with LCD TV related declines, partially offset by continued strength in smartphones and tablet PCs. On the new product front, optical recently introduced a family of new film solutions for tablet applications. They increase both brightness, enhance outdoor viewing and reduce the overall thickness of the backlight films. So while the LCD TV space may be tough at the moment, the pace of innovation never really slows. Elsewhere in Display and Graphics, sales increased year-on-year in commercial graphics and architectural markets. Traffic Safety Systems also had positive second quarter sales growth, albeit all currency related. So underlying growth was down slightly in that business. Highway construction spending remains soft in both U.S. and Western Europe, but we'll begin to flow eventually, but we're not counting on it from a planning perspective. Finally, Electro and Communications had another very good quarter. Sales rose 14% to $864 million. Operating income was also increased 14% to $200 million, and margins were still at 23.1%. We, again, posted double-digit local currency growth in our electronics markets materials business, driven by solutions for semiconductor and consumer electronics, most notably tablet PCs. We continue to see this as an attractive area to invest, and in fact, during the quarter, we opened a new temporary wafer bonding application lab in Taiwan for 3D integrated circuits and ultrathin wafer handling. We also posted strong double-digit sales growth in the electrical markets business, which serves the power utility and infrastructure markets. Our team here was energized by yet another win in the area of high-voltage overhead power contractors, or ACCR as we call it. A major Brazilian unit utility just installed 3M's ACCR in Sao Paulo coastal area, which represents the 7th application to date in South America. ACCR will turn about $40 million in profitable sales this year, and we are excited about its potential in the future. This is a quick summary of our business segments. Now I plan to turn the call over to David. David?

Thanks, George. If you could now turn to Page #6. Second quarter sales increased 14% year-on-year to nearly $7.7 billion. During the quarter, we saw particular strength in our general industrial and personal safety businesses. As George mentioned, organic volumes contributed 3.2% to growth, and over 7% adjusting for Japan earthquake impacts, H1N1 and optical. Selling prices continued to accelerate your, increasing 80 basis points for the quarter and a nice improvement versus the flat price performance we saw in the first quarter. If I adjusted for electronics-related businesses where price down is a necessary part of the business, prices for the company rose 1.3%. With few exceptions, our businesses have enacted at least one round of price increases, and several have implemented a second or third round, depending on the severity of raw material increases in their businesses. Price increases should get progressively better in the third and fourth quarter, the exception being optical, where we are expecting a somewhat tougher pricing environment in the third quarter. Acquisitions added 4% to sales in the quarter, and currency was a positive 6.1%. Second quarter gross profit increased 10% to $3.6 billion, and gross margins declined by 1.6 percentage points. Foreign currency impacts hurt gross margins in the quarter due to the weak U.S. dollar, as did higher pension and OPEB expense, along with higher raw material prices. SG&A rose 17% year-on-year due to 4 primary factors. 7 points of the increase related to foreign exchange effects as the weak U.S. dollar resulted in higher translated costs from foreign subsidiaries. Another 6 points was due to SG&A increases from businesses we acquired within the last 12 months. Higher year-on-year pension and OPEB expense contributed 3 points to the overall increase. And finally, this quarter, we continued to invest to support future growth in areas such as sales reps, advertising and promotion. R&D investment rose 15% versus the second quarter of last year and was 5.2% of worldwide sales. Our labs are introducing new products at a very high rate, and we expect that new products as a percent of sales will rise again in 2011. Operating income rose 4% to $1.7 billion, and margins declined just over 2 percentage points. Underlying operating income growth was 14% adjusted for Japan H1N1 and pension and OPEB expense headwinds. Second quarter tax rate was 27.1%, up 0.5 point versus last year's second quarter. Through 6 months of 2011, our tax rate was about 28%. For the full year, we now expect the tax rate to be approximately 29% versus a prior expectation of 29.5%. Net income also rose 4% to $1.2 billion. Again, if you adjust for Japan, H1N1 and pension and OPEB expense, net income would have grown by 12% year-on-year. With that, let us focus a bit more on the change in the operating margin. Please turn to Slide #7. We reported a 21.6% operating margin for the quarter, an outstanding level on an absolute basis in and of itself, but it did decline by just over 2 points from the unusually high margins we saw in last year's second quarter. I would like to walk you through the reasons for that change. First, organic volume growth in the quarter was 3.2%, which contributed 30 basis points to the operating margin. Selling price increases only partially offset raw material inflation, resulting in a net margin penalty of 50 basis points in the quarter. So on the whole, organic volume growth leverage and net raw material price inflation were offsetting. For 2011 in total, we are driving towards a 0 dollar impact from raw material inflation, net of selling price increases. I'm confident for the majority of our businesses we will get there. Earthquake-related disruption in Japan hurt second quarter operating margins by 50 basis points, which was very much what we had expected. Again, it appears that the second quarter will be the worst of it. Higher pension and OPEB expense penalized margins by 80 basis points year-on-year, and currency impacts reduced operating margin by 60 basis points in the quarter. To sum up the margin discussion, the major factors affecting this year's results should get better in 2012. Japan is troughing as we speak, and we have every reason to believe that Japan growth in 2012 could be quite good. Pension and OPEB expense could become a tailwind, assuming current interest rates and projected asset returns. Currency is obviously, difficult to predict, but assuming the dollar only stays at current levels, the margin impact we've seen this quarter would wane over time. So while it is early yet to make a definitive call on 201,2, this set of comps appear to be in our favor. Please turn to Slide #8, where I will review second quarter cash flow highlights. We generated $1.2 billion of free cash flow in the second quarter, and converted 100% of net income. Operating cash flow rose $313 million year-on-year, with cash taxes accounting for the majority of the variance. U.S. tax payments in Q2 of 2010 were unusually high due to audit and estimated tax payments. These payments returned to a more normal level in Q2 of 2011. Investment in capital expenditures totaled $295 million, an increase of $115 million year-on-year. A substantial portion of this investment is addressing supply constraints in a number of businesses that are growing rapidly, including renewable energy, traffic signage in developing economies, optically clear adhesives and glass bubbles. Importantly, our CapEx is increasingly shifting towards international markets and fast growing developing economies in particular, as we continue to migrate our manufacturing to better balance our sales with our manufacturing capability. We estimate that full year CapEx will be in the range of $1.3 billion to $1.5 billion. Through the first half of the year, we have spent $1.4 billion on gross share repurchases. Half of which was completed here in the second quarter. That is a quick summary of our second quarter results. And now, I hand it back to George. Please turn to Slide #9.

