金百利克拉克 (KMB) 2002 Q4 法說會逐字稿

Excuse me, everyone.

We now have Mr. Mike Masseth in conference.

Please be aware that each of your lines is in a listen-only mode.

At the conclusion of today's presentation we will open the floor for questions.

At that time instructions will be given as to the procedure to follow if you would like to ask a question.

I would now like to turn the conference over to Mike Masseth.

Sir, you may begin.

Thanks, Tish.

Good morning, everyone.

We appreciate your interest in Kimberly-Clark.

With us today are Tom Falk, President and CEO, Mark Buthman, Senior Vice President and Chief Financial Officer, Randy Vest, Vice President and Controller, and Tina Barry, Vice President and Head of Corporate Communications.

Here is the agenda for today's call.

Mark will start with a financial overview.

Next, Tom will provide some strategic comments and discuss our 2003 outlook, and then I'll provide some final details and we'll finish up with a Q&A session, as usual.

Before we begin, I need to advise you that certain matters to be discussed during this conference call concerning the business outlook, anticipated financial and operating results, strategies, contingencies and contemplative transactions with the company constitute forward-looking statements and are based upon management's expectations and beliefs concerning future events impacting the company.

There can be no assurance that these events will occur as anticipated or that the company's results will be as estimated.

For a description of certain factors that could cause the company's future results to differ materially from those expressed in any such forward-looking statements, see the section of part 1, item 1 of the company's annual report on Form 10K for the year ended December 31, 2001 entitled, "Factors that May Affect Future Results".

Now I'll turn it over to Mark.

Thanks, Mike, and good morning, everyone.

I hope you had a chance to review this morning's news release with all the details of our fourth quarter results.

Sales and earnings were in line with our December guidance.

Sales were essentially flat.

Earnings before per share and usual items were down 7%.

Cash flow from operations continues to be strong.

It was $549 million for the quarter, boosting the full year total to a record $2.4 billion.

Let me review the top line.

Sales were $3.3 billion, a slight decline of .2% versus last year.

Sales volumes were up 2%, offset by lower pricing of about the same amount.

More than half of the price decline was due to intense competition in our North American infant and child care businesses.

The currency impact on sales was about neutral as the stronger Euro and British pound were mostly offset by weakness in several Latin American currencies.

This morning's news release has details on the key factors affecting sales in each of our three big segments.

Let me touch on a few highlights.

Consumer tissue sales increased 3%, boosted by volume growth of 5%, and a currency benefit of 2%.

Net selling prices, however, were down 4%.

North America had double-digit volume growth overall led by strong gains for Cottonelle and Scott Bath Tissue and Scott towels.

Prices in North America fell 6% due to increased promotion spending.

European consumer tissue sales increased 6% due to the stronger currencies.

Sales were flat in Asia as double-digit growth in Australia and Korea was offset by weakness in Taiwan.

Shifting to personal care, our fourth quarter sales were down 4% excluding currency.

Volumes fell about 2% and prices were lower, approximately 1%.

In North America, volumes were up about 1%, highlighted by a double-digit gain for Depend and Poise, adult incontinence care products, and a solid increase in Kotex feminine care products.

Shipments of diapers and training pants were down 2% to 3% in the imparter.

Interestingly on a full year basis our U.S. diaper business delivered record volumes and our North American basis, our training pants business delivered record volumes.

Selling prices in North America were down 7%, primarily due to actions taken to defend market share in diapers and training pants.

About 3 percentage points of the price decrease was for costs associated with the package count changes we made in the quarter.

These change-over costs, worth about 3 cents a share, are now behind us.

Elsewhere, European personal care sales were down 5% before currency effects, due to lower diaper volumes.

Latin America, personal care sales dropped significantly, mainly because of the economic turmoil in Argentina, Venezuela, and Colombia.

These three markets represent about a third of our personal care sales in Latin America.

In the business-to-business segment, sales increased 3% before currency effects.

Sales volumes rose 4% and selling prices fell 1%.

Our healthcare business set a new sales record driven by 8% volume growth.

