金百利克拉克 (KMB) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for your patience in holding.

We now have your speakers in conference.

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

At the conclusion of the presentation, the floor will be open for your questions.

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

I would like to turn the conference over to Mr.

Paul Alexander.

Mr.

Alexander, you may begin, sir.

Thanks, David, and good morning everyone.

Welcome to our year-end earnings conference call.

With us today are Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Mike Azbell, Vice President and Controller.

Now here is the agenda for the call.

Mark will begin with a review of our fourth quarter results.

Tom will follow with his perspective on the results, and then discuss our 2010 outlook.

We'll finish as usual with Q&A.

For those following along on the website, we have a presentation of today's materials in the Investor section, which is www.kimberly-clark.com.

Before we begin let me remind you we'll be making forward-looking statements during the call.

There can be no assurance future events will occur as anticipated or the Company's results will be as estimated.

Please refer to the Risk Factors section of our latest annual report on Form 10-K for a description of factors that could cause our future results to differ materially from those expressed in any forward-looking statements.

I'd also like to point out that when discussing 2009 results, we will be comparing to adjusted results in 2008, which excluded charges for the strategic cost reduction plan we completed in 2008 and an extraordinary loss.

Finally, we will also be referring to adjusted results when discussing our 2010 outlook, which excludes an anticipated loss for the remeasurement of the local currency balance sheet in Venezuela as a result of the recent currency devaluation and move to hyperinflationary accounting.

Management believes reporting in this manner enables investors to better understand and analyze our ongoing results of operations.

For additional information on these adjustments and reconciliations to comparable financial measures determined in accordance with GAAP, please see today's news release and additional information on our website.

Now I'll turn it over to Mark.

Thanks, Paul and good morning.

I hope you had a chance to review our news release with all of the details of our results.

I'll briefly review the quarter and I'd like to start with a few headlines.

First, organic sales growth was nearly 3%, including continued double digit growth for both our international business in Asia, Latin America, the Middle East, Eastern Europe, and Africa, and for our global healthcare business.

Second, earnings per share increased 16% driven by improved margins.

And third, cash provided by operations was up 48% to $1 billion.

Now, let's cover the details of the quarter starting with the top line.

Overall sales increased more than 8% to $5 billion, including a five point benefit from currency and one point of growth from acquisitions.

Organic growth of nearly 3% was driven by higher net selling prices of about 2% and an approximate two point improvement in sales volumes.

Meanwhile, product mix lowered sales by 1%.

Now, let me turn to the top line for each of our segments and I'm going to focus most of my comments on organic sales, setting aside the impact of currency and acquisitions, which you can see in our news release.

By the way, when I refer to KC international, I'm referring to our businesses in Asia, Latin America, the Middle East, Eastern Europe, and Africa, which we previously called our developing and emerging markets business.

In Personal Care, organic sales increased approximately 6%.

Sales volumes were up 5% with improved performance in all regions.

Net selling prices contributed an additional two points of growth, while product mix was off 1%.

In North America, organic sales were even with the prior year as higher volumes of 3% were offset by lower net selling prices due to increased promotional activity.

Huggies diapers delivered 6% volume growth and improved market shares by one point compared to a soft year ago performance.

Elsewhere, feminine care volumes were up 11% and adult care volumes grew 10%, including benefits from innovation on Depend underwear.

Going to Europe, personal care organic sales increased nearly 3%.

Sales volumes were up about 4%, with improved performance in Huggies diapers in Poland and our core markets in Western Europe.

Overall product mix was off about one point.

For KC International, Personal Care organic sales rose about 15%.

Net selling prices increased 9% and sales volumes were up 7%.

We delivered double digit organic sales growth in a number of markets, including Brazil, China, Russia, and Latin America overall.

Turning to consumer tissue, organic sales were down 3%, as sales volumes fell 2% and net selling prices were down approximately one point.

In North America, organic sales were down about 6%.

Net selling prices fell 3%, reflecting an increase in competitive promotional activity while sales volumes and product mix each lowered sales by more than one point.

Kleenex facial tissue volumes were up 7%.

