Ladies and gentlemen, thank you for standing by. Welcome to the 3M fourth quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) It is recommended that you use a landline phone if you are going to register for a question. As a reminder, this conference is being recorded; Thursday, January 24, 2013. I would now like to turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.

Thank you and good morning, everyone. On today's call, we will discuss our fourth quarter and full year 2012 performance along with the 2013 outlook. Inge and David will each make some opening comments and will leave plenty of time for your questions. Recall that during the fourth quarter, we announced a realignment of our major business groups. Segment reporting for the new organization will begin in the first quarter of 2013. Today's results are presented on the basis of our existing segment structure. We will furnish supplemental, historical, business segment, sales and operating income information reflecting the segment realignments in an 8-K and expect to see this filing sometime around mid-March. There'll be mention of few upcoming dates and events. First our 2013 earnings conference calls are set for April 25th, July 25th and October 24th. Also, we will host an Investor Meeting on the afternoon of Tuesday, December 17th. I know that December calendar fill quickly, so please hold these dates and more details will be available later this year. Please take a moment to read the forward-looking statement on slide two. During today's conference call, we will make certain predictive statements that reflect our current views about 3M's future performance and financial results. These statements are based 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 predictions. Now, please turn to slide number three and I will turn the call over to Inge.

Thank you, Matt, and good morning everyone. I appreciate you for joining us today. For 3M, 2012 was a year of preparation, progress and performance. We developed and introduced our new vision and strategies and we aligned our organization more closely with our customers and markets. We combined several businesses for increased scale and relevance and we formed new businesses in promising markets. We brought new streams to marketing, sales and e-business and we gave new emphasis and leadership to lean Six Sigma, and we put in place a dedicated team to more efficiently integrate our acquisitions. Today that team is hard at work on both, the FSTech and Ceradyne acquisitions. You will recall from our November meeting that Ceradyne is both, a good business and is strong technology play to build out 3M's ceramic's platform. I am very pleased that in 2012, we brought portfolio prioritization into the forefront of our how we manage the company. This is important for long-term success and we are using the process to improve short-term results as well. In a few minutes, I will discuss several actions we have recently taken. Perhaps the most significant progress we made last year was the strengthening of 3M's commitment to innovation. We expect R&D to approach 6% of sales by 2017 and you will see some evidence of our increased investment in the fourth quarter of 2012. Finally, as you all know, we reset our financial goals for the next five years. We now have targets that are both realistic and aggressive with real possibility of upside. All these actions are evidence of preparation and progress. Let me summarize our 2012 performance. Please turn to slide four. For the year, earnings per share were up 6% to $6.32. Operating income rose to $6.5 billion or 5% increase. We maintain outstanding margins of 21.7% with five out of six business segments delivering above 21%. Sales for the year were nearly $30 billion. In organic local currency terms, sales increased 2.6% with particular strength in Latin America/ Canada, up 11% and the United States up 4% for the year. Asia Pacific was flat for the year in organic local currency, impacted heavily by a soft global consumer electronics industry, and Europe, Middle East, Africa was down 1%. Currency impacts reduced worldwide sales by 2.4% and acquisitions added nearly a point. We returned $3.8 billion in cash to shareholders through dividends and share repurchases, which was 86% of net income for the year. Finally, return on invested capital for the year was 20%. In summary, a solid year of results during uncertain economic times. The 3M team is well aligned and the company well positioned to win in 2013 and beyond. I will now turn the call over to David for more detail on our fourth quarter 2012 results. David?