In addition, volumes of our North American K-C professional business were up 6%.

I would like to move down the P&L to margins and operating profits.

For this part of the discussion I'm going to exclude unusual items from the comparisons.

These items are described in our news release and are summarized by P&L line item and business segment in the tables 2 news release.

For the quarter our gross profit margin was 33.6%, compared to 37% a year ago.

The gross margin decline was primarily due to increase in promotional activity.

This more than offset the benefits of higher sales volumes, productivity gains and other cost reductions.

Our fiber costs were up about $15 million, primarily due to higher secondary fiber costs.

I would like to point out a couple of other items on the P&L.

Marketing, research, and general expenses were 16.2% of sales in the quarter, down from 17.1% in the fourth quarter of 2001.

This decrease was mostly due to lower marketing expenses which we held down to partially compensate for the increase in promotion spending.

In addition, the elimination of goodwill am or amortization reduced expense by more than 20 million.

On a pro forma basis, this would have increased net income in the fourth quarter a year ago by 4 cents a share.

Finally, other income and expense included about $21 million of net expense, the majority of which was for currency charges.

That gets us to operating profit, which was down 11% to $562 million for the quarter.

Fourth quarter operating profit as a percent of sales was 16.8% versus 18.9% in 2001.

Let me briefly comment on operating profit for each of our segments.

In consumer tissue, profit for the quarter was $228 million, down 8% from year-ago levels.

Operating margin was 18.1% of sales.

Despite the rise in promotion spending, our North American family care business posted higher operating profit, driven by volume increases and cost savings efforts.

These gains were more than offset by lower profit in Europe and Taiwan.

Turning to personal care, operating profit for the quarter was $214 million, down 17% from a year ago.

Our operating margin was 17.8% versus 20.1% last year.

North American operating profit declined significantly due to the impacts of the competitive activity promotion spending I mentioned earlier.

Elsewhere, our European personal care operating profit increased as we controlled costs in this very competitive market.

In the B-to-B segment, our operating profit was $161 million, down about 10% if you exclude the impact of goodwill amortization.

Operating margin was 17.6% of sales for the quarter.

Our healthcare business had operating profit up due to higher sales volumes and cost savings.

However, our K-C professional operating profit declined due to lower selling prices and continued high wastepaper costs.

Let's review results from our equity companies.

In the fourth quarter, our share of net income of equity companies decreased slightly to $31.3 million from $32.1 million last year.

The decline was due to lower net income in K-C to Mexico which was mostly offset by better performance at our equity affiliates in Argentina and Brazil.

Mexico sales volumes were up 8%.

However, K-C-M was not able to overcome the impact of cost increases and currency charge based on the 10% devaluation of the peso.

K-C de Mexico tax rate also increased in 2001.

Switching to flash flow in our financial position, I mentioned earlier that cash provided by operations was $2.4 billion for the year.

That's an 8% increase for the year, despite the fact that we contributed $100 million to our U.S. pension plan in December.

Moreover, free cash flow in 2002 was $941 million, up 67% year over year to an all-time record.

Contributing to the improvement was the fact that we managed capital spending very carefully during the year.

For the year it was $871 million versus our original plan of $1 billion.

During the fourth quarter, we repurchased 4.4 million shares of our common stock.

That's an increase from the 2.5 million shares we bought in each of the first three quarters and brings the full year total to 11.9 million shares.

Finally and importantly, our balance sheet is in terrific shape.

Our ratio of net debt and preferred securities to capital at year end was about 40%, which is right in the middle of our target range of 35% to 45%.

That wraps up the financial review of the quarter.

Obviously results were below our original expectations, but they show that our focus on cash flow is working.

Looking forward, we continue to generate strong cash flow and we're committed as an organization of reducing our costs and delivering on sales volume improvements.

Now I'll turn it over to Tom.

Thanks, Mark, and good morning, everyone.

As we outlined in December, and as Mark has just explained in more detail, the fourth quarter of 2002 turned out to be very difficult for us.

So, today I would like to summarize our performance for the full year for you and also make some comments of our priorities and our outlook for the coming year.