However, paper towel volumes were down double digits and continue to be impacted by consumer tradedown.

Switching to Europe.

Consumer tissue organic sales fell about 5%, driven by a four point decline in net selling prices and slightly lower sales volumes.

For KC International, consumer tissue organic sales increased more than 2%.

Our strategies to improve net realized revenue generated higher net selling prices of 6% and favorable product mix of 1%.

Meanwhile, volumes were down about 4%.

Moving to KC Professional and other.

Organic sales were up about 3%.

Higher net selling prices mostly in North America and North Asia and Latin America generated nearly seven points of growth.

However, organic sales volumes were down about 3% and continued to reflect high unemployment levels and the weak economic environment, particularly in North America and Europe.

Organic volumes in these geographies were off at a mid single digit rate.

Lastly, healthcare organic sales were up 13%, all of which was driven principally by improvements in sales volumes.

The I-Flow acquisition which closed in late November added another six points of growth in the quarter.

Healthcare organic volumes were up in several product categories, including double digit growth in exam gloves for the seventh consecutive quarter and strong results in our apparel business.

In addition, approximately six points of volume growth in the quarter came from increased global demand for face masks as a result of the H1N1 flu virus.

Now, moving to operating profit, margin, and cost savings.

Gross margins improved nicely from 31.9% a year ago to 33.4% as we benefited from price realization, cost savings, and lower input costs of about $145 million.

That's the fifth consecutive quarter of year on year gross margin improvement.

Fourth quarter operating profit rose 14% with an operating margin of 14.4%.

Results included increased pension expense of approximately $30 million, higher selling and administrative expenses, and some net benefit in other income and expense.

Meanwhile, we continued to invest behind our brands, with strategic marketing up about $45 million in local currency terms in the quarter.

Now, turning to cost savings.

We had another strong quarter, with total savings of $52 million.

That brings our full year total cost savings to about $240 million, well ahead of our original target for the year of about $150 million.

We also realized benefits from our organization optimization initiative, as severance and related costs of $6 million were more than offset by savings of about $30 million.

Now, looking briefly at fourth quarter segment operating margins.

Margins improved year on year in Personal Care, KCP, and Healthcare.

Input cost declines benefited all three segments, while higher selling prices also boosted profitability in Personal Care and KCP.

Consumer tissue margins were below prior year as a result of investments in strategic marketing, competitive promotional activity in North America, and some softness in KC International.

Now, moving to cash flow.

We had another excellent performance this quarter.

Cash provided by operations increased 48% to just over $1 billion, driven by higher cash earnings and further reductions in working capital, partially offset by increased pension plan contributions.

We improved our working capital cash conversion cycle by six days compared to the third quarter.

That included benefits from payables, and a two day reduction in inventories.

Contributions to our defined benefit pension plans in the fourth quarter totaled $127 million, including $100 million contribution in the US that was incremental to our previous plan.

During the quarter, we decided to make an additional contribution as a result of our strong cash flow.

For the full year, we generated all-time record cash from operations of approximately $3.5 billion.

That's up 38% or roughly $1 billion compared to 2008's level.

That's a terrific accomplishment by our global organization driven by significant working capital improvements.

That wraps up the financial review.

So to recap the quarter, we achieved organic sales growth of nearly 3%.

We delivered double digit bottom line growth, fueled by healthy gross margin expansion, and cash flow performance was outstanding.

Now I'll turn it over to Tom.

Thanks, Mark, and good morning everyone.

Since you just heard from Mark about the fourth quarter, I'll give you my perspective on our results for the full year and then I'll review our outlook for 2010.

In short, we delivered solid results in 2009 in a very challenging economic environment, and we maintained our focus on doing what's right to generate sustainable long term growth.

And that's our plan for 2010 as well.

So let me start and recap 2009.

Our overall performance was strong.

On the top line, organic sales were up about 3%, and that was driven by higher net selling prices of approximately 4%.

That's a pretty solid achievement, particularly considering that we faced the worst economic environment any of us have seen in more than 70 years.

On the bottom line, earnings of $4.52 per share were up 9% compared to adjusted results in 2008.