Thank you, Inge. Let's begin with slide number five where I will breakdown the fourth quarter change in sales. Fourth-quarter sales rose 4.2%, our strongest increase of any quarter in 2012. Organic growth was 4.3% as volumes rose 3.6% and selling price increases were a positive 0.7%. Acquisitions added nearly one point to sales growth in the quarter and foreign exchange impacts reduced sales by one percentage point. On a geographic basis, Latin America/Canada was once again our fastest-growing region with organic local currency growth of 9.7%. This performance was broad-based with all six of our businesses generating positive organic growth in the region including double-digit increases in healthcare, safety, security and protection services, consumer and office and electro and communications. Brazil and Mexico both posted impressive results. Brazil grew 11% organically in the face of a still recovering economy and Mexico grew 10%. Organic local currency growth was 5.8% in Asia Pacific. Japan declined year-on-year reflecting continued tough economic conditions and the rest of APAC rose nearly 10% on an organic basis. For non-Japan Asia, this was the best quarterly growth performance in nearly two years. China was a significant contributor with organic local currency sales growth of over 16%. We also had another very good quarter in the United States with organic sales up 5.2%. Consumer and office led the way with strong double digit performance. In EMEA, or the combined Europe, Middle East and Africa, fourth quarter sales declined 1% on an organic local currency basis. Western Europe was down 0.6% year-on-year. The economies there have stabilized but are not yet growing. Our teams in the region continue to focus on market share gains and productivity. Let's now review the income statement. Please turn to slide number six. Sales for the quarter were $7.4 billion, an increase…

Thank you, David. Before we get to your questions, I'd like to spend a few minutes on 2013, and how we are working to strengthen 3M. I said earlier that 2012 was a year of preparation, progress and performance. With a planning behind us 2013 is a year of putting our plan into action and truly competing to win. To win, we are strengthening our portfolio, and at the same time, working to resolve some challenging business issues. For example, in November, we announced a combination of our security systems division with our traffic safety systems division. In recent times, these businesses have not performed to the standards we expect and we are addressing these issues head-on. Government spending for security has decreased over the last few years and those same factors have also affected our traffic safety systems' business. In a big picture bringing these two businesses together creates an opportunity to optimize the overall business and increase efficiency. We announced last week a restructuring in these businesses that will result in the reduction on 300 positions worldwide and we will take related Q1 charge of $8 million. In a company of our size and breadth there would always be some businesses under strategic review, and while the specific solutions may defer the underlying principle is the same. They will not stay under strategic review for long. We will take action. And in context, these situations are few when compared to 3M's overall portfolio of outstanding businesses. For 2013, we will continue to drive our strategies, invest in innovation, commercialize new product as quickly as possible and work to take market share everywhere. We have confidence in our plan and our people and in the planning estimates we gave you in December, which you can see on slide 10. We expect 2013 earnings per share in the range of $6.70 to $6.95. We look for organic local-currency sales growth of plus 2% to plus 5%. The tax rate is expected to be 29.5% to 30%. And finally, we anticipate free cash flow conversion of 90% to 100%. As for the near-term, we are naturally a bit more cautious. There remains a degree of uncertainty as we see some economies growing and others are slower to recover. The same dynamics can be found in specific markets. Healthcare is doing well for example, while consumer electronics just have to recover fully. Specific to the first quarter, we anticipate approximately $30 million of restructuring and one-time acquisition cost. This includes the $8 million in restructuring cost I mentioned earlier. The point is, we will execute our plan to keep improving and growing the business. Thanks for your attention. We will now take your questions.

(Operator Instructions). Our first question comes from the line of David Begleiter of Deutsche Bank. Please proceed with your question.

Thank you. Good morning.

Morning.

Inge, just in Industrial, sequentially, the business sales declined $73 million, but operating profit declined $106 million, sequentially. Can you just describe exactly what drove that dynamic Q3 versus Q4 in Industrial?

Yes, I think we have some businesses that do well and continues to do well there, like automotive did well. I think one of the impacts is the RED business that we had an issue with and have had during the whole year. The way we look upon RED is that is relatively small division for us, generally speaking, it is a $400 million business and you can look upon the segment, it has two segments, one conservation and one generation. Conservation is like the window films for us, that was type of flat. On generation side, which is wind and solar, as you know, on the global market that is a declining market. So we were down in that side. So I think that was a big piece for us during the quarter for the industrial in total.