Let's start with 2002.

Last year our sales increased by 2% and our earnings per share before unusual items rose by about 3%.

These results were below our expectations.

So why didn't we do better?

The first and most significantly, our diaper and training pant businesses faced much more intense competition in North America and Europe.

As Mark mentioned, price cuts and unprecedented promotions by our major competitor slowed volume growth for Huggies Diapers and Pull-Ups Training Pants and caused us to increase our own promotional spending.

Second, our Latin American operations had to deal with economic turmoil in key parts of the region.

The K-C de Mexico saw its earnings declines primarily as a result of currency weakness and a higher effective tax rate.

Price competition in many of its categories also was a factor.

The impact on our bottom line just from K-C de Mexico's results was about 8 cents per share negative in 2002.

Now, I was in Mexico City last week and visited with Claudio and his team and, you know, they are not happy or satisfied with their performance in 2002, either, and they continue to be focused on improving their results as well.

Finally, our North American markets for Kimberly-Clark professional, or our away-from-home products remain soft in the midst of a sluggish economic recovery.

These were serious challenges, and stiff competition will likely be a significant factor for us in 2003 as well.

That said, we've been successful for the last 130 years by overcoming these kinds of challenges and we will overcome these challenges as well and get our performance back on track.

Moreover, looking back over the year, we did have success in a number of areas in the company, and let me just mention a few of those for you this morning.

First, cash flow from operations surpassed our expectations and improved to a record $2.4 billion.

Additionally, free cash flow increased by 67% to $941 million, the highest level in the history of the company.

Second, a number of our businesses had very solid results in 2002.

Sales and operating profits improved for our consumer tissue, our feminine care, and our adult care businesses in North America.

Our consumer tissue and our K-C professional businesses in Europe also improved and our global healthcare business had an excellent year as well.

And finally, our operations in Australia and Korea had outstanding sales and operating profits for the year.

Third, we successfully defended Huggies leading share of the U.S. diaper market.

Although price reductions and increased promotional spending drove our diaper profits lower, our market share held steady.

In fact, our diaper share for the full year of 2002 was up slightly versus 2001 despite all the competitive activity.

And while our market share dipped somewhat in October, as we implemented our package count change, we saw sequential improvement in share in both November and December.

Finally, in October we began the roll-out of a new version of Pull-Ups Training Pants with easy-open sides.

This new product is a three-to-one winner with parents who prefer it versus the competition on every one of the 24 product attributes that we measured in our research.

Our focus on innovation, which for us is the ultimate response to competition, will play a key role in defending against our competition's third attempt to enter this category.

So, let's put 2002 behind us and look forward to 2003.

We are taking decisive action this year to get back on track.

We are focused on two key priorities: Aggressively reducing our costs and driving our volume growth.

By spending less and selling more, we can offset the impact of competitive activity and higher pension expense.

Now, as I mentioned to you in December, in 2003 we expect to reduce costs by $175 million to $200 million, which is about 24 cents to 28 cents per share.

And beyond cost-cutting, we're determined to drive our sales volumes higher by 3% to 5% with strong product plans.

We'll support new and improved products with appropriate, well-targeted promotional spending.

Our strategies are focused on cost-effective ways to grow.

We'll concentrate on meaningful product extensions, our relationships with our key customers, and growing markets.

As I said in December, I believe our targets are achievable and I will review our progress with you each quarter this year.

In early January, Mark Buthman and I met with each of our business teams to get an update on their cost savings plans for 2003.

Every one of our businesses have solid plans in place to achieve their cost savings targets.

So I can tell you that we are more focused on cost reduction this year than ever before.

I can also tell you that the savings are not back-end loaded.

You will see progress beginning with the first quarter.

Our infant and child care teams in particular are determined to help rebuild the margins in their businesses.

They will closely manage every outlay, from product costs, to marketing costs, to administrative costs, while at the same time driving productivity improvements and delivering on their improved product plan.

Our bottom line is that in 2003 we're committed to offsetting the challenges of continued competition in diapers and training pants, as well as higher pension expense and we'll do it through a combination of volume growth and cost cutting.