That's at the high end of our long term global business plan target, and we significantly exceeded our original 2009 plan for earnings of $4 to $4.20 per share.

We made excellent progress on the four priorities that we established at the beginning of the year.

Those priorities were to improve margins, pursue our targeted growth initiatives, strengthen our brands, and maximize cash flow.

On the margin front, we increased gross margin by 320 basis points and our operating margin by 140 basis points.

Our focus on price realization and cost reduction was essential to delivering these improvements, and while our revenue realization strategies impacted our sales volumes in some cases, that was a short-term tradeoff we were willing to make to get our profitability moving in the right direction.

At the same time, we took additional steps forward with our targeted growth initiatives.

Overall our KC International business grew organic sales by 11%, with very strong performances in the high potential markets of China, Russia, and Latin America.

We also invested more than $750 million on acquisitions that will further enable our growth initiatives, particularly in higher margin, higher growth opportunities in KC Professional and Healthcare.

In addition, we continued to strengthen our brands with innovation such as Huggies Pure and Natural, gender specific Depend products, Scott Naturals, Lavender Nitrile Exam Gloves and a number of KC Professional safety products.

And we supported our brands with a significant increase in strategic marketing, and that was up about $140 million in local currency terms.

And finally in terms of cash flow, we had record setting performance, as Mark mentioned.

Our cash generation has allowed us to fund our growth initiatives and improve our balance sheet while providing additional flexibility as we move into 2010.

So all in all, we executed our business plans very well and we made great progress against our key priorities for the year.

I'm very proud of what Kimberly-Clark's worldwide team accomplished this past year, and our performance gives me confidence that we will continue to execute our global business plan well in the coming year.

So, now let's turn to our outlook for 2010.

In terms of the environment, we're planning for a slow and modest economic recovery overall in 2010.

So we expect our organic sales volumes to be up 2% to 3% in 2010 after being down about 1% in 2009, and our volume growth should be led by our KC International business as we further expand our presence in these faster growing geographies.

Just as we did this past year, in 2010, we'll strengthen our brands and pursue targeted growth initiatives and reinvest back into our business for our future growth.

So we have a healthy pipeline of innovation coming to market in 2010, and there are a number of those launches that will start in the first half of the year.

And we will support our brands and our growth initiatives around the world with strategic marketing spending that is planned to rise faster than sales.

And we'll invest more to improve our research and customer development capabilities.

We'll continue to focus on reducing our costs and generating strong cash flow.

That should help us overcome the expected significant input cost inflation, which we currently estimate to be about $300 million to $400 million, and enable our strong reinvestment plans.

So all in all we expect adjusted earnings per share in 2010 will be in the range of $4.80 to $5 per share.

That's up 6% to 11% compared to 2009 earnings per share, and that's in line with or slightly above our long range target.

We'll also deploy our cash in shareholder friendly ways.

We would expect a high single digit to low double digit increase in our dividend, and that will help us maintain our top tier pay out.

Moreover, we're resuming our share repurchase plan and we'll be entering the market right away in the first quarter.

More details about our 2010 planning assumptions are included in this morning's news release and our presentation slides.

And finally, we recently completed a review of our global business plan, and we've got further sharpening of our strategies and plans to facilitate the delivery of our existing top and bottom line growth objectives through 2015.

Our annual growth targets remain 3% to 5% for net sales and mid to high single digits for earnings per share.

We'll continue to pursue targeted growth initiatives and further develop the key capabilities that we need for sustaining our growth.

At the same time, financial and cost discipline will be important parts of the plan.

We'll share more details around our GBP 2015 at our upcoming Investor Day on March 22.

So to summarize, we delivered excellent results in 2009 and we expect another solid year in 2010.

We continue to invest for our long term success, and we're building a leaner, stronger, and faster company and we are confident that we have the right strategies to drive sustainable growth and shareholder value for many years to come.

That wraps up our prepared remarks, and now we would be happy to begin to take your questions.

(Operator Instructions).

Our first question comes from Ali Dibadj with Sanford Bernstein.

Hi guys, thanks for taking the question.

Wanted to just understand a little bit more about the consumer tissue margins.