If I could, David, as we look at industrial performance in the quarter, the sales were quite reasonable in terms of 4% growth year-on-year. Certainly, Q4, we always see a decline in activity including margins. As you know, as we called out, we were also impacted by the cost in Ceradyne.

Very good, and just, Inge, on consumer electronics, you mentioned it would be like weak through Q1. Any further insight in to when it might pick up via your customer's order book or?

No, I think 2013 will look like the beginning of 2012. It will look like the same. So we don’t know of the ways it will be coming but probably sometime in the end of Q2 is the indication that we can see at this point in time.

Our next question comes from the line of Jeff Sprague of Vertical Research Partners. Please proceed with your question.

Thank you, good morning everyone. Inge, back in November, you gave us some good insight to your thinking around business under strategic review. I just wondered if there is not anything else moving around? I think, at the time, you said there was about $2.5 billion of sales that were, maybe, in the crosshairs. Could you just give us some color on how big security and transportation is, now that you have put together, as a percent of that? And if there is any other businesses moving around in that thought process?

First of all, as I said, we are taking action related to that. As I said, that’s about fixed combined or closed in order to see the advantage of the businesses and if we can fix them moving forward. So I think this is a first good step for us. We believe by combining those two divisions that there is very good synergy for us in between the two businesses. Just to make a comment around it, both those businesses that are based on material as the core. So we are very strong in both those businesses in the core relative to material. Then both businesses are type of reaching out and go into more solutions around electronic. So that is the advantage of combining them in order to look upon the synergy. So when we look upon it specifically, you have elements of the customer facing opportunity, which I think is still very precise in terms of execution and then you can get leverage around technology, business processes, compliance and then manufacturing and supply chain. So when you do that, combine them, you will get more efficiency and also from an organization perspective around the world where we have all the subsidiaries. It will work very well for them because they get more focused, more dedication and can execute better. In many pieces there, as you know, is project management. So you need to have a specialist that is working with us. So combined those two businesses, we feel very good in terms of, this is something we can fix, it is something where we will win and we will move them forward. Some other businesses, without calling them out, we are working on that in order to solutions for them as an outcome around the strategic review. So this was two of them that we looked upon in order to make sure that we can win for the future. I will update you as we go and the actions will be taken.

And these two combined, would be the biggest single piece of businesses under review now?

So, if you look at the businesses under review, we have called out as part of that the security division was in there and that was a business, $400 million to $500 million of revenue out of that $2.5 billion. Traffic safety was not part of that group but inevitably as you look at how to get the right alignment across the businesses in our total portfolio, we made that change

Inge, can you, or David, provide a little more color on what you are seeing in China, the organic growth in the quarter, any particular end markets that are standing out, and I guess everybody's question really is, is there a legitimate recovery of some sort now underway there as opposed to kind of the hopes for one that everybody had last year.

Well, we saw recovery. And as you saw, we had growth in the quarter of 16% in total. Our base business, which is excluding electronic was like 10%, so that's a good uptick for us. And, I would say then and that's a quarter for us last year, right? 2012. Looking into the 2013, our base business, I would say will continue in the same mode as we saw then. We don't know yet in terms of electronics. So, electronic maybe will still be a little bit of a challenge as we move into the year, but for the base business we see recovery coming and we feel optimistic about that, but we're still cautious as you said, because when you look upon quarter-by-quarter, it's not the old China if you like, right? That's a different base line that we need to grow out from, but we can see recovery coming in base business and it's a big portion for us, so we sequential improvement in that as we move ahead for the base business going into Q1. Electronic is little more a question mark for us as we speak.

Yes, if I could add. So, base being industrial, we saw a good growth again in healthcare in the quarter and China as we've seen all year. And also recall, or you may recall that we had a very weak quarter in China last year in the fourth quarter, so quite honestly there's a bit of an element here of the year-over-year comparison.

I think five of six businesses grew in China in the last quarter

Our next question comes from the line of Deane Dray of Citi Research. Please proceed with your question.