Thank you very much, David. Now for a few words about our full year outlook. Given the Japan tsunami tragedy, TV market dynamics and some signs of a slower economic growth, we always knew that second quarter would be the most challenging in the year. The test now is to figure out what's most likely to happen in the rest of 2011. We know that as faster growth resumes, we will see the rapid benefit of that. In Japan, automotive plants are coming back on stream. And since the largest part of our automotive sales are what we would call, spec in components. And if you've seen market share among OEMs could impact our sales if we are expecting on the substitute car sales. So I see some upside in automotive in Japan in the second half and ultimately, in their reconstruction activities. We begin to see sales increase in protective equipment and window films and similarly slow in Japan-based consumer electronics. It appears that our industrial, safety and security businesses will remain robust in the near term. As a counterbalance to that, given the loss on some tack [ph] in the LCD TV market, I see no upside in optical this year, unless fuel prices continue to fall and consumer spending in general begins to improve. As new TV models are developed for lease, however, we usually regain attachment rates. Outside the TV business, our cost sales in China, Taiwan and Korea remain strong and showed no signs of abating. They're all well into the 20s range and even 30s in one case. As to whether the Chinese government can execute a soft landing in dialing back growth, I'm quite confident that they will pull it off. The Chinese government is stuffed full of some of the most brilliant and best educated minds in the world, and based on history, I, for one, will not bet against them. Let's also remember that this soft landing is pulling back growth from about 11% to about 9%, not from 3% to 1%. And the counterbalancing effects of easing inflation more than offset the slightly lower growth. More of a demand may be leaking outside China, adding to let [ph] [demands elsewhere and muting the overall impact. Some pretty good news is that we have been gathering strength in the United States, with growth rates beginning to accelerate. In fact, we grew 8.7% in the second quarter. It appears that we are beginning to gain share. The Census Bureau data shows U.S. inventory was a little bit higher, possibly suggesting some transient corrections happened in June. But durable goods orders were up 1.9%, arithmetically consistent with recorded expansions in U.S. GDP. Overall, the leading economic indicators are positive for the U.S. and for most of Europe, except for France. So I remain mildly optimistic, not for huge growth spurt, but for gradually improving market conditions later in the third quarter. We have good momentum of price recovery, which I think will continue to accelerate, and this bodes well for margins in the second half. Netting all of these factors together, we continue to expect organic sales growth will be in the range 6% to 7.5%, including an expected 1% drag from Japan. No material change versus our prior expectations. So for 2011 in total, putting this together with the acquisitions, price and a more positive currency outlook, we're expecting strong double-digit growth with revenues easily eclipsing the $30 billion mark for the year. We now expect that per share earnings will be between $6.10 to $6.25 range versus a previous expectation of $6.05 to $6.25. So we're taking up the low end by $0.05. All in all, after a good second quarter, yet slightly tougher economic picture, we believe this is the right way to think about 2011. Thank you all very much for your attention, and we'll now be happy to take your questions. Thanks a lot, everyone.

[Operator Instructions] Our first question comes from the line of Jeffrey Sprague from Vertical Research Partners.

George, putting into account your [indiscernible] there, still little unclear [indiscernible] that you untouched in the back half to your prior [indiscernible] given that LCD is coming in weaker, that LCD just awash of that[indiscernible] actually something stronger the back [indiscernible] you're thinking at the end of the [indiscernible]

Jeff, it's Matt. Could you please just try to repeat your question? You were breaking up on our end.

