Welcome to 3M First Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. (Operator Instructions) It is recommended that you use a landline phone if you’re going to register for a question. As a reminder, this conference is being recorded Thursday, April 24, 2014. I would now like to turn the call over to Matt Ginter, Vice President of Investor Relations at 3M.

Thank you, good morning everyone. Welcome to our first quarter 2014 business review. Inge and David will make some opening comments today and then we will take your questions. Before we begin I've a few brief announcements. Our remaining 2014 earnings calls are scheduled for Thursday, July 24, Thursday, October 23 and Thursday, January 29. Also, please hold the morning of Tuesday, December 16 on your calendars for our next investor meeting, the details of which will be available later this year. Note that today's earnings release and slide presentation accompanying this call are posted on our Investor Relations website at 3m.com under the heading Quarterly Earnings. 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 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. Please turn to Slide 3 and I’ll turn the call over to Inge Thulin, 3M’s Chairman, President and Chief Executive Officer.

Thank you, Matt. Good morning everyone and thank you for joining us. The first quarter was strong for 3M; marked by organic growth in all business groups and across all geographic areas. We posted record sales in return record cash to shareholders, by also increasing investments in R&D and commercialization to reinforce our foundation for long-term success. Let's look at the few highlights earnings per share rose to $1.79, an 11.2% increase year-over-year. Sales were $7.8 billion the highest first quarter total in 3M history. Organic growth was 4.6% paced by our health care business at 6%. Industrial, Safety and Graphics each grew 5% organically. We saw organic growth in each geographic area led by Asia Pacific and Latin America/Canada at 7% each. Europe, Middle East, Africa grew 4% followed by the United States at 3%. I'm very encouraged by our continued broad based organic growth, which is more evident that is our strategies are working. Currency reduced sales by 2% in the quarter, which was about 1% points worse than our expectation entering the year. Operating margins were again strong at nearly 22% up 30 basis point from last year. Four of our five business groups reported margins greater than 21%. It remains a good time to be a 3M shareholder. The company returned $2.3 billion to its shareholders to cash dividends and share repurchases. We increased our first quarter dividend by 35%, which marked 56 consecutive annual increase. In summary, the first quarter was a solid start to 2014. This is only possible because of the hard work of our entire 3M team on a global basis because of the efforts, we continue to deliver consistent and strong results today, while at the same time investing and building for the future. Now please turn to Slide number 4. With one quarter behind us, we are reaffirming our earnings and organic growth outlook for the full year. Earnings per share are expected in the range to $7.30 to $7.55 with organic local-currency sales growth in the 3% to 6% range. We now anticipate foreign currency translation to reduce full year sales by approximately 1%, a slightly bigger headwind than previous expectations. Our tax rate estimate remains at 28% to 29% with cash flow conversion at 90% to 100%. David will now take you through the details of the first quarter. David?

Thank you, Inge. I'll begin by reviewing first quarter sales growth. Please turn to Slide number 5. Worldwide organic local-currency grew was 4.6% in the first quarter with volumes up 3.4% and selling prices up 1.2%. We continue to experience positive selling price changes across our businesses. Boosted by world-class innovation and strong new production flow both of which are important elements of the 3M business model. In addition, we've been raising prices in certain developing countries to help offset the impact of currency devaluations. Foreign exchange impacts reduced worldwide sales by 2% points in the first quarter and as Inge mentioned this was about 1% point worse than we expected at the beginning of the year. The most significant currency headwinds were in Latin America/Canada had negative 12% as several countries in the area experienced devaluations. Currency impacts were negative 4% in Asia Pacific and a positive 2% in EMEA. On the total US Dollar basis sales rose 2.6% versus the first quarter of 2013. Looking by area, demand accelerated in Asia Pacific in the first quarter with organic local currency growth of 7%. Growth was led by strong double-digit performance in Japan where demand was elevated leading up to the April consumption tax increase. China, Hong Kong grew 2% organically in Q1 or 8% excluding electronics. On a business basis, all five groups within Asia Pacific generated positive organic local currency growth in Q1 led by health care and safety and graphics. Latin America/Canada also grew 7% organically, a nice acceleration versus the fourth quarter. Growth was led by solid double-digit performances in Brazil and Mexico; our two largest Latin American subsidiaries in terms of sales. All five businesses posted positive organic growth in Latin America/Canada during the quarter including double-digit growth in health care. Electronics and energy…