It looks like a lot of that has been driven by marketing spend increases, and I'd love to understand a little bit of the ROI on that spend -- or does it just not matter?

You have to spend it anyway because of the competitive atmosphere out there to defend your share?

Well, there's a couple things going on in the quarter.

There were increases in trade funding.

Some of that is getting your price point matching up with the competition so that you're competitive on promotion and that you've got the right velocity to earn those promotional slots, and that was part of it.

We also stepped up our marketing investment behind Kleenex, and so obviously we're in the heart of cold and flu season.

We saw 7% volume improvement on Kleenex in the quarter, and obviously we would expect to see that continue as we go into the first half of the year.

We've got some innovation coming on kleenex as well.

So those were two factors.

And the international markets you probably also saw a bit more downtime in the quarter, as they were a little later in the process of getting their inventory down to target levels.

So particularly in places like Australia, where we've got some decent size tissue businesses, you saw a bit more downtime in the quarter.

I guess to drill down on one of those aspects you mentioned, both internal promotions that hits COGS obviously, but above the line as well -- it feels like you have a conundrum going forward in that commodities are increasing.

And you said it yourself obviously and you're budgeting for it, but you aren't taking pricing.

So I guess in some sense you're seeing two curves cross.

You aren't going to be able to offset, that's one, but two is if you don't take pricing up, you get hit by commodities.

If you don't take pricing down, it feels like this private label and something like other competitors branding as well -- the increased intensity will hurt volumes.

So how do you think about that and why isn't there more I guess negative pricing going forward in terms of expectations?

Well, I think if you look at 2010 for tissue, holding margins in consumer tissue would be a really good performance in the environment they're going to be in.

So we'll have to do some things around innovation to drive mix and some of the marketing spend will help on that front, and we've got a very aggressive cost savings program for tissue around the world to be focused on that.

But I think your point is right on.

It's going to be a challenging environment for tissue in 2010.

With commodity costs up, it's a difficult pricing environment, and we're going to have to be aggressive on cost and drive mix to be able to hold margin going into that environment.

And you're not seeing anything, well, let me ask it this way.

Can you give us a little more color on the competition out there, both branded and private label, in terms of pricing in particular or promotions?

Well, if you go back to the last price increases that were taken in late 2008, those really haven't been fully implemented.

And in many cases they've been partially spent back or in some categories even significantly spent back.

And so I think until you get those prices that are in effect and promotion prices starting to move up a bit, you're probably going to see a difficult time, at least in the US market in list price.

We may get some pricing in some other international markets where the dynamics are different, but I think in the US market, it will be a challenging price environment.

You may see some desheeting that happens where you've got innovation that would drive that, so you'll get some price in that form, but I don't think you'll see list price to a great extent.

And I guess it feels like there's some sort of asymmetry in terms of people are giving back the pricing, particularly branded players, and not getting back the volume that one would have anticipated.

Is that a fair take in the economic situation out there?

Well, I'd say the categories have been a little soft in some cases.

Facial tissue has been soft.

It's a bit more discretionary.

Paper towels would be the same.

The category has generally shifted more to private label than some of the others.

So yes, the bath tissue category dynamics have been pretty stable.

But you've seen more of a mix shift to the lower price tier, so our Scott tissue business had a fantastic year.

Our Cottonelle business had more of a challenge.

So I think you're seeing that trade down in tissue probably more than in Personal Care.

Okay, thanks for answering all my questions.

Thanks, Ali.

Our next question comes with Alice Longley with Buckingham Research.

Hi, good morning.

I am having some issues or confusion about guidance as well.

You've got organic volume growing 2% to 3%.

What do you think will happen with pricing overall?

I understand maybe down in the US, up offshore and mix.

Are those both neutral maybe as a good starting point?

We would basically say price and mix are calling to be pretty flat versus 2009.

Okay, and then we've got raw material costs going up and we've got marketing going up, so what do you think will happen with operating margins in 2010?

We would say operating margins will be up probably 20 to 30 basis points, in that framework where you'd see cost savings and the benefit of the volume growth should help our margin and offset the impact of the higher commodity cost and higher marketing cost.

Okay, and gross margins?