As we mentioned in our call in December, the increase in pension expense alone is equivalent to about 20 cents per share, or six points of earnings growth in 2003.

As we told you in December, we expect earnings per share before unusual items in 2003 will be at a minimum equal to 2002.

Given our recent results and the current competitive environment, we expect first quarter earnings per share before unusual items to be similar or slightly better than the fourth quarter of 2002.

Current external estimates for both the quarter and the full year of 2003 are generally in line with this guidance.

We'll also focus on further strengthening our cash flow in 2003 which will support continuedshare repurchases and another increases in our dividend rate.

So with that let me wrap up by saying that I am disappointed by 2002's results and I'm also personally committed to building on our strengths in 2003 and beyond.

And I want you to know that our team, every one of us, recognizes that we did not deliver on our original expectations for 2002, and we all share a commitment to restoring our credibility with you in 2003.

We are focused on our top priorities in 2003, driving growth and cutting costs, and I am confident that we will deliver.

And now Mike has a few more details for you and then we'll begin to take your questions.

Thanks, Tom.

Just very briefly.

I'll give you the effective tax rate for the fourth quarter excluding the unusual items.

It was $29.1% and for the year it would have been 29.0%.

Looking at the balance sheet, accounts receivable at the end of the fourth quarter were $1.8 billion, basically the same level as the end of the third quarter, and that compares to $1.7 billion at the end of the fourth quarter last year.

Inventories, $1.4 billion, again the same as the fourth quarter, down from $1.5 billion at the end of the fourth quarter last year.

Working capital as a percent of sales for us across the year averaged 16.3%, and it also averaged that in the fourth quarter.

Shares outstanding, I think you'll see that in the news release for the quarter.

The average diluted shares outstanding were 515 million shares, and we finished the year at 510.8 million shares outstanding.

Looking at market shares, basically the same story, on whether you look at units or dollars.

We're up nicely in five of eight major categories, flat in one, down slightly -- down in two.

We are down about a point in diapers in the quarter, and that reflects the October share dip that Tom mentioned in his remarks.

We're down about 12 points in training youth pants.

On the up market shares, looking at baby wipes and facial tissue, both up about half a point.

Paper towels is up about a point.

Bathroom tissue, a point and a half and our adult incontinence products, as Mark mentioned, with record volumes, up about three and a half points.

In feminine care we were about flat.

So that concludes our remarks for today, and I will be happy to take your questions.

Ladies and gentlemen, at this time we will open the floor for questions.

If you would like to ask a question, please press the star key, followed by the 1 key on your touch tone phone now.

Questions will be taken in the order in which they are received.

If at any time you would like to remove yourself from the questioning queue, please press star, 2.

Again, to ask a question, press star 1 now.

Our first question is from Rich Schneider with UBS Warburg.

Please go ahead.

Tom, I was wondering if you could be a little more precise with the volume growth in your North American tissue business was in the quarter.

You said it was up double-digit.

Yeah, I think it was right around 10%, Rich.

Okay.

We had a very strong performance in Cottonelle and Scott Towels but facial tissue had a great quarter as well.

And the 6% price decline, does that mean that the -- and I know that was due to promotional activity.

Was that worse than it was in the fourth quarter? -- I mean in the third quarter?

Yeah, I think competitive spending levels picked up in the fourth quarter.

We talked a little bit about that in December, I think as well where we were seeing some hotter promotional price features in most of our categories, but tissue and towels as well.

Okay.

As you look at the first quarter, could you talk about, you know, what you are seeing in price competition, both in the tissue area and also in training pants and diapers?

Do you think any of this is going to be worse as you see it in the fourth quarter, or -- in the first quarter, or how do you view the situation?

I know we got the date coming up where Proctor & Gamble switches to a lower package count.

Could you work through the dynamics on pricing in the first quarter as you see it now?

Well, with most of the major retailers, us and our key competitors, we're out three or four months at least from our promotion planning standpoint.