You've got a voice activated phone but it sounded [indiscernible]. We heard about half of what you said.

I was just wondering if there's something in particular you see better in the back half of the year relative to your prior expectation, the fact that you kept your organic growth range the same with LCD looking tougher or is just the LCD just really kind of caught up in the 150 basis point range there.

I think Jeff, I mean, we always knew even, obviously, going to the second quarter, we knew that this was going to be, I call it the nut hole, that we were going to get dragged through this year. So I think the second quarter was just fine, and we see a lot of strength in the industrial businesses, in SS&PS. Pricing favoring us going forward, so it seems to be good momentum on price recovery. Japan, here and there, generally more optimistic, particularly in automotive. But then you've got this always, you said, Jeff, of optical, which is probably pulling in maybe a $0.05 drag on the numbers. So all in all, it's really a pretty good story going forward, with the exception of that 1 point. And we see probably, maybe beginning in the late third quarter, probably a little bit of reactionary. I'm not talking about any great transition to some sort of great new growth future, but I think the economy, as it's gone through this kind of pause, will go through another point of inflection sometime around the end of the third quarter and begin to accelerate again. So we remain pretty optimistic, and the numbers in modeling that we've done suggest that this is a reasonably robust set of numbers on our forecast.

Great, and then as a follow-up, maybe kind of a 2-part follow-up, but thinking about the margin walk, both as it relates to price and FX. Obviously, FX moves around. I think that historically, your margins on FX conversion have actually been decent, sometimes even higher than the segment average. But you had a 60 basis point headwind from FX this quarter. Is there something different going on in the mix there? And along the same lines, thinking about that margin [ph], is the price that you have in effect now the way you exited the quarter? What you need to kind of reach the parity you're talking about or is there more that you need in the back half the year?

Yes, this is David Meline. On the first point, as it relates to the FX impact on the margins, what you do see is you see some variation from quarter-to-quarter, primarily because of the fact that we have hedge gains and losses. In this case, we had losses as the dollar was weakening, and it created a higher than sort of average impact on the quarter. So that will move around from quarter-to-quarter. But over time, as I had said, we expect that FX will impact us more or less similar to our operating margins. Secondly, in terms of pricing, as I said, yes, we had a number of price increases that took place, both in the first quarter as well as late last year. We had some more in the second quarter, which we didn't have the full effect of through the quarter. So while most of the action has taken place with the exception of, for example, consumer, where we will have some price increases in Q3, we will see -- just because of the fact that we'll have the full effect through the second half, will help us somewhat on pricing.

Our next question comes from the line of Steven Winoker of Sanford Bernstein.

Just I want to dive into the core growth experience in the quarter just a little bit. I'm looking at the 4 percentage overall volume in price number here versus the 9 last quarter. And an arguably, a slightly easier comp than last year's. If you kind of go through where -- which segment did Japan impact the most? For example, Electro and Communications, which was down from 17% growth last quarter to 8% growth this quarter. Maybe give us a better sense for where the Japanese experience was felt most.

Yes, the biggest impact in Japan was roughly half of the impact of Japan landed in ITB. So you see ITB had very good growth again in the second quarter, which reflects the overall momentum across the business, but it was certainly impacted negatively in Q2 by Japan. The second most significant impact was in the electronics space, which is the combination of the impact on ECB, which, as you've just pointed out, you can attribute part of that decline to what happened in Japan. And also, there was some impact of Japan on the optical business. So part of it is just moving to a more normalized level of sales for ECB that you were talking about, and we're pretty pleased. I mean, we had a 12% first half growth in the business. We expect that to continue, and we think it's reasonable to think about double digits for that business for the year.

Okay, and where did you guys come out on the New Product Vitality Index this quarter?

It's running in about 32%, Steve. So it's still doing very well. I mean, this is what I said on my talk. You just got to be careful not to so get confused by the underlying growth, how it was impacted by Japan and in particular by optical. It's running still pretty robust, and ties very well with the kind of arithmetic way we're thinking about, the kind of calculus, shall we say, of how we translate those NPVI numbers back into growth. So I don't think in the underlying business, Steve, there's anything really to be concerned about. Japan obviously is going to pass. OPEB adventure [ph] will get a little bit better next year. Optical will do kind of its cyclic thing and H1N1 headwinds cease. So I think the underlying strength of the company is still very, very strong in what was always going to be a little bit tighter quarter for the company.

Right. But it doesn't change your longer-term target outlook of 70[ph]?

No. Not one iota, not one iota, Steve.

Okay. And then just a follow-up on the price cost. So it sounds like the cost inflation was 130 basis points, I guess, relative to pricing of 80 basis points in the quarter. And if you're looking at 0% impact, that was for the full year, right?

Correct. We're aiming to get the offset on accumulative basis for the calendar year.

So that means you're expecting inflation to abate significantly?