Do you think that they can be up as well because of cost cutting and volume?

Yes, we'll probably see a bit more lift at gross margin because of the impact of the between the lines marketing spending.

What do you mean by that?

So in other words, gross margins will have to be up higher than operating margin, because we're going to be spending back more between the lines.

Okay, so gross margins up 50 basis points?

That's not an unreasonable assumption.

Okay, and then I just had a question about the North American Personal Care.

You cited the three parts of the division that were up more than the 3% volume overall.

So what was down, child care?

Child care was pretty similar year on year, Alice.

So that was flat?

Pretty similar, yes.

Okay, and I guess one final question.

Your 2% to 3% volume growth that you're foreseeing for 2010 -- how much do you think volume will be up offshore for international?

It should be up more than that.

I mean obviously we saw a good sequential improvement during the year.

The back half of the year had better volume performance than the first half of the year.

We've got aggressive plans to continue to grow in the international markets.

But we would also say particularly in Personal Care we would expect to see some growth in the US behind some of the innovation that we have coming.

So you think volume can be up in Personal Care in the US some?

Yes.

Okay, and actually as a follow-up to that, I think you said organic growth for international in the fourth quarter was 11%.

What was it for the year?

It was also up 11%, Alice.

For the year, and how much of that was pricing and how much volume?

In the Fourth Quarter, I think volume was 2% and price was the balance, price and mix.

Yes, and that's pretty similar for the year as well.

Similar for the year as well, thank you.

Thanks.

Our next question comes from Chris Ferrara with Banc of America.

Hi, guys.

Hi, Chris.

Tom, I just wanted to just to make sure I understand this.

You're saying you think pulp will average $850 to $875, or that's what's baked in, which means it's approaching $900 by the end of the year if not getting there.

But you think with pulp getting up to $900, there will be no industry pricing in consumer tissue at all, like private label consisting in that type of pulp prices and survive?

And just want to get your color on that?

Well, we would love for that to happen.

But I think just based on how tough it has been to get the last price increase established, we'd probably focus more on getting that established and dialing back some of the trade spending.

What you typically see in tissue is that the way it plays out is you'll see some of the trade gets pulled out before a list price change, and we're not seeing that happen at this point in time.

I mean promoted price points are still pretty aggressive and it's a challenging environment to get price.

That isn't to say that we won't try to get it in markets where we think we've absolutely got the opportunity, but I'd just think realistically, it's going to be a challenge in 2010.

And I understand that now based on what pulp is today.

But if you're talking about pulp going up another $70 to $80 over the balance of the year, do you think that would change the dynamic at all?

It might.

It could happen, but again, if it happens, the realization this year would probably not be significant, because you'd protect promoted price points for a period of time.

And so much of tissue goes on promotion, it's not that it doesn't matter what happens to list price, but you've got to get promoted price points to move up to really get significant realization.

Got it.

Thanks, and I guess just on a different topic on SG&A, just trying to understand I guess for the quarter -- so SG&A was up about 19% year on year right after it had been running flattish to slightly up over the first few quarters.

I just want to understand what's driving that increase and how are you thinking about that line going forward?

I think like 19% and change as a percentage of sales is one of the bigger numbers we've seen?

So what change and how do you think about it as you move into 2010?

About half of the increase in the quarter was higher marketing spend, so part of that was just the timing of how that played out this year.

And then the balance, the I-Flow acquisition, which has got a very heavy sales component, was about one-third of the balance and then the rest of it was a variety of things.

You had compensation expense was higher, particularly in the fourth quarter.

We had such a strong third quarter that that really -- and you look at our long term comp is driven by ROIC.

And so the big improvement in ROIC in our outlook for the year actually caused three years worth of awards to get ratcheted up.

And all of that expense fell in the fourth quarter predominantly.

So some of it was just the timing of when the compensation expenses got recorded this year.

I'm sorry, I hate to like be such a pain on this.

But the rest of the -- so I guess marketing spending and strategic spending didn't really go up much more this quarter than it had in the first three quarters, is that right?