So we're anticipating that the first quarter is going to be fairly similar to the fourth quarter and that if we see any relief from the uptick in pulp prices that might start to influence tissue pricing, that probably won't happen until the second quarter.

And from a competitive standpoint, you know, we would expect as Proctor changes over to the lower counts that some of the competitive spending will lessen a little bit on that front, at least we won't be having to buy our prices down to compete on a price-per-diaper basis in the latter part of the quarter.

Okay.

And the profit decline in the B-to-B that was almost entirely the "Away from home" tissue market?

Yes.

What is the conditions in that market as you see it right now?

Well, a couple of key factors there.

Higher wastepaper prices, which is -- you know, that business is almost all recycled fiber based, and lower selling prices.

And selling prices, you know, is really a function of some of the competitive environment we're seeing from both GP and SCA in that marketplace.

And is that seems to be staying at that kind of level, both wastepaper prices and selling prices?

Well, wastepaper prices continue to stay up at fairly high levels.

We'll see what happens.

As you know, that market can bounce around pretty dramatically based on capacity, and as it gets closer to virgin fiber prices, people start to substitute virgin fiber for wastepaper and, you know, that tends to drive it back down.

You know, from a pricing standpoint, you know, we've taken some small price increases on some codes and been successful.

So, we're continuing to look for opportunities where we've got differentiated products or where we've got an opportunity to push the price on below and, you know, we'll continue to do that and see if we can at least hold it at these levels, if not move it up a little bit.

And this last question, could you give us any update on the $175 to $200 million cost reduction program?

Any, you know, idea of how it flows in in 2003 or where you stand on it right now?

Well, you know, one of the concerns as we talked about all of you in December was that it not be, you know, all coming in the back half of the year and as we met with the teams, you know, there's activity underway that will show up in the first quarter, you know.

I would say as in all of these programs, you wind up with more than half of it in the back half of the year because there will be things that will be started during the year and will, you know, build momentum as we go through, but we also have initiatives underway that will deliver real cost savings in the first quarter.

Beyond that I think we'll wait until we -- you know, we get to the first quarter call to give you more details on how we actually did and how the next quarter looks.

Thanks a lot.

Thanks, Rich.

Our next question is from Amy Chasen with Goldman Sachs.

Please go ahead.

Hi.

Good morning.

The trend in your P&G and personal care business was a little bit surprising to me.

It just looks like P&G continues to spend at a very high level that market and it seems like that might be telling with respect to their plans in the U.S. in terms of, if they launch baby stages and yet they continue to spend in Europe even though they are also spending in the U.S.

What are your assumptions for how they are going to follow that on with their plans in the U.S.?

Well, I think a couple of things.

Europe is a very different marketplace in terms of how they position some of their products.

In Europe they have positioned Easy-Ups as a diaper pant.

So it's actually -- if you looked at just the toilet training category in Europe, our shares are up.

But if you looked at the diaper category, our shares are down because they've built more volume behind diaper pants.

So it is a little bit different dynamic and it doesn't necessarily translate.

I think the other thing you would say is they are starting with a much stronger share position in Europe and so we've got to be that much more successful from a product standpoint to continue to protect our share.

In the U.S., Huggies has got much stronger position.

We've been the leaders for more than ten years and we've got as a result a more committed loyal consumer base.

So I think the -- what we've seen happen is that Proctor's product initiatives have probably been a little bit more successful for them in Europe because they are starting from a much stronger competitive position.

I guess, what are you assuming in terms of them keeping their foot on the accelerator in the U.S. this year?

Well, I think as we talked in December, we're assuming that on average, you know, the competitive environment is going to continue to be intense this year and overall we assume that we, I think, would have some additional trade promotion spending of a little bit less than a percent of sales and so, you know, we would expect the first quarter would continue to be very competitive, but back toward the latter part of the year things would start to return to more normal levels.

We'll see what happens.

Okay.

But so, built into your assumptions is that things start to improve in the second half?

Yes.

Yes.

Okay.

And I just wanted to touch on this whole issue of the gross margin, you know, versus the marketing spending.