Thank you David. As you can see, the year is off to a good start. We continue to execute well against our long-term strategic levels, which I would like to update you on. Let's first start with portfolio management. In the first quarter, we realigned and combined certain businesses to increase customer relevance, build scale and generate cost efficiency. In the Safety and Graphic business group, we merged commercial graphics and building and commercial services into newly formed commercial solutions division. This brings a comprehensive array of branding, design, protection and maintenance solutions under one division allowing us to present one strong voice to the commercial markets customers. Earlier this month, we also further realigned our electronics related businesses to more effectively position them to accelerate growth. We are now organizer on two large divisions. One is display materials and systems, which consolidates all of 3M's capabilities in electronic displays. [Batteries] electronics material solutions which aligns our offerings in semi-conductor electronic materials and components. This changes will better align our capabilities with customers needs and expand our leadership in this area. Also in April, 3M acquired Treo Solutions, a leader in the health care, data analytics. This will bolster our health information system business by allowing it to supply customers with better solutions at lower cost. Let's talk about the second lever, investing in innovation. Innovation is the heartbeat of 3M. It drives what we do every day and allow us to create even greater value for customers. Innovation generates new growth and is the key to our long track record of generating premium returns throughout the business. In fact, one-third of our revenue in 2013 came from products created in the last five years and we are targeting 37% by 2017. And we expanding our innovation capabilities globally, we…

(Operator Instructions) Our first question comes from the line Andrew Obin, Bank of America Merrill Lynch. Please proceed with your question.

Good morning, just a broad question. As I look at 3M, you guys delivered another quarter of some of the best top line growth in the industry and if you look at the margin expansion. You're actually starting to get it, but then if you look at the operating line the leverage seems to be limited and I understand it's a functional some of it discretionary spending that you guys are doing. So two questions; A, what is the level, what is run rate of discretionary spending that we should be expecting for the rest of the year? And second a broader question, sort of 3M seems to be a combo and industrial company and a consumer company, but your operating leverage now behaves a lot more like consumer company than an industrial company. Do we get sort of operating leverage on the industrial side by some point this year? Thank you.

Yes, thanks Andrew. So in terms of the leverage we get from growth. We saw in the first quarter, I think very typical of what we've expect from the overall business which is somewhere 35% to 40% operating leverage on the growth that we got and what's true as you pointed out and as we had planned, we do plan to reinvest a significant portion of that in some of these key strategic investments through 2014. So we have said in the beginning of the year that we expect to invest in these investments program somewhere between $0.10 to $0.20 during the year and we invested $0.07 a share in the first quarter. So we still expect to invest at that $0.10 to $0.20 range probably towards the high end, the way it looks right now, but what you can expect through the year is that you'll see some moderation of that spending. So obviously, the business transformation and the R&D investment is pretty steady through the year. We also invested, we did some restructuring in the first quarter that we'll look at each quarter and determine, whether or not there are projects that we should undertake and also some of the spending was in this European supply chain center of excellence, which will lap that spending here as we move into the second quarter.

Just on structural, I understand that you need to invest and it's part of the culture, but as I said should we see more operating more top line dropping to the bottom line in the second half of the year, is that a reasonable expectation given what you've stated?

Yes, I mean if you look at the plan we laid out for the year. What you could foresee, is that we will some inept increase in our margins for the year, which we did see already here in the first quarter. So I think it's fair to assume that will continue as we look through the full year.

Thank you.

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

The 50 basis point increase in gross margin and when I look at the gross margin overall. The highest, I think since that was 6 certainly for a long time and you peaked in that earlier time period over 50%. I know we are having sort of the discussion about investments below the gross margin line, but is most of that increase on the pricing versus raw material front and how do you think about this sustainability. I mean clearly you have a lot of pricing power and you're making up for some inflationary issues, but when you sort of look at your material cost position, cost out and continue pricing efforts, are there other things going on there in the volume leverage etcetera and we can sort of see that number also continue to tick up for some time.