I'm just trying to understand relative to say last quarter when it was flat, if you have the same level of year on year increase in marketing spending, that's an extra 19 points of growth that -- it sounds like I guess a piece of it is I-Flow and the comp.

But there's nothing else that's sizable in there?

Nothing unusual, no.

I would say, Chris, that the third quarter was maybe a little less than we had expected, the fourth quarter was maybe a little more.

We always tend to ramp up in the fourth quarter and maybe it was a little bit outsized, but nothing, had no particular element standout.

Chris, if you take a look at the flow as below the line spending in 2008 for example, you'll see that the fourth quarter is typically higher than the full year average and that's predominantly driven by G&A.

Thanks guys.

Thanks.

Our next question comes from Andrew Sawyer with Goldman Sachs.

Sure, thanks guys.

I'm just going to ask a quick question on diapers.

Proctor has announced a decent sized innovation.

I'm just wondering what kind of flexibility you guys would have to replicate or match that technically if you find that necessary, and how you're thinking about spending plans as they come out with presumably a decent amount of media behind that?

We've been aware of the March relaunch of Pampers for a while because it's been out in the trade for a while.

And so we've seen the product in other markets around the world and we're pretty aware of how it performs, and we feel very good about our Huggies plan for 2010.

So we know they will spend money and make a lot of noise, but we also feel like we've got a terrific innovation plan and we'll come through the year with a strong Huggies franchise.

How has that product performed?

How has it affected your business in other markets where it's been for a longer period?

Well, they haven't launched it broadly anywhere.

They've tested it a bunch of different places.

The consumer buzz on their blogs is not all positive.

In fact, there's quite a few consumers that are seeing fit issues, but we'll see.

I'm sure they will get it right.

They are a very capable marketing company.

They've been in this category a long time.

So have we.

But if you think about it relative to their current product, it's 1 millimeter thinner versus our product that's like 1.5, so it's not as radically different than you might think.

And is there anything coming through from the retailers in terms of shelf resets?

Because one of the pitches they're making is it takes a little bit less space.

Well, on the big box package which is the most common largest volume pack, the pack size is 1% different, so on average across their packing.

So it's not a huge space differential.

And then just quick one for Mark.

Why is the tax rate going up next year?

I would have thought with more mix -- presumably coming profit mix coming from overseas, I would have thought maybe the reverse.

I think a couple things.

We're also generating more cash overseas, so we'll be bringing more cash back to the US, which tends to put a little upward pressure on the tax rate.

And then there's just a natural upward pressure as we create more income.

That has more of an upward effect.

You wind up getting closer to your statutory rate, so you need that much more tax savings opportunities to hold the rate below the statutory rate.

It's really just the growth in the shape of our business.

And just on that front, will you guys continue to raise your dividend payout?

You're implying an increase in your dividend payout ratio this year.

Is that something you'll continue?

Is there a target rate you'll have?

Certainly we outperformed this year.

So our payout for 2009 was actually lower than we expected it would be going into the year.

And so we've said historically, we try to grow the dividend at least as fast as our earnings growth.

And so I wouldn't expect to see huge shifts in payout upward over time, but I think a modest uptick is probably appropriate in this environment.

Well, thanks a lot guys.

Thanks, Andrew.

Our next question comes from William Schmitz with Deutsche Bank.

Good morning, guys.

Can we just -- Venezuela, are you done repatriating money from Venezuela cashwise?

Will it stop impacting margins next year?

Well, everything has changed now they're gone to hyperinflationary economy.

So I think that as we generate excess cash in Venezuela and we can pull that cash out to do other things with it, we would look to continue to be able to do that.

I think at this stage, given the state where the currency controls are, we're not exactly sure what the rules are or how you will even get foreign exchange to pay your bills in foreign currencies at this stage.

And are diapers deemed essential items, or do you have to use the VEB4.3 rate?

Well there's three rates now.

The essential rate -- we're assuming that none of our products are probably in that category.

It's probably more food oriented.

And so then there's -- the non-essential rate is VEB4.3 and then there's a parallel rate of VEB6.

And so I think the question that everybody has at this point, and I don't think anyone knows exactly how it's going to work out, it's going to be either VEB4.3 or VEB6 is where everything will get translated at this year.