Clearly you stepped up the spending on trade promotion at the expense of consumer promotion and consumer advertising which seems like a very short-term strategy and one that's focused on your short-term market shares but not necessarily on strategically building your business.

Could you just comment on that and how long you expect this, I guess, discrepancy to remain intact?

Well, the -- you know, the top lines includes both consumer and trade.

So in the fourth quarter, you saw higher use of some on-pack coupons for diapers and training pants to bring our per-diaper price down to a more normal level.

That was part of it.

You also saw the stock protection one-time impact flow through where we essentially had to protect retailers on their inventory of high count, Huggies and Pull-Ups packages and so, you know, that was a one-time event that shouldn't repeat itself.

So, in the diaper and training pant category, there was some pretty significant short-term impacts as we were going through the count change that shouldn't repeat themselves in 2003.

Tissue, it is mostly trade promotion and that is really a response to competitive activity as opposed to making that strategic decision to do less of one thing and more of something else.

I'm sorry.

So on the trade promotion piece, you know, the gross margin impact, you are saying that -- maybe I misunderstood but did you say that more of that was in the tissue business than in personal care?

Well, I said in tissue it's more likely to continue than in personal care where it's really more in response to the count change.

Oh, I see.

But you are saying in personal care -- I got it.

Okay.

Can you quantify that for us, to give us some idea of, you know, your gross margin expectations in 2003 and in the first quarter?

You know, essentially we said that we're going to grow volume 3% to 5%, we're going to have about a percent of additional price loss in 2003, and we expect cost savings and pension to both affect the gross margin and operating margin.

So I would guess our -- for the first quarter and for the year, we're going to be up versus the fourth quarter but down versus the average of 2002.

And that's gross margin?

Gross margin and operating margin.

Okay.

And last but not least, on the share repurchase that you stepped up in the fourth quarter, that seems a little bit at odds with the statements that you made in December where you said that you would be buying back 2% of the shares outstanding this year, and the 2% compares with 3% in the each of the last several years and yet you stepped it up in the fourth quarter.

Do you want to update that 2% number?

No, I think that that's a good long-term number for us.

We thought the stock was steep in the fourth quarter and we bought a little heavier.

Okay.

But so that was a timing issue rather than anything else?

In essence, we spent about the amount of money we thought we were going to spend.

We just got more shares.

Okay.

But you are still sticking by the 2% number for '03?

Yes.

Okay.

Thank you.

Thanks, Amy.

Our next question is from Chip Dillon with Salomon Smith Barney.

Please go ahead.

Yes, good morning.

Morning, Chip.

First, Tom, I would like to get a clarification if I could on just the diaper business.

You mentioned that in the quarter, the training and youth pants plus the diapers were down about 2% to 3% volume-wise and if I heard correctly, that the revenues were down 7%.

So should we just infer that on average the per-diaper price is probably down something in the 4% to 5% range for the quarter year over year and certainly off a lot more in the month of October?

I was thinking it was more than that, Chip, but Mike can take a look at that and give you a more detailed response.

And it's somewhat difficult to estimate because you are mixing a lot of consumer coupons and on-pack coupon activity into the mix as well, and you've also got the stock protection which is what's essentially flowed through the retailer and you are making an estimate on how much of that actually hit the consumer.

Okay.

Because you would think it would be bigger, given what happened with the package counts and the pricing.

Yeah.

Could you -- shifting gears a little bit, could you give aus forecast as to where you see Cap Ex going this year -- give us a forecast as to where you see Cap Ex going this year and obviously as you focus on cost reductions, do you expect to see maybe a slowdown in some of the newer products, in new products or in improved products and, of course, you recognize you just hit the shelf with the refastenable tabs on the Pull-Ups.

So not that we're looking for anything but could you just give us an update there?

Yeah, sure.

I think capital spending we would expect to be around $900 million for 2003, which is about the same, where it came in in 2002 and you are seeing the team is focused on every dollar of capital has got to deliver growth or has got to deliver cost savings.

So we're really trying to focus those dollars on things that will add value to our shareholders.