You're right, Steve. We were encouraged this quarter by the improvement in our gross margin which seasonally for us, the first quarter is usually the lowest of the year. So that was encouraging, if we look year-over-year. What's true, it's a combination of several factors. Certainly productivity features in that and you've heard us really focus in these last couple of years around the rejuvenation and taking segment to the next level and, so we are seeing I think some of that coming through. Certainly, we've been working the portfolio to focus resources where the best opportunities are and I think that's certainly contributing to the overall gross margin profitability of the company and then finally, there certainly as you know and as you pointed out. There is component of price in raw material that's supporting this. On the pricing side, we had quite strong pricing in the first quarter down a little bit from the fourth quarter but nonetheless quite strong at 1.2% and if you'll look at about half of was that attributable to the freshness of the product portfolio and really the price value relationship that our customers described to those products and the other half, was largely attributable to offsetting the foreign exchange movements in particular in the emerging market. So as a combination of several factors, but obviously it's something we continue to focus on and seek to improve.

That's great and Inge. You've talked less about it, yet another organizational set of changes internally that just sound like a continued large transformation going on. Are these latest ones that you talked about today? I mean, how much – it sounds like it’s all channel driven but you're also going reap some cost synergy benefits from it? So there are other elements besides the channel and customer facing front here that will be, we can see the benefits from overtime?

First of all, if you go back when we lay out our six new strategies when I took office. A little bit more than two years ago, the first strategy is to calling out relevance to customers and this is the implementation of that. So when you have the strategy, you need to follow through in order to make sure that you on the way to obtain your overall or be active. So some of this changes that we've done is clearly based on relevance to customers for us to be able to respond faster based on their needs, where you know as you know that our technology platforms are very important and we need to be able to respond fast back to them based on solutions, we are working with them. In my mind, as we not have looked into the organization structure maybe for almost 10 years, there was some disconnect in between our internal organization in the market, so we are addressing that. And of course, so drive it first from relevance to customer, to market, but there is also cost benefits of course into organization structure, as you make those moves because you reduced specifically in the back office and in the middle management, where you can reduce cost and be more ideal and so forth. So if you think about it from a speed perspective because we would like to accelerate speed in terms of responsiveness to customers. We have in some parts of the world, that we have not talked about now for long time also consolidate subsidiaries into region in the part of West Europe and we have done in Latin America, etc. So if you think about that, well you now have connection points where we previously in some cases said three sizeable but not huge divisions that needed to interact. For instance, in Nordic with four different countries where we today have one-to-one. So you have one huge division totally focused in market space and you have one geographical area in Nordic that's incredible move and shift if you think about speed in order to execute, when you went from three Vice President's back in St. Paul and four Managing Director, Nordic. Now you go one-for-one, I can tell you that has an incredible impact on the organization in terms of speed as we move ahead. So look upon it like increased relevance in the front end for the customers and for us also to be able to leverage cost in our structure both in international and in the center of the organization.

Great. Thank you.

Our next question comes from the line David Begleiter of Deutsche Bank. Please proceed with your question.

Inge and David, are you able to break out the weather impacts in Q1 and if so, how much of those are permanent and how much will be recaptured in future quarters?

Well first of all, it's difficult in a way to talk about it because we are global company. So some places around the world, the weather was okay. So I think and you think about it that was some impact in United States and United States is 35% of our business. So it's difficult for us to quantify it, but of course we had some impact of it in United States specifically and it was related to as David said, was traffic in the stores was down which had an impact on our consumer business and that was also delayed in some of the construction and specific relative to traffic, safety and road safety. If you take road safety and traffic safety. I think that will come back. It's a timing issue, so we will get that back as we go. If you go into the combination of the lower traffic in the stores the first quarter that's maybe gone but we will compensate that in a different way, but you know we don't talk much about weather to be honest, right it's -- we are global company and the sun is always shining somewhere and that is what we need to capitalize on.