Thank you. Good morning, everyone.

Morning.

On Healthcare, those are stellar margins above 32%, and typically when we start seeing the margins bump up that high, there's some cautious comments about sustainability that you may be making some investments in this business, but how would you frame for us in terms of that level of profitability and the outlook over the near-term?

Sure, Deane. So, as I commented in the speech, we are encouraged of course by the fact that we see broad-based growth across all of the divisions in healthcare again now in Q4. We did see a little bit of a pull forward in sales into Q4, in part due to those activities that will be impacted by the medical device tax. So, you saw it tick up a little bit in terms of growth and we know about a half a point of that growth was associated with that pull forward. In terms of margins, we continue to believe now that in 2013, we do expect the margins to run at 30-plus percent for the time being, but looking at this one, obviously, we had everything came together at the same time in that quarter and so I wouldn't suggest you that that you would bank us continuing to operate every quarter at that level.

That's fair. Then a broader macro question, I think a lot of folks in the industrial side were braced for some anxiety in December related to the fiscal cliff and certainly didn't see it in your organic revenue growth at 5.2%, but could you provide any color in terms of customer behavior? Was there any hold off or push out in orders other than that healthcare getting pulled in, but broadly anything that you think may have been delayed that may then snapback in January?

No. I would say, Deane, we saw sale, if you look through the quarter, the trends during the quarter were quite stable. We didn't see any particular effects that we could point to other than the one I just mentioned in healthcare. Obviously, the other piece of course, we were very pleased with was a holiday performance for consumer, but beyond that were there other notable ups or downs or inflection points? I would say, we didn't see any and therefore as we look at our guidance into 2013 by sector, we think that the growth ranges that we called out in December still looked good in terms of what we expect in 2013.

Our next question comes from the line of Shannon O'Callaghan of Nomura Securities. Please proceed with your question.

Good morning, guys. One question, just in terms of the overall margin walk, you had this utilization and other bucket. The volumes were up nicely and accelerated. What is going on the utilization? Did you actually choose to take your production a little bit down to get rid of inventories or is there anything else going on in that?

So if you look at the margin walk, we did have about a point there related to utilization. It was really a couple of things that are the biggest pieces of that. One of them is, we included in there some cost related to startups of some new factories that were restarting up. So we have got in particular, if you look in Singapore we have in the traffic signage business, we have a new factory that started up here in the fourth quarter. So that impacted our utilization, because there are costs as you ramp up the business. There also was also a new project we have got in the electronics space in touch panels that impacted utilization in a similar way. Then we also had, if you look at our utilization year-over-year, in a couple of areas we did see a lower level of activity. Those being in some of the consumer electronics related spaces. So, if you look at utilization in the semiconductor space, amongst our customers that was lower in Q4 and that impacted our business. As well as, Inge was referring to RED, or the renewable energy business, we saw some lower utilization at some of those factories. So that was really what drove that impact.

Okay, and then just looking specifically at the display and graphics margins. You had a few factors in there. You had FSTech, you had some of the startup costs there. Then traffic safety has also probably had down margins right. So can you just give a little color on the buckets of those and how much they contributed to the margin?

Sure. So if you look at it, we had a year-over-year decline D&G of about 2.5 points. As I mentioned, not related to divisions such as optical where we had very stable performance in terms of margin and very much what we expected. The two biggest factors there, as I did mention, about almost half of it was the impact of the FSTech acquisition and the other piece was more related to the startup cost which I mentioned that impacted the company overall. We had a little bit of product mix but I would say a third of the factors that you line them in terms of significance.

Our next question comes from the line of Steven Winoker of Sanford Bernstein. Please proceed with your question.

Thanks and good morning. Just first question on your pricing. So you had the pricing spread 140 on back of two quarters at 160, which is great performance but how much of that is or how do you think about that relative to commodities, giving you any kind of tailwind there and your ability to price on the commodity discussion and your ability to price going forward? How much is a function of that versus new product intro and what's giving you the pricing power across your businesses and what's your ability to maintain that given how critical that’s been to the margin performance quarter-on-quarter.