Certainly, we're seeing that with the strong move we saw in the end of last year and the first quarter, that, as you know, has started to stabilize. So as we look at on a year-over-year basis, yes, we will see some stabilization. And then as I was saying earlier, with the price increases that have been put in, we'll have the full effect of those in the second half. So obviously, we're expecting to get a better matching of performance to get that offset in the second half. And quite honestly, our early view of '12, would say, we expect to continue to see some raw material pressure. So we'll be looking at what we're going to need moving into next year in terms of managing our prices as well.

Obviously, the raw material expectations, Steve, is very much tied to what expected demand is. If demand is -- I'm talking about global demand -- if that's high, we'll see probably still continued pressure on commodities and really, the point Dave is making is -- and the indication is we're probably going to be a lot more aggressive on price and make sure we capture that early. It remains to be seen, yet whether some easing of commodity prices will happen. Some have come off of their highs. But I think the actions that we've taken bottle up better for the second half on margins than they have in the first.

Our next question comes from the line of John McNulty from Crédit Suisse.

Just Another question on the raw material front. In the past, 3M never seemed to have much of an issue with raw materials. Clearly, this inflationary environment is a little bit different. I'm wondering, what if you had to do in terms of changing how you actually deal with your customers on the topic of raw materials. And how much more in terms of changing do you fundamentally think you have to do so that in the future, if we do assume that raw material inflation continues to be an issue for the next few years, you don't necessarily have to deal with this constant playing of catch up?

Well, I think the -- first of all, John, no customer, particularly the closer you get to the end market, no customer likes price increases. They don't like getting them. We don't like giving them. We don't like getting them ourselves. So nothing really is changing that in that. But I think the volatile commodity market is sort of owned a new chapter, I think, in a sense it opened a new chapter in customer relations. Customers understand this stuff. They watch it themselves. They're global players. Many of them play in these commodity markets themselves, and they understand the issue of commodity inflation. So we go to them. We have people who are extraordinarily good at this kind of customer relationship. We work on the basis of no surprises. We try to warn customers early. We try to tell them what we're suffering, and therefore, I mean, in the end, it may not necessarily make them anymore sympathetic to our case, but at least they understand it. And it doesn't cause the kind of reactionary negative sort of feelings that you might if you didn't have such good relations. SO I think, John, that it's likely to be a feature of the world going forward I would say. But of course, what it also does for us is there's a constant drumbeat in our company of trying to find ways to reduce the impact of these things, substitute materials, different materials, lower usages of those materials, that kind of constant pressure cooker that we have in our company to ease the impact that these sort of things have on us and then ultimately, have on our customers. So I don't think that the -- I can't expect it to go away, but I think most of it is being conditioned to the fact that this is a kind of the way of the world. Now to come to the last part of your question, which was how can we avoid this kind of delay. I think it's a structural issue in our company, John, that the procurement is separated from our operating divisions, and also we have relatively long supply chains still. They're shortening but they're still relatively long. And before you see the impact in our P&L accounts, it tends to be a sort of a somewhat several month delay. And about the only way that we can really, I think, improve this is to be a lot more vigorous of putting in prices probably before we actually see the impact in our P&L for these individual divisions. So they may be kind of an operating philosophy change that has to get made by us, but they would be things I would to offer to you.

Our next question comes from the line of Terry Darling of Goldman Sachs.

I guess, follow-up on second half assumptions that you're making in implied in guidance for the optical business, George or Dave. Can you help us with what will you think that business is going to be from an organic perspective in the back half?

Yes. What I would say is that very much in line with what we've talked about, but we think that the optical business is going to struggle in the second half. If I look at D&G in total, we gave guidance at the beginning of the year where we thought that the sector would grow in the range of 3% to 7% for the year. Right now, we're thinking for the year that we could be flat as a business. So obviously, that implies some weakening, primarily in the optical business and then a little bit we've also seen that with government spending is being controlled,we've also seen some weaker performance in our signage business, which we're hopeful will improve, but we're being cautious about that as well.

So can you be a little specific on where that down 22% on optical is assumed to be going there? And I guess, the first half versus first half was kind of flat, so to get off this 2Q trend, the second half last year versus the first half, obviously, was -- I guess it was pretty similar, actually, right? So you're thinking you're kind of moving sideways from here. Is that sideways to up a little bit, I guess, just the way the numbers would?

Terry, I'm going to have to get back to you. I'm just looking at Q1. We're down 22% in Q1. We would have been down a little bit on dollars in the first quarter as well, but let me come back to you on second half Q2. Yes, the toughest comp in optical actually will be Q3 for us.

Okay. And then I guess, on the question of pricing, I just want to be clear. You need to get some incremental pricing in the second half to get to flat for the full year. Did I hear that correct? or you have it where you need at this run rate?