If I can, just add briefly David. So if you will look at the US from a trend growth perspective. We saw in the second half of last year, we grew around 4.5% during that period and we've got guidance in place for the year of 3% to 6% for the US and we grew 3% in the first quarter. So it feels to us, the guidance is still right and that we will some recovery, as we move through the year.

And just lastly, of the two segments posted year-over-year or any declines in safety and consumer. Do you think they can return to earnings growth in second quarter?

Yes, we think that we've got and outlook for both of those businesses to grow again with the average of the company for the year in the 3% to 6% and we think that their margins will operate around the company average, so that would imply some improvement in consumer and probably in the safety and graphics. If you look seasonally, they run a little bit lower in the first quarter typically anyway.

Thank you.

Our next question comes from the line of Scott Davis of Barclays Bank. Please proceed with your question.

Do you guys, when you think about pricing. I think 3M has a history of being pretty good on price particularly the last five years or so, but is there a trade-off that you see, a clear trade-off between price and volume. Do you have a sense, that you're giving up volume and do you have so much pricing power in most of your businesses that it's fairly immaterial that, it's more of a next issues, it's just a better product.

Yes, we don't feel at this point in time that we are giving up volume. You have to think about it in terms of our position in the market and all the new products that we are introducing, as many of them are based [specking] on platforms etc. So I will not say that, we're at this point in time or giving up anything that we are aware of and as you know, our power in terms of pricing is pretty strong. And it's all based on, of the value of the solution that we are providing. So I think that's important, so I don't think that's a issue. If we had been, we had not continued to execute based on our strategy in that area. I think it's more in terms of you talking about growth generally speaking, is maybe in some part of in the developing world that we will add different type of products and solutions that on meeting. I will say that, their price points and affordability in that part of the world, but that's a different discussion because that's more around the product portfolio that you're introducing in developing economies and I think that, we still have huge opportunities and as you heard, I talked about now that we have build out our capabilities with 45 customer technical centers around the world, that's exactly what we can capitalize on. So for us, it's important to make sure that we develop product that are adding value but also affordable for that market but we still have a very high expectation relative to our margins in the company and we are not giving up on that. So you should earn your right in order to introduce products with lower margin. You have to find a different way to produce them and make sure that you get the margins that we expect and that we can prospect you as a shareholder.

Okay, that's a good answer. It seemed in this presentation as I'm looking at Slide 7. There's new emphasis not a new I should say, but at least an increased emphasis on acquisitions. You cite that, there's a line here says, multibillion dollar deals possible. When I think of 3M and your margin profile and the technology you're having. The stuff available out there realistically that you could buy without having to pay enormous multiples and I think 3M type of assets. The things have been bid up so highly 15 to 20 times EBITDA. I mean, it would be difficult to do this types of deals. I would image but, is it realistic to it to assume that you can find things that are interesting that have the margin structure and the growth structure that you're looking for?

Well again, it's coming but first of all you're right when you correct yourself. It's not the new emphasis. We've done acquisition, quite a number of acquisitions over the years, right? I think the new one and very good thing for all of us is that based on the portfolio management, we are putting place. We get a very good profile of where we should invest first, there's a second as we move ahead. I think the biggest acquisition 3M had done over is a $1 billion or so and in some spaces in order for us to be more relevant. We maybe need to do slightly bigger than that, as we move ahead. As you saw, we didn't execute on acquisitions last year and the reason for that was that, we couldn't find any added value for all of us, but I can tell you our pipeline is strong. We are working it for each business and let's see what is happening as we move ahead, but in order for us to build out relevance in some cases. We have to look up interesting spaces first.

I guess, I would also add Scott that. I mean, it would be quite unusual as you observe that we would find companies that have the type of profitability in performance that 3M, but that's very typical. We'll look at targets will identify, how we can create value by bringing them into the portfolio and leverage either technologies or brands our global distribution and when we do those transactions litmus test for us, is to become convinced ourselves that we can take a business and turn it into a 3M like performing business, which we've done very successfully over the years in a number of different instances. So that's either the challenge or the opportunity certainly.

Okay. Great. Thanks, guys.