Sure. So you got the figures. We tried to lay those out quite clearly. She trend, as you know, is why we did have 0.7% price performance in the fourth quarter. That’s primarily the impact of price increases that were taken earlier in the year. With the situation on raw materials, as I have said in November, we expect the pricing impact in 2013 to moderate further. As to our ability to hold price and avoid commoditization, of course, as you know the business model is exactly geared towards offering innovative solutions that differentiate our products for our customers and provide value that they are willing to pay for. So no difference in that model next year versus any time in the past. In terms of raw materials, we do expect the tailwind of raw material price declines that we experienced in 2012 to substantially moderate. That's why we said in our guidance for 2013 that we think that that impact will pretty neutral. So, we do feel? We think it will be less of a contributor the combination in 2013 than we experienced in 2012, but also not the kind headwind we have the prior couple of years and we feel good about our ability to deliver on that.

In the pricing part of that though, you think that 70 basis point. I mean, as you look forward, you think you can maintain that kind of pricing alone?

In our plan for 2013, we do not expect to see price increases for the year as high as that 0.7.

Okay. Then what kind of inventory restocking impacts or destocking did you see across the portfolio over the last quarter and do you see that, has that been trending differently?

Yes. We don't, other than a couple of specific areas that we've tried to talk about today in specific businesses, the general trend we've seen we would say, if you look at the sales trend pretty stable for the company through the quarter. And I would say, we did not observe anything notable in terms of unusual inventory patterns.

Okay. And just one more in the guidance, you've got 2% to 5%, you just did 4% on organic growth. So, you know, presumably certainly a sequential move the other way. Is that fair or how are you thinking about that?

Well, yes. I mean, the overall guidance 2% to 5% for the company in 2013 we still think is the right way to think about it. If you look at the Q4 performance in terms of sales, which obviously we were quite pleased with moving from 2% on average during the first nine months up to 4%, if you sort parse that out about half of it was related to the performance in the consumer segment, which as I think we have talked about or we've inferred, we think that that was related to some fairly specific factors in Q4 and we continue to think 2% to 5% growth for consumer in 2013 is the right way to think about that segment. Then the other contributors most significant one to that pickup in Q4 was the performance in Asia, most significantly the base business in China. And, as Inge said, we've taken some reasons for some optimism that we are seeing a recovery as I think others are talking about are we getting I would were cautious to start running away with that is something that's going to continue to trend more strongly. But, again, we are encouraged by the indications.

I think, first of all you know we stick to our guidance we gave you in December. We're, of course, pleased with outcome of Q4 in terms of our growth, we are as cautious as we move into the year here and operate in the same way that we moved into 2012 very successfully.

Our next question comes from the line of Ajay Kejriwal of FBR Capital Markets. Please proceed with your question.

Thank you. Good morning. Could you maybe provide any color on how the quarter progressed? Obviously, very good organic growth quarter. Did you see any pickup in December? Then maybe any early read into what you are seeing in Jan? Have the trends that you saw in the fourth quarter, have they continued? Have you seen any pickup? Any thoughts there would be helpful.

Sure, Ajay. Yes. I would say, again, and not repeat but if you look at the selling rates more on a daily basis, we didn't see anything changing in Q4. Now, there were some issues around how many selling days there were as between October, November, December, so you know you get some different outcomes if you looked at that on a monthly basis because December actually had a lesser number of days than last year. But as we look at it on the on a very granular basis, we didn’t observe any trends that were implying some new level of inflection in our overall business in total and again, obviously, some pluses and minuses which we have tried to call out here today. If I then roll forward into where we are sitting today in late January, we see relative stability in terms of the overall business. Again, I don’t see anything that I would point to that would indicate some new information for us here.