Yes. If you look at the raw materials and pricing outlook, a few points. One is that, as we had said last time, we now expect raw material price inflation for the year to be 4% year-over-year. So that's consistent with what we had previously indicated. And as pricing has stabilized in that market, we think the risk of that running higher on us this year is certainly abated. Secondly, we've been driving, aiming towards full price offset in the calendar year, and the businesses, if you look across the businesses, we expect certainly 5 of our 6 segments will deliver on that. The one risk we have is, of course, in the optical business, where we expect to see more price pressure continuing in the second half. So exactly how that plays out, we can't say. But we continue to drive towards parity in that regard.

But Dave, just to make sure I understand. If we just talk about the 5 of the 6 segments, are you still confident you'll get to 0 for the year? Do you have the pricing you need at this run rate or do you need to get incremental price in the second half to get to the 0 in those 5 to 6?

Yes, we have the pricing we need with the exception of the consumer business, which the nature of that rhythm of price adjustments takes place primarily in Q3.

Okay. That is helpful. And then lastly, George...

Sorry, that 4%, we have about 25% of cost of goods sold -- sorry, 25% of sales is material purchases. So that produces about a 1% drag overall on margins. So if we get a net 1% gain in price, that offsets that. And that's coming more in the second half. So that's why David is saying we expect kind of a more optimistic outlook on pricing margins in the second half.

Okay. I wanted to ask about M&A real quick. But maybe I just need to clarify. Within the operating income margin, Dave, did you reduce the corporate expense assumption? Is that corporate expense going to be lower now versus what you thought before for the year?

Are you asking for the third? Did you ask me for the third and fourth quarter,Terry?

I'm thinking about, I'm just thinking about your full year expectations for the corporate expense item that maps to the 2Q number that was about $93 million at the segment level. Have you reduced that expectation for the full year? In other words, your corporate costs are coming in better than you thought.

I think from an assumption perspective, the right assumption is to assume that will remain as previously guided in terms of the full year.

Okay. And then just lastly, George, I'm wondering, on the bigger picture, M&A landscape, the acquisition impact a little less than prior. Is that deal prices getting a little less attractive or some other factor going on there? Maybe just comment on how you're seeing that landscape broadly.

Well, you've point your finger on a good point, Terry. Prices are high, and you know the way we are. We're conservative. And certainly, we're not going to be chasing expensive tails just for the sake of the getting expensive deals. But for now, we see no reason to come off the forecast that we've made. It may well be that, that will change. But for now, I think the hopper of acquisitions is full. It's rich in the sense of plenty of opportunities. So it's too soon to sort of say anything different than what we said in the past, Terry. But I would agree with your sort of general observation that prices are a little bit higher than they have been here before. And as is traditional for us, we don't like that.

[Operator Instructions]

Our next question comes from the line of Deane Dray from Citi Investment Research.

I would like to get some color on discretionary spending because between CapEx and some of the SG&A investments, it doesn't sound like you're letting up at all. So in light of some of the potential soft patch you're working through, you're certainly not changing the investment framework. So just kind of give us the color as to how you're feeling about these discretionary investments and how that might change in the second half.

Okay. So certainly, we've set out a plan where we expect good growth for the business through the calendar year. As we've talked about, we've upped our capital expenditure plans for the calendar year from last year where we invested $1.1 billion. Now we're looking at $1.3 billion to $1.5 billion. As you can see, that, that will land more in the second half and then in the first as we have a number of projects that are underway, in particular internationally, where those will start coming on stream either late this or into 2012. So we expect that trend to continue. We don't see any reason that, that's going to change. We expect that our capital investment in terms of as a percent of revenue, probably continues through '12. And as long as the economy continues, we're going to need that capacity. In terms of investing in the business, we've tried to lay out here to get fairly specific on the SG&A to help you to interpret what is going on in the business. And what I would say is 2 things: one, is we continue to invest in our growth platforms, which certainly involves taking on additional commitments in terms of staff, in terms of advertising and merchandising. But we also have a discipline in the company, where we expect to get 5% productivity annually. So when you look at the net increase, it's not huge. But if you look at the second level, the fact is as we continue to invest in the business because, as George had articulated, we think this is a pause, but it would be inappropriate for us to be pulling back in a very severe way at the moment. So there are some businesses, of course, that have their own specific challenges, but generally, we continue to stay on our plan and continue to invest for growth here.

And just my follow up was on the comment on insurance recoveries. I know that, that's out of your hands of in terms of what the actual settlements will be, but when you refer to the expectation would recover these losses, were you referring to actual damage or loss of -- business interruption? Could you clarify that, please?

Well, Deane, on the loss of, actually, equipment, that's an easier claim to make on. On business interruption, that's a little bit more sort of nefarious because they want some time. The insurance companies want some time to see how sales unfold, did you recover some sales in the future, and of course, you have the argument are those sales fundable [ph], are they the same sale, replacement sales. In the case of the automotive businesses, when you have a specified in component, just because some -- maybe the Japanese are out of the market, maybe Persia [ph] replaces them with a car, but you may not be specified in on that virtual cost. So we think we can sustain an argument that there was a good loss of business case, and it will take some time. But overall, our insurance people here in the company who are very, very good at this, all the other experiences they have, very good at this. They become increasingly optimistic at a decent percentage recovery of the total loss that we've reported so far.