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

Just maybe a little bit more on some of the moving parts on managing currency in the quarter. I mean, first of all, to get to this neutral position in Venezuela, did you have to take a head to get your remaining receivable out of there and then the positive price in Asia Pac, which never happens, is that an FX dynamic?

First on Venezuela, yes we actually as I mention in the commentary. We did see a slowdown in sales and income that we generated on the ground, in that the availability of currency of imports is been pretty non-existent since already the fourth quarter. So that caused to slowdown in the business, what's also true for us as we've been able to maintain as I mentioned here neutral monetary asset position and therefore as it relates to both the local balance sheet as well as the exposure we've got from offshore. We were able to manage through that and we don't see that being risk as we sit here today and of course things can always change, but we feel much better today than we did last time we were on the call, there months ago. And then in Asia Pacific, could you repeat the question?

Well, I mean price was positive in Asia Pac, which is pretty unusual, I didn't know if that was in price increase related to offsetting some type of FX or that's unrelated.

We have had some pricing pressure in some of the countries out of experienced evaluation over the last year. So that would be a portion and what's also true right now is in a number of our product areas. The price value relationship of some of the new product, we are launching is been very strong. So we were encouraged by the performance there this quarter.

Just on kind of your current assessment of the global economy. Volumes in every region except the US improved this quarter. US sounded like it was mainly weather related, are you encouraged by that? I mean do you feel like improving momentum or is it more of a comp thing. Maybe just a little more color about what you're hearing from the businesses globally and how encouraged you might be or not be?

Well I think, first of all of course encouraged in the way that the growth is, it looked like steady for us. Now if you look upon our performance here the last couple of quarters, it have improved for us right and as you say, it's going up and down in some parts of the world. I will say that, APAC it came back slightly. So APAC is, I would say the same position as we've had before. They had a good growth in the quarter for us slightly better than Q1 and how they ended a year. West Europe grew 3%, which is equal to how they ended back 2013, so that's a 3% and it looked like the combination in Europe, what we've talked about before about North and South is not very much equalized, right. So looked like 3% is steady growth there. Central East Europe, Middle East. I was certain Middle East, Africa had a good growth for Central East Europe slightly lower in the quarter where you could see that some business or countries did well like Turkey had higher growth rate than you saw in Russia and Poland. United States personally, I'm not overly concerned was 3% growth for the quarter. We start at slower and came back stronger in the quarter and that's related to what David talked about relative to traffics and stores and delay in construction. Specifically in the road side for us. So I think its look like we are going sideways slightly, up but not much, right? So I think we need, neither one but two quarters here to see, if it's moving on a high run, but as we said we are firming our growth rate for the year. So we feel, yes there you have the answer. Encouraged and I look upon it, rather better than was.

Okay, thanks a lot guys.

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

So on health care, you're continuing to see very nice growth here in developing markets and I know in the past, you've talked about new products and penetration and all that. So maybe just, help us with, where are you in terms of penetration. How much runway do still have there and the sense of sustainability of this double-digit growth rate that you're seeing here?

Well, as you saw health care grew 6%, right? And if you separate out developed was 5% and developing 10%. And you think about the mix for us, it's like developed is almost 80% and we are 20% in developing. So already there, you have the answer relative to big opportunity in the developing world, as we move ahead. Now we have very sophisticated solutions in our business in health care, which is one of the reason why we are able to continue to grow in developed word and to very attractive margins and the pipeline of new products is very strong for us in health care, if that's in hospital consumables with fastening systems related to our dressing business or if it's in infection prevention, we're becoming new measurements tools start that will increase the time for measuring what they're doing in the infection area by 50%. We have a very strong pipeline of product going on there. So I will say that, think about it like developed word, we are able to continue our growth and margins due to very good added value products, which is needed in an environment where there is pressure on cost and then in the developing word for us it to, start to implement the penetration plans that we now have been working on for quite some time and in addition developed products that will meet the needs from a price perspective in some of the countries there. They never have a problem with a quality of products, as you assume. When you look upon our Tegaderm products, or Micropore tapes or [indiscernible] products. The problem is never quality, the problem is affordability and there is different ways for us to go around that. So we are very, we see very positive on our health care business and as you see again this quarter very good result and it's not by accident. You know, as you said business we are build out for many, many years and there is lot to come relative to our future in health care.