Good, and then on the consumer business, I know there were a couple of things that helped the quarter but even ex-that, it looks like you had really good topline. So does that change how you are thinking about the business, how that business does this year. Your guidance I $2 billion to $5 billion for that segment. Based on just the performance, do you think you could be conservative? Any thoughts there?

First of all, we are very pleased with the performance from consumer. It is probably the business during this year that really put a very good plan together were able to execute it to very successfully. And as David laid out, there was some specifics in Q4 that boost the growth for us. But however it was a very good growth in both businesses and in all geographic areas. As you recall while we eventually can see a little bit of uptick as we go further out is our relatively low penetration in international. So we will keep the guidance for now. What we can say very clearly that we are making headwinds both in international and in United States and have both very good growth in United States, as David called out in our Q4 in a highly penetrated market. Then we have still a lot of opportunities in international. The thing that what is happening is that business have improved the consumer insights and they have added their sign as big elements of the business on top of the innovation that we can provide for the company to them then their very strong category management capabilities that we have in that business. So you look upon consumer, for us, long-term is a very, very good business for us with good upside and both that business and healthcare, as you know, for us is what we call very much local domestic businesses that we were able to grow and both of them have still big opportunities in international. So we are very encouraged as we move ahead but we are not changing the guidance in terms of growth as we speak here today.

Our next question comes from the line of Nigel Coe of Morgan Stanley. Please proceed with your question.

Thanks, good morning. I think most of my issues have been addressed but just quickly, you scaled the size of the security systems business but traffic systems have got my model at $0.9 billion. Is that about right?

Yes, it's just under $1 billion business.

Then just couple of quick ones. Since you gave 2013 guidance the Yen has been under bit of a tear, does that change in anyway? You have got a quite a big exposure to Japan. It is about 8% of your sales, I believe. So does that change anything in terms of FX impact or perhaps margin?

No, it's not sufficiently material to us right now, Nigel that we would feel that we need to call out a change. Obviously, we are monitoring because the Yen has weakened already and there is obviously a lot of talk about a further weakening. If you recall, we hedge about 50% of all of our exposures. So that gives us certainly the ability to navigate and adjust the business if we see something more structural happening, but not material right now that we would need to talk about.

Nigel, I would add too, it's 8% of sales, but we do have a 25% minority partner in Japan. So a quarter of the profits belong to the minority. So from a sensitivity standpoint, the move in the Yen is going to be less pronounced than it would be with the likes of the Euro.

Okay, good, and then staying on FX, there is some linkage between U.S. dollar movements and pricing, particularly in regions like LatAm. Has the stronger dollar over the last couple of quarters had any impact, albeit at the margin, on pricing in those regions?

Well, in some of our contracts we do price pegged to the dollar. So in fact to the extent that the currency has weakened we saw, in local currency terms prices increased and likewise you would see some reductions in pricing which would be reflected in the overall 0.7 that we mentioned.

Okay, great and then just finally, we finally saw a renewal of the R&D tax credit. You got a pretty big R&D investment. Does that change at all your tax view for 2013? I know you maintained the line at 29% to 30%, but does that maybe put it down by some tax rate in 2013?

Yes. What I would say is first of all we came in for the year at 29%, which is right in the range of 29% to 29.5% that we had indicated for 2012. It is true that if I look at there is a modest effect for us of the carryover impact of the deferral of these extenders into 2013. But as we look at the number of different factors that impacts the tax rate during the year, lead us to include at this time that we think that 29.5% to 30% outlook for the company is a good. And quite honestly, the information I have in front of me, I don't see any reason why quarter-to-quarter that that rate is going to be vastly differed from the full year rate guidance I have got out there.

Our next question comes from the line Steve Tusa of JPMorgan. Please proceed with your question.

You mentioned a couple of the moving parts on the first quarter. I think the normal seasonality is up, but no double-digit 10% to 15%, but you mentioned I guess $30 million of incremental restructuring are there any other moving parts into the first quarter or should we just expect kind of normal seasonality here on an earnings basis?