Our next question comes from the line of Steve Tusa from JP Morgan.

So did you say that Display and Graphics is going to be flat? That's an organic number for the year is what you're talking about?

That's correct, yes.

Okay, and so -- but you said the toughest comp is kind of still to come the third quarter, so would you expect a similar organic number as the second quarter in the third quarter? Or is it kind of a consistent third quarter, fourth quarter type of growth?

Yes. So what I said, toughest comp is for the optical business. They had a very strong momentum still through Q3 of last year. So as we look at the current dynamics in the business where we're quite cautious on the industry right now, we expect them that the year-over-year will be tougher in Q3 for optical, whereas by Q4 of last year, as you know, we saw quite a significant correction in the optical business. So that comp will be not quite as difficult.

okay, because, I mean, to get back to flat after another tough comp in the third quarter, I mean, you're going to need a pretty solid double-digit increase in the fourth quarter for the segment assuming the kind of optical is the key driver. Is that kind of the way you guys are thinking about it?

What we know is that if you look at D&G in total, only about half of optical is D&G. So we continue to have good momentum in terms of the CG business, our commercial graphics. We expect that traffic signage, even though we've had some delays in government spending, that will continue to grow for us. And then, as I say, the comp on OSD, on optical will not be as quite as difficult in the fourth quarter.

Okay. And then just rounding out that line of questioning, it looks like so just looking down the segments and the other segments in your guidance that Industrial, Transportation, Electro doing better than expected, Health Care and Consumer and Office looks like you need to look to get to your previous annual guidance. You need a little bit of an acceleration here in back half. Is that the right way to think about it? Or are those businesses kind of steady state?

Yes, if I could kind, Steve, good question. So where we have the very good momentum and if you look at compared to our full year organic volume guidance that we've given last year, certainly, ECB and ITB, we could see them coming a little bit above the high end of that 7% to 9% guidance we gave last year. Safety and security has got good momentum here, coming into the second half, and they've also lapped the H1N1. So they could come at the top or even a little bit above as where we had indicated, which was mid-single digits. And then consumer and Health Care, if you look at our original guidance, 5% to 7% on the year, we think they'll come in towards the low end of that range, which does, as you point out, indicate a little bit of a recovery, which, for us, looks reasonable consumer. We're coming into a season where, while it's early to say, we foresee some recovery there. In Health Care, specifically, we saw second quarter was running similar to the first in terms of the medical and dental business. We were encouraged by the continued sales there. We had a specific issue in Health Care in Q2, where our drug delivery systems business had some delays in some contracts. So that pulled down the result in Q2, which we don't think is going to repeat in the second half. So I think your comments are right on Consumer and Health Care. And then D&G, we talked about.

Steve, can I clarify one thing. This is Matt. I think what Dave had quoted volume expectations for D&G, we're talking organic volume, okay? So remember, D&G absorbs some price down every quarter. So if you're looking at total organic sales dollars, including price, you may be on a slightly different basis than he was. And we can clarify offline.

I'm just talking about the D&G negative 10 this quarter, so will it be better or worse than that on the third quarter?

I was talking about the full year guidance. So Let's cover this one offline, Okay.

Our next question comes from the line of Laurence Alexander of Jefferies & Co.

Two quick questions. One, what is your read on the pace of August shutdowns in terms of year-over-year comparisons particularly in automotive? And secondly, has raw material inflation started to affect the CapEx or the capital cost for new project? That is if you were doing the same amount of CapEx next year, how much would you need to lift the CapEx budget to do same amount of projects?

Okay, on the first question on automotive, certainly, if I start with Japan, which is impacting obviously, globally, we're seeing a recovery in OEM volume in the third quarter. We expect they'll still be slightly below their original plan. So in the 90% to 95% range, and that will pop up in the fourth quarter slightly above their original plan. The issue for, as you probably know, the issue for the OEMs in Japan right now is that while their supply chains are back in good order, they're facing limitations on the availability of power. So we see that pattern in Japan in the second half. In terms of rest of the world, certainly, we observed that the schedules are stronger in the third quarter. If you look on a year-over-year basis, it's quite impressively stronger partly due to the fact that the market is recovering. And secondly, partly due to the fact that there's a market share shift as people are quite happy to fill in where the Japanese OEMs have left some gaps. In terms of -- could you repeat the second question, Laurence?

How much raw material inflation would be flowing through the capital spending budget if we're thinking about 2012 compared to 2011? For the same number of projects, how much could you have to lift the CapEx budget?

You talking just inflation on capital cost themselves, Laurence?

On the materials, pledges to the capital budget, Laurence, is that what you're seeking -- what you're asking?

And how it's flowing through to your total -- basically, last cycle we saw capital spending budgets move sharply higher as we move later in the cycle. Are you seeing any signs of that happening yet?