And so when you see a range around some of our numbers, we're waiting for clarity on how that's going to play out.

And so I think it's likely the SEC will lay in and tell everybody what rate they're supposed to use and we'll see how that happens in the first quarter.

Okay, what's in guidance?

Because if you look at the year-over-year comparison, obviously there was big other expense in the first two quarters.

Do you contemplate that continuing or is that going to go away?

The big other expense in the first two quarters -- if you look at last year, there's things happening in the sales line and cost of sales line, and the one most visible to the Street was what was going on in other expense.

As you look in the back half of the year, most of the stuff that was in other expense wound up in cost of sales because of the way the transactions were being done.

When you shift to hyperinflationary accounting, the way that more of that is going to flow through cost of sales next year.

But you're also going to have a much lower sales number, because we were translating sales at the official rate last year of VEB2, because that was the rate.

This year, their sales are going to get translated at either VEB4.3 or VEB6 depending on what the guidance is, so it was 3% of our sales last year and it might be 1% to 1.5% of our sales in 2010.

So there will be a lot of moving parts for Venezuela in the P&L in 2010, and we'll try and be as transparent about it as we can.

And then on the SG&A line, I think it was 19.5% of sales this quarter.

I know you answered Chris's question, but is that the run rate going forward?

No, that was higher than we expect.

Obviously there was more, the fourth quarter accrual effect that Mark talked about and some of the compensation expense catch up.

We had some of the cost of the I-Flow, the one-time costs of the I-Flow acquisition were in there.

So there was a bunch of things in the fourth quarter.

So I think if you look at the full year average, that's probably more reflective of what we would be aiming at.

Okay, great.

That's helpful.

And then the 10-K is not out yet, but you usually provide margin by region.

Can you just tell me what the European margin was for the year?

I don't know if we got that handy.

Bill, we'll get back to you with that.

I don't think we have that right with us.

The other thing -- when you do get it, we've booked all of the organization optimization costs in that line item, and in Europe, as you know, the severance costs are pretty high.

Okay, got it.

That's helpful.

Thank you very much.

Our next question comes from Connie Maneaty with BMO Capital.

Hello Connie.

Good morning.

I have a question on gross margin expansion.

I'm having trouble -- in my model, I'm having trouble getting it to expand, because you have cost inflation that won't be fully offset.

You have a mix shift towards less lower priced products.

You've got increased trade promotions.

Why will the margin go up next year?

Well, if you look at a couple of things, our achieving organic volume growth of 2% to 3% -- that's going to help us from a utilization perspective.

We're going to have less downtime in 2010 than we had in 2009.

Now we won't get all of that back, but we'll get a portion of that -- probably half of that will come back in better absorption.

We've got a couple hundred million dollars in our force cost savings that we would expect to come through.

A lot of the organization optimization costs hit cost of sales and some part of it was in our G&A area, but a good chunk of it was in our manufacturing organization.

We'll have lower pension expense in 2010, and a good chunk of that goes through cost of sales.

And then some of the currency transaction costs that hurt us that were in cost of sales for all of the purchase materials -- those should be better with the better FX environment in 2010.

So it's a lot of other pieces that are hard to find, but we think that on balance, those things should help us offset the cost environment and still deliver on margin improvement.

That's helpful.

There are so many things that go into it.

There's a lot of moving parts, and the volatility we've had in a lot of areas these days.

The healthcare margins went from about 21% in Q2 and Q3 down to 14.5% in Q4.

What was that all about?

The one-time cost of the I-Flow acquisition were a big part of that, so as you know, we had the acquisition related costs that you have to expense.

And then some of the profit step up in their inventory flowed through the cost of sales in the fourth quarter.

We'll have more of that in the first part of 2010, so you'll probably see a little bit of pressure on healthcare margins in 2010 related to that.

Connie, there was also a sequential increase in some input costs like polymer.

Right.

Okay, so year-over-year in 2010 the healthcare margins should be down from 2009?

Yes.

What's a good assumption for I-Flow's normalized margin?

Well, from an operating margin standpoint, they've been running around breakeven.