With regard to the product standpoint, we are really trying to make sure we don't take our foot off the gas of anything that's going to slow down our product innovation.

I think that would it be worst thing we could do in this environment.

So, you will expect to continue to see product innovation coming to the marketplace in all of our key categories, and where we look to cut costs is going to be in areas that don't affect the consumers' interaction with the product.

Okay.

And then going back to training pants in particular, you mentioned how much consumers in the test market seemed to prefer the new Easy-Up's

new Pull-Ups.

Yeah. [ LAUGHTER ]

Work with me here.

Wrong conference call.

Sorry about that one.

But as you look at that marketplace, do you think that there's a case to be made that your share, you know, loss from here, assuming that the other guy is successful, nonetheless may not be all that much greater?

Because if I recall, a couple of years ago the biggest inroad was actually not the -- made by the branded competitor but by a private label and it would seem that a lot of people that use your competitor's diapers would naturally, maybe consider using the training pant as opposed to private label which was their only choice a few years ago.

I mean, any thoughts on that?

I guess what I've seen in studying this category is, you know, at every size change, opportunity, moms are interested in trying new products and new ideas, and I think Pull-Ups has got such a strong brand identity in the marketplace with the philosophy of toilet training that when moms are ready for toilet training, they are thinking about a new category.

So no, I don't necessarily think that just because it says Pampers on it, that's going to make the consumer want to automatically move into that category.

And again, it's driven by product performance.

They may get trial but if the product doesn't deliver, they are not going to hold onto their business.

As you look at the Easy-Ups business, so far in the last couple of months, if you look at their volume per point of distribution, they are tracking about where they were on the Pampers Trainers launch.

The difference between this launch and the last one is they got distribution faster.

So their share built a little faster.

But when you look at their -- well, let me ask you this way.

Do you think it will be easier -- I mean, this seems to be a pretty substantial differentiation, point of differentiation with the tabs that you can refasten.

Is that something that you believe can be copied in the next six to nine months by either your branded competitor or by private label people like Tyco?

Well, we obviously think it's a significant product innovation and we try to protect all of our intellectual property as well as we can.

On the other hand we also assume that our key competition is going to figure out a way to do it and be there as quickly as they can.

So, we're working on the next idea beyond this one.

Okay.

And last question, Tom.

On the -- and maybe Mike can clarify.

Could you just confirm that the market share data that Mike gave us was comparing to the full year of '01?

Because I know that's how you used to give it.

Or was it for some other period?

And secondly, could you just lastly talk a little bit about what your diaper share and development has been in Europe?

Yes, Chip, that is correct.

It was for against the full year of 2001.

And the diaper share in Europe was 19% in the fourth quarter, and that compares to 21% in the fourth quarter a year ago, but it was 22% for the full year of 2001.

And do you -- okay.

Thank you.

Thanks, Chip.

Thank you.

Our next question is from Carol Wilkie with Merrill Lynch.

Please go ahead.

Thanks.

Just one question.

When you look at your expectations for 2003 when you set your budget, how much share have you assumed that you regained in your diaper and training pant business?

Or is it based on maintaining your current shares?

Well, we would tend to look at volume growth as opposed to tracking shares.

And one of the things that you know, Carol, is the share numbers we're quoting only reflect about half the category because half of it's in non-measured outlets.

So we would tend to look at, you know, low single digits kind of volume growth for both diapers and training pants, and I think the challenge will be that the training pant category has grown pretty rapidly this year at a double-digit rates.

How rapidly is it going to grow in '03?

Is it going to continue at that pace or slow down a little bit?

We would guess that it would slow down a little bit and so even if we were getting volume growth in the low single digits, that's probably consistent with the category if we were getting volume growth in the low single digits, that's probably consistent with where the category is likely to turn out.

So that would say that, you know, we're not going to have to pick up a lot of share to hold that position.

The diaper category's been flat, but, you know, we think we've got significant product news coming and we had a weak volume quarter in the fourth quarter as we made the change-over to the low count product and we won't expect to annualize or to repeat that.

So, we should get a pick-up by avoiding that challenge.