No. Yes, certainly, what we've seen is -- as you know, we're increasing our capital investment this year by $200 million to $400 million from the prior period, specifically because we've got a number of areas where we run into capacity limitations. We do foresee that trend in terms of absolute spending to continue to rise. Would I call it an expectation of a sharp increase in 2012? No, I would say a steady increase. And what we observe is kind of a sweet spot for the company given our level of the vertical integration here is typically in around the 5% range in terms of percent of revenue.

Our next question comes from the line of Scott Gaffner of Barclays Capital.

Just wanted to start with a follow-up on the acquisition front. So you took out the unannounced M&A out of the acquisitions. I'm just wondering you had $2 billion to $3 billion budgeted for M&A for the year. If some of these acquisitions don't come to the table, I mean, where could we look to put that money to work outside of M&A?

Well, I mean, the answer to the question is an obvious one, Scott. It will provide other opportunities to do other things with that capital. But without getting ourselves sort of out in front over our SKUs as we sometimes do in this part of the world. We have a pretty full hopper of opportunities. So I think it's too soon to give up on that, Scott. But as we said earlier to one of our colleagues, prices are little bit tougher, they're a little bit higher. There seems to be more optimism on selling prices by the sellers. And so we will be prudent in the way that we invest our money, your money actually. But I think it's too soon to tell. It's too soon to sort of giving up on that and deciding what plan B is. But obviously, if plan B came along, we're always going to prefer internal investments, and buybacks and dividends are always be an important part of what we do. And they will certainly get consideration if and when that time comes, Scott. But I think it's too early to say right now.

Okay, and then just looking at the margin guidance for 2011, we've got about 30 basis points increase year-over-year at the high-end and maybe 70 basis points down year-over-year on the low-end. What gives you confidence that you can actually take the margins a little bit higher in 2012?

Yes, well, that's right. There's some specific items that we can see right now would be tailwinds for us next year. For example, if, in fact, interest rates stay at the levels where we started the year and we see return on assets as we have in our plans, that would, then, on a year-over-year basis give us about $100 million tailwind next year in terms of pension expense, which would help our margins. The second most obvious factor to us right now is the fact that we expect Japan, which is being -- which is clearly a drag on the company this year, will be at least neutral. And quite honestly, we're optimistic that we'll see that become a tailwind for us next year. And then the third factor is we intend to continue to grow the business. And if you look at the incremental margins from additional sales that the company generates, it's quite impressive. And we have the choices, then, to choose to either reinvest that in the business, maintaining margins or depending on where we are, also allowing that to manage to the bottom line as well.

So Scott, it's not only the volume increases, probable volume increases in Japan, which would get us leveraged. But Japan is fairly strongly accretive to the overall company in margins. So you'd see that impact coming forward, too. So there's quite a number of these things that we see. There's, of course, by that time, we ought to have been caught upon on this price raw materials issue as well. It remains to be seen. Nobody really knows where that's going to go next year, the prices versus raw material game. But I think there's 3 or 4 or maybe 5 different things that are very positive in the margin accretion game.

But I would say we're just beginning the planning process right now, so it's really early for us to talk about where we're going to land in 2012. And there are a lot of pluses and minuses. There's a lot of uncertainty about what's going to happen with the economy. What we do know is that we're making progress in terms of driving towards our long-term goals. And so we've got good momentum in the business, but there's obviously, still a lot of open questions. I think the right framing for us is to think about the company delivering margins in the range that we've demonstrated over the last several years, and really, we continue to focus on confirming that we can have a sustainably higher growth rate. So on the margin, we're tending to look at where those opportunities are to ensure that we can deliver on that higher level of growth.

Our next question comes from the line of David Begleiter of Deutsche Bank.

This is actually Ron C. Billingham[ph] , sitting in for David. It looks like volumes declined to 3% from 6% in Europe. Could you just comment on what was driving that? Give us a bit of color.

Yes. In Europe, what we did see in the second quarter and you're absolutely right, we saw an overall softening take place in the economy, which affected the business. We continue to be quite, honestly, very pleased in terms if you look at the organic volume performance versus the industrial production there. We're satisfied that we're continuing to gain share in the overall market. But what clearly was the case is for us, at least, the European business was impacted by softness in some of the markets, including in the U.K. and in Southern Europe in particular. So we had those impacts. We also had a contract in one of the divisions that ended. So we had some specific reductions in sales. And if you look at the drug delivery systems business that I talked about earlier, a big portion of their business is in Europe. So we saw some delays in contract awards, which flowed through the European results.

We've had lumpy sales in some of those contract-based -- project-based activities.

Actually, that's very helpful. And lastly, just on growth in Germany, could you comment on what you guys saw in Q2 year-over-year?

Well, Germany remains very strong. It's one of the -- perhaps, one of the models that other countries ought to use. Obviously, we gained some currency there. But it remains very, very strong, been running in total in the 20s. So it's really been quite remarkable.

Our next question comes from the line of Ajay Kejriwal of FBR Capital Markets.