Yes. I would say what we see right now is pretty normal seasonality, Steve. The one area that we are cautious about, which Inge mentioned is in the Electronics space. We do see some ups and downs there and we think that we may have some lower level of demand in some of those sectors for example, as I mentioned semiconductor, utilization has been running a bit lower. I think that will impact us in Q1. But overall, we think it's fairly normal.

So, like low 160s kind of numbers? If that's just a 10% to 15% increase from the fourth quarter, just the math?

Yes. We don't do guidance on a quarterly basis. We'll probably keep that at least for the time being.

Okay. Then one last question, just on the inventory dynamics, I mean, I guess looking back there, your portfolio is kind of like electronics, healthcare and then some industrial businesses. Just looking back over the past year, did you think you have seen an impact from inventory dynamics outside of electronics mostly in the industrial businesses and maybe you noticed in the postmortem of the last year-and-half of the volatile economy? Is there any way to kind of quantify how much that might have been if you had any, or is it even material?

I would say, yes. Good questions, Steve, and in the past we spent a fair amount of time talking about inventory dynamics and the effect on sales. If you look at the sales through the year, pretty stable. Obviously, the low end of what we were looking for as the economy was basically downgraded through the year. If I look at our growth performance overall as compared to the overall industrial economy, it was a little bit towards the low end of that range and I could infer from that that there was probably either neutral or some level of destocking through the year that might have affected us.

Okay. So, no material destocking that would lead to any significant benefits on auto restock? I mean, clearly looking at some of the more OEM component guys like Kondamal or something like that sales down 15%. You guys didn't really see that?

Not anything dramatic like that no.

Our next question comes from the line of Andrew Obin of Bank of America Merrill Lynch. Please proceed with your question.

Yes. Just a couple of clean-up questions. In terms of this 1 percentage point drag, and you sort of seem to have indicated that most of it comes from, a lot of it comes from the start up costs. Should we expect those to moderate throughout the year?

Yes. I think that's fair to assume. Well, we will always have start ups. We had certainly record levels of capital investment here in 2012. As we told you, we expect our CapEx to rise in '13, and while I would say as there is ups and downs in terms of both the startup cost, so we happen to have some startups in the fourth quarter, sometimes coincidence with both the lower production requirements in seasonally in the fourth quarter. Sometimes it will take advantage of a holiday shutdown to plan around those startups. So, if I looked quarter-by-quarter, quite honestly I haven't done the deep analysis, it may be true that you see seasonally a bit more startup costs in the fourth quarter, but throughout the year we will have that type of activity certainly.

But the drag should be the highest in Q4 than Q3?

I think that's a fair way to think about it. Yes.

And other question I have just an observation, if I look at the organic growth, it's the best since Q1 2011 and if I look at the pricing, interestingly enough it's been on a downward slope and it's now probably the weakest since Q1 of 2011. How should I think about dialing up pricing up and down to drive the organic growth? Is there a linear function here?

I would say, not on a quarter-to-quarter basis. So I think the facts we are staring at here in Q4 are a perfect example of that, which is there is not a short-term and direct correlation, i.e. we have taken up quite a significant amount of pricing earlier in the year. The decline in that is more of a function of the fact that we had a lot of earlier price adjustments which now mathematically result in the lowest price increase in Q4. If you look at the sales growth as we have talked about some specific factors around what's going on with some improvement in the base business in China as well as the consumer business. So it's a good observation. I wouldn't draw a direct cause and effect in the short-term from that.

So, I should be thinking that NPVI strategy continues to be successful and you can get both in theory, topline and pricing long-term?

We believe that's true, yes.

Our next question comes from the line of Laurence Alexander of Jefferies & Company. Please proceed with your question.

Good morning, this is Rob Walker for Laurence. Can you provide an update on your supply chain initiative?