I'd just add, Ajay. I think another piece of evidence that supports that is not only the consistent high level of growth, but again for example this quarter double-digit growth in a number of different countries Brazil, Mexico. If you're looking Southeast Asia, if you're looking China. So if you saw it in one place concentrated you might be less confident but as we see it individually across all of these markets. It's very encouraging as to the opportunity and sustainability of the growth.

That's good. Maybe couple clarifications on restructuring you mentioned $40 million investment in the quarter. Is that included in the $0.07 growth related investment you mentioned and then if you can help us with a full year number, what should be modeling in for restructuring?

Yes, so the answer first of all is yes inside of the $0.07 the share, we have $40 million. It was a combination of restructuring primarily in some of our operations in Europe as well as the cost year-over-year increase of this European supply chain which as I mentioned will lap that increase, now as we get into the second quarter. So that's piece one. Piece two is; if you look at the total of the combination of the longer term investments in R&D and business transformation plus these items of restructuring and repositioning. We expect that, we had said $0.10 to $0.20 a share for the year and as I mentioned earlier, it looks now like will be towards the high end of that $0.20 range, with some front loading in the first quarter. So you can think about it declining somewhat, as we move through the year.

Got it. Thank you very much.

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

Just two quick cleanups for me. First on electronics, you noted China, Hong Kong was kind of strong ex-electronics but your electronics performance overall actually looked okay, pretty decent. Can you just kind of reconcile those dynamics and a little more color on what's going on in the electronics part of the business?

Look upon electronics specifically relative to APAC in total. So we had 5% growth there and that business is type of moving in between countries from time-to-time. So for China and Japan specifically was type of opposite perspective. They have [coms], that in one case was easy and the other case was tough. So easier for Japan, tougher for China so that's the answer and then this quarter specifically much more business went into Japan in terms of our sales but later converting around Asia. So that's the answer to that question. So if you take China for us, best business there was 8% growth which is slightly better than fourth quarter for us and slightly better year-on-year. So China was okay, when you look up the total electronic markets. When we look upon semi-conductor, data storage, smartphone, notebook, tablets, T.V., etc. The market generally speaking went sideways I think in terms of volume. That, you had of course tables going up and capitalize on notebooks in terms of the volume generally speaking. So for us, we are in all those devices with different type of levels of penetration, but that business is improving generally speaking and I would say, if you take the whole business group of the electronic and energy. You saw they had growth and they have margin expansion of 200 basis points year-on-year. So it's we are coming around and addressing a lot of issues in that business and I'm personally very encouraged and I think that management team guys doing a super job for us addressing some of issues we've had in the past. So I think, it's good we are addressing it and they're taking care of their own destiny and I'm very pleased to see that happening.

Right and just a quick one for David then also. You've initially guided your tax rate, assuming the R&D tax extenders and everything came through, it looks like they won't but you've found a way to maintain the tax rate guidance. What is going on there, is it some of the restructuring Europe maybe just a comfort level also on that tax guidance at this point?

Yes, so if you look at the guidance we maintained the 28% to 29% for the year and that does continue to presume that we see a renewal sometime before year end of the R&D tax credit, which is worth about 40 basis points to us. So both of those we continue to foresee and then we saw some, first quarter was a little bit better than the overall full year, which was related to, we completed some prior year audits and we ended up releasing some reserves that we'd established, so that's the answer to the question.

All right. Thank you.

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

Just again cleanups I guess, so David you mentioned roughly half of the price increases is a function of the currency weakness particularly in Latin America. So one thing about the, 110 bips benefit from price roll seeing your margin build and 50 bips from FX pinch. Is it that a phase, the impact currency net-net is neutral to margins?

No actually. And then we try to call it out, we had a net impact of FX in the quarter of 50 basis points in that.

Nigel, if you look on the income statement Slide with the margin block, you'll see it right on there.