Just on the Health care Margins, so it sounds like you had some lumpiness and acquisitions probably hurt margins in the quarter. What's the outlook from here? And I know in the past, you have called out Health Care as a high 20s, this probably the sustainable rate. But any expectations there for the second half? Should we expect Health Care margins around these levels or some modest improvement?

Yes, we -- I think you've anticipated the answer, which we think that the high 20s is really the sweet spot for the business right now, balancing in terms of delivering to the bottom line and ensuring that we're investing appropriately, both in terms of new technologies and products, as well as we've talked about in the past, the key focus for our Health Care business is to continue to expand their footprint, in particular, focused on emerging markets. So the answer would be, I think from a planning perspective, continuing at this kind of margin level into the second half is the right way to think about it.

Good. And then very quickly on ITB. So as these Japan issues resolve in the second half and volume comes back, is it fair to say margin improves sequentially from here? Or are there other things we should be thinking about?

What we see right now, as I've said earlier, we see good momentum in the ITB business. It's a business that was affected by raw material cost increases, a little bit more severely than most of the others. They've done a good job in terms of putting in pricing to offset that. So we think they've dealt with the -- at least, the near term issues on raw materials. What's impacted, in particular, their margin here in the first half, including the second quarter was a combination of the impact of Japan, which is, as I mentioned, an important business for ITB, as well as they've done a couple of acquisitions and we had some purchase accounting that was impacting us here in the second quarter, as well as some start-up transitions. So with Japan, waning, at least, becoming neutral to the business and then with the acquisitions gaining momentum, we think those would be tailwinds for the business in the second half.

Our next question comes from the line of Shannon O'Callaghan of Nomura Securities.

On the share repurchase plan, maybe I missed what you said for the year, but I think initially, it was supposed to be $0.05 to $0.10 of tailwind in the guidance this year. I mean, are you expecting the share count to still trend lower from here?

In terms of share count, yes. If we kind of walk through that, what we've said at the beginning of the year is from a gross buyback perspective, we would do $2 billion to $2.5 billion. We did $1.4 billion in the first half. So obviously, trending at the high end of that range. What's also the case is we said that on a net basis, we would do I think $1 billion to $1.3 billion. And what we are seeing is more reissuances than originally planned for in the year. And therefore, in terms of the average share count, it is correct that we expect the average share count to be somewhat higher this year than we had originally indicated.

And then George, I just want to maybe flush out your comments about the bifurcation of the LCD TV market and get your feeling. You mentioned something about new entrants, and just give us a sense where do you think your attachment rate bottoms and the what is this -- where do you see yourself playing out in kind of the new mold as that market develops?

Yes, it's an interesting question, Shannon. It really is an interesting question because everybody is trying to sort of figure out where this market goes. Is it something that kind of -- everybody sort of has a rough to bottom. Will the market sort of stabilize, mature and have some sort of more of middle ground approach? But I think ultimately, the quality set manufacturers are talking about trying to find ways to add more features and not be quite so much there in that sort of down and dirty area and try to use some of their brand power, some of their creative power, get help from guys like us to sort of by the way to differentiate them. Because really what always happen is as markets come to the bottom, Shannon, is as you kind of plumb the depths, a substantial number of customers say, you know what? I don't like this plumb depths. I want some more features. And so manufacturers, set manufacturers in particular, are kind of preparing for that. And so I think that the way that this attachment rate goes, it probably stabilizes in the late teens. I think probably -- I mean, if we're optimistic, it might be 20, but I think it's in that late teens area, probably dedicated more to the performance segment of the business. And we'll have to see whether continued innovation allows us to push back attachment rates in that business. Remember, we're really speaking about TVs here. There's not an issue in the handhelds or monitors, and I think even in some of the technology develops in monitors where nonpowered monitors, USB port powered monitors need film. So some of those pushes, Shannon, will alter the kind of complexity of the business and maybe help us a bit with monitors. But I think all in all, this is a business that will settle down and TVs, probably in that late teens area. The blended business being in the 20s margin. The challenge always for all of us and not just us for you, I know, is when you look at integrated over a year or over a year and a half, average over that period of time, this ends up being a very good business, $1.6 billion, $1.7 billion, 20 points, 25 points margin in that kind of spread. You'd see it. Then, what's not to like? What's not to like sometimes is the ups and downs. But it has, over the years now, become a much smaller portion of our business. And its ability to sort of impact and really hurt us in any meaningful way has now wind. We just take a look at this quarter alone. Really tough time for optical, but yet the company delivered on target earnings and also, with Japan, headwinds and some general economic tightening. So I think it shows -- it bodes well, generally speaking, for the company, there is optical becomes less and less a factor, and that business becomes closer to maturity. Stability will, I think, ensue in that market. The market players will establish themselves in a quality end, that will be the place we play. And I think overall, probably in the next 2 to 3 years, we'll see this business stabilize into a much more regular kind of commoditized consumer-type pattern with some down price but not with the kind of volatility and bouncing around that we see today.

Thank, everybody for joining us, spending time this morning. We look forward to talking to you very soon. Bye-bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.