So I mean, I think the volume growth assumptions in the low single digits are reasonable and are consistent with what we're likely to see in the category.

And I actually have a second question.

I didn't mean to say just one.

When you look at the profits by business segment for '03, I mean, certainly as the quarter was just finished, each of the segments was down quite a bit.

Which do you expect to see the fastest recovery in margins of the three this year?

Versus the quarter, because we had all the count change costs hitting in personal care, that's likely to be the one where you will see the biggest bounce back.

I mean, I guess at the end of the year last year, you had about 20% margins in each of your businesses.

So would you expect personal care to be the first category to get back to the 20% range?

Yes.

Thanks very much.

Thanks, Carol.

Thank you.

Our next question is from Russell Tompkins with Osprey Partners.

Please go ahead.

Yes.

Good morning.

Could you just review your cost basis and your cost advantage or disadvantage on the pulp side, please?

On the pulp side?

Right.

Well, we own three pulp mills in North America, one in Nova Scotia, one in Terrace Bay, Ontario, and an integrated pulp mill in Everett, Washington and together those three mills account for about 35% of our global virgin fiber requirements.

And if you look at, there is a survey of Canadian pulp producers that one of the CPA firms has put together and the pulp mill in Nova Scotia winds up being one of the low cost producers in Canada because it has its own wood operations.

The pulp mill in Terrace Bay, Ontario winds up being about the middle of the pack, and so, you know, I would say we're competitive with other Canadian producers on the stand-alone version mills.

Your predecessor had indicated that he was very intent on trying to get out of the pulp side and fiber side of the business.

Is that your intent as well?

We had said we would like to sell the Terrace Bay pulp mill and if we did that, that would bring us down to about a 25% level of virgin fiber integration.

The mill's been for sale for, you know, a number of years and we haven't had any serious buyers and we would still intend, if we had the right opportunity, to sell down to that level, but we haven't had any serious takers and, you know, it's a competitive mill and we use the fiber and we're not going to give it away.

Okay.

Thank you very much.

Thanks, Russell.

Again, if you would like to ask a question, please press the star key, followed by the 1 key on your touch tone phone now.

Our next question is from Amy Chasen with Goldman Sachs.

Please go ahead.

Hi.

I just wanted to follow up on the cost savings, the $175 million to $200 million.

Can you break that down for us in terms of exactly where you expect those savings do to come from?

You mean by segment or by --

No, no, no.

You know by either supply chain is this amount and, you know, manufacturing cost savings is this amount, that type of thing.

In the December call, we gave you some details that reflected about, I think 80% of the cost savings programs and that's a combination of purchase material savings or each of our businesses looking at opportunities, either to improve productivity or substitute lower cost materials, and our K-C professional group has got more than $20 million of new cost savings through a program that they are driving behind, about 300 individual programs.

So I mean, every business has got a plan put together that covers all of those areas, and Mike can probably send you the notes of the call in December and give you those details.

And on the -- I guess the point that you brought up by segment, it sounded like from your prepared comments that we should expect more of that to be in personal care to offset some of the spending?

Well, I mean, every one of the businesses is focused on it, but personal care, you know, they had a challenging year in 2002 and they are in a tough, competitive environment.

They know they have got to really step up the cost savings pressure to hold the shape of their P&L intact and it was really just a statement that that business feels it more intensely than anybody, but we're all focused on it.

Okay.

Thank you.

Thanks, Amy.

Again if you would like to ask a question, please press the star key, followed by the 1 key on your touch tone phone now.

Mr. Masseth, at this time there are no further questions.

Okay, Tish.

I think we will wrap up then and thank you, everyone.

Tom, do you have a concluding remark?

Well, once again we are happy to put 2002 behind us.

We didn't deliver the results that we had anticipated, but we are very focused on getting back on track in 2003 and we're going to do it by growing our volume and by reducing our costs and we look forward to giving you progress reports on that each quarter this year.

Thank you very much.

Ladies and gentlemen, thank you for your participation in today's teleconference.

You may all disconnect your lines at this time.