Right, but then 110 bips from price, in some ways a function of currency and then you got pricing.

Sorry, Nigel. So the 110 is both price and raw's. Right?

Yes.

So raw material cost for us were down around 2% year-over-year, so that contributed to the 110 and then as you correctly pointed out, as I said the portion of price that remains of that 110. It's more or less 50/50 this quarter. So there is certainly some offset, to be honest I don't have top of mind, is it precisely a full offset. I think it's a little less than that.

No, that's really helpful and then the second part of my question was, you talked about raw materials were down 2%. You've got to say, opposite side different mix of raw material input and most of the things as we look at so, do you expect [indiscernible] generally speaking how that raw material in nexus tracking, particularly as we go into second quarter? And as we set on track for the roughly $0.10 of benefits from roadmaps this year?

Yes, so that's right. So starting out. We have guided $0.05 to $0.15 of raw material cost benefit for the year versus last year. Certainly in the first quarter, we were encouraged by the performance in that area and that's a combination of not only the trends on raw materials cost themselves, but also to the extent that are efforts to identify alternative formulations to lower our raw material cost and change the composition to the extent that. We have efforts that would actually lower the amount of raw materials in a products. These types of things are included in that performance and the good news, as our sourcing organization continues to do a really job in that area. So we feel good about the guidance on raw materials for the year. If anything, if I were to pick it the trend. It appears to be trending towards the high end of that range for the year.

Okay, that's very helpful. Thanks guys.

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

I was hoping to get a little bit more color on the look forward into the second quarter. Maybe some commentary on how April has played out so far and David, are there any dynamics we should know about specially following up on Jeff's question on tax, a bit of a benefit this year with those releases. Anything unique about the tax or corporate expense for the second quarter?

Okay, in terms of, first one was what again? So in terms of the trends on volume in revenue. If you look, if you look at the first quarter first of all, typically March is our strongest month in that quarter, which turned out to be the case for us again this year and maybe a little bit stronger, slightly stronger than typical intra-quarter pattern. If we look at second quarter, we feel good about the overall view that will continue to operate. We said 3% to 6% for the year, which is a mid-point of 4.5%, which is exactly where we operated if you look at the second half of last year, we ran at 4.5% first quarter. We now ran at 4.5% and we feel good about second quarter continuing at that rate. Pluses and minuses, we've kind of inferred that we some level of optimism about the US. They're also areas of uncertainty and certainly places like Japan which is a very significant business for 3M. We did see a pull forward, it was quite clear pull forward of sales into the first quarter result of the tax increase. So I would say pluses and minuses. April started out fine so, we feel good about stable performance for the company. In terms of taxes, we had little over 27% rate in the first quarter, which was closing out some prior year audits and included in that there was a particular case, that we benefited from where, we were able to treat as deductible assets, some assets that had been previously disallowed. So that was a one-time occurrence for us in the first quarter which given that rate in the first quarter solidifies the view that for the year, we can operate at 28% to 29% and I don't see any unusual patterns that we would foresee quarter-by-quarter through the balance of the year.

Great, that's helpful. Thank you.

Sure.

Our next question comes from the line of Joe Ritchie of Goldman Sachs. Please proceed with your question.

Two quick questions; first on pricing. The currency fluctuations is notwithstanding, it still seems like you're getting 50 to 60 basis points in price and David, if I'm correct with your raw mat guidance, you're now. Do you think it's probably going to be trending towards another 50 to 60 basis points in the raw mat benefit for the remainder of the year? So is there any reason to believe, that you're not going to get at least price cost benefit of 1 point for the remaining three quarters?

What we expect price cost for the balance of the year. What we have guided originally was on pricing that we thought, it will be very modest for the year. Obviously, with the stronger first quarter performance significantly supported by the fact that we were having to offset foreign exchange. We expect that pricing performance to decline through the year, but nonetheless be positive and then on the raw material side, as I have already indicated I'm expecting if we look at that $0.05 to $0.15 range we set out for the year. I'm expecting that right now as we see it will trend towards the high end of that range. I think from that, you can probably get to the specifics that you were just asking about.