Yes, we continue to build that out. As you recall, we started out maybe four, five years ago. One thing that is important is for us to build what we call those super hubs where we are coming closer to the markets and the customers around the world due to the fact that, that is where we see the big growth. So, it's an ongoing process. I don't think we will ever be ready with it because even when we will be ready the market is stagnating at that point in time. But we make very, very good progress and even now in last quarter, we started a new investment in Turkey, where we are building out a good hub for both Central East Europe and Middle East Africa. So, we will be the bridge in terms of our initiatives for that part of the world from a supply chain perspective. We have also a big initiative going on in Europe but we try to consolidate our supply chain in West Europe specifically in order to be more efficient and coordinate that in a better way. So it's an ongoing process. We are making very good progress in the process there. But there's still more to do and as I said, I think it is one of those that you will never be ready.

Thanks and then, what are the prospects for market share gains this year across your portfolio?

Well, our plan is aggressive in terms of what we need to do in order to take market share and specifically in developed economy. As you know, there is not much growth in the market. So we have very aggressive market share plans in that part of the world. So you should look upon it like a 50-50 base. So what we say is you need to take 50% of your growth from market share and 50% based on penetration. And I think in most businesses, we still have a good upside relative to market share. The other thing you have to think about our business model is that we are working in different categories, right. So we have a type of consumables that is going into health care and the consumer market and some consumables that is going into manufacturing product that is used in order to help to improve productivity and efficiency. That’s one piece of it. The other piece is, where we are expecting on big platforms. So, the point is for us is growth in total. In some businesses, we can go, write it down and calculate the market share. Other thing, we create new solutions on platforms that is running for long time. But if you go in to specific on consumables, in both consumer healthcare and the industrial, we have aggressive market share plans and we still believe we can deliver on that.

Our next question comes from the line of Adam Fleck of Morningstar. Please proceed with your question.

Hi, good morning. Thanks for staying on guys. I appreciate it.

Morning.

Quick question on inventory. Your company inventory came down sequentially, of course, that's typical for the fourth quarter but it finished a little higher than we've seen in previous years. Are you comfortable at this level here or how do you think about that?

Yes. So, I would say, as you exactly observed, we typically have seasonally here, Adam, decline in inventory in Q4. If we look at our turnover metrics, they look very comparable to other years, other fourth quarter-type performance areas. We did mention that we do expect here in the near-term to have some specific areas, where we might have some further reduction in activity in the first quarter, specifically in some of the consumer electronics area, but overall I would not say there is anything fundamentally different going on.

Okay. Great. Thanks. That's helpful. Then shifting to Europe, kind of a bigger picture question. You mentioned that you are seeing a bottom, but the region isn't really growing out in Western Europe, and of course you are forecasting, I think a negative 3% to a positive 1% growth for this year. How do the development that you've seen that bottoming, how does that fit into your expectation? Is that kind of right in line with it or is it on the top or bottom of that?

Yes. I'm not sure exactly if I'll answer your question as you're trying to pose it, but if we look at Europe right now, we've had a couple of years now or about a-year-and-half, where we printed negative growth performance. It has moderated obviously. And as you pointed out, we are calling out a range that centers on minus 1 next year. So, everything we can see, we are running pretty stable there, there's some ups and downs as between north and south. But overall when you look at the portfolio pretty stable, and what we've really been focusing on with the business is to make sure that we are as competitive as we can be as a company in Western Europe, so we're looking at how we can take advantage of opportunities to leverage our business across the entire region. We are looking at areas of growth, because inevitably there are opportunities to grow in the region. And so, in areas like healthcare, we've seen some growth opportunities and then we are also looking at how we can optimize and make sure we are making a reasonable return, so we were pleased this year that we did see our margins improve despite weaker sales performance.

Okay, great. That's it for me. Thanks.

That concludes the question-and-answer portion of our conference call. I will now turn the call back over to 3M for some closing comments.

I would like to thank everybody for spending the hour. Appreciate your questions, appreciate your attention and your ongoing support of 3M, so we will talk real soon. Thanks.

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