Okay and just a follow-up on that a little bit. You [indiscernible] 60 basis points potentially extra currency this quarter. You're continuing to invest at a higher rate on R&D, so is there any reason to believe that pricing should step down for the rest of the year. On just not thinking that.

Yes, it's a good question. I mean we have a number of actions that are calendar year based and so what we do expect is that, we will see some decline through the year, which I why we had originally guided that. It would be modest price impact on the core base.

Just one question on the buyback, it looks like the gross buyback this quarter was around $1.7 billion. I think your guidance for the year was $3 billion to $5 billion. So perhaps, one if you can just comment on what the net buyback was for the quarter and then also what would get you to maybe flex the $3 billion to $5 billion higher in the coming quarters.

Sure. So first of all the next buyback in the first quarter was $1.4 billion against the $1.7 billion gross. If you paid attention of the trends over the last couple of years, what's happened is, we've substantially seen a reduction of the outstanding on exercised option. So that's cut about an half over the last several years. So that will cause our net to be much closer to gross than it has been in the past. So that's one of the reasons, why we see it much closer this quarter. Secondly, in terms of the overall gross for the year. Basically the way I think about this is, if we go back to the fact that what we said we would do now, is we would move our capital structure to be better optimized going forward. And so we are starting to allocate the capital to put that in place and that started last year as we drew on cash. This year, we've said we would increase our leverage by $2 billion to $4 billion and if you look in the first quarter with the actions that we took, our leverage went up by about $1 billion against the $2 billion to $4 billion guidance for the year. So it's right in line what we'd indicated we would be doing and we also did modify the outlook for the year on the gross buyback to $4 billion to $5 billion from $3 billion to $5 billion based on, the fact when we add up all the pluses and minuses. We concluded that would be the right level for us here in 2014.

Okay, great. Thank you.

Sure.

And our last question comes from the line of John Roberts of UBS. Please proceed with your question.

Since you're open to looking at multibillion dollar acquisitions. I don't think you've ever done a hostile, but we've had this due development of using activists to facilitate big acquisitions, is that something that would be too aggressive for someone like 3M to consider?

First of all, thank you for the question. I don't think that's the way you should move forward and when you look upon those type of things. We will like to do, strategically important acquisitions that would add value for everyone involved including 3M and our shareholders and the customers that was part of that. So I think that should be done in very careful way as we move ahead.

Yes, if I could add. Our experience – a couple of comments there; one is we did indicate at year end that as we looked at on our own capital deployment and looked at our capability both in terms of our performance on businesses we've been acquiring in recent years as well as the integration capability that we put in place to ensure that we will continue to have good performance going forward and given the size of the company and how we are deploying capital, our conclusion was it would be appropriate for us to no limit the scope of acquisitions to say $1 billion or less, which is been the history of the company. So hence, we indicate that we would be open to doing things larger than a $1 billion because likewise we don't like to surprise people, as we take action. So that's one piece of our thinking. In terms of the subject of hostile versus non-hostile. What I would tell you is that, one of the advantages we have as a company is typically. When we do approach companies with the possibility of acquiring, the reaction is typically very good because 3M is known be the kind of company that invests to build businesses and therefore, we found that generally speaking the reaction is good and that's our preference to take that type of approach frankly, if you think about the culture and a company that makes sense to us. We are about building businesses here and that's we would continue to plan to do.

As I look across the portfolio. It seemed to me, the electronic and energy area might be the one that could benefit most from a major acquisition. Maybe the scale might help with the margin improvement, you're trying to achieve there and valuations, I would suspect a more reasonable and that's based into lot of the other competitors that have had struggles in that area over the past couple years as well.

Well, I think all five business group can benefit from actions in this area and it's an ongoing portfolio management activities that we are working on. So I will not call out, one business group over another one relative to, how we can build strings on strings in those business groups because when you look upon our strength in each of the five business group, it is very strong. So I think in each and individual business group that will add value by us working on the portfolio management as we are doing at the time.

Thank you.

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

I'd like to thank everybody for joining us today. Thanks for listening. Thanks for your attention to 3M. Have a great day. Good bye.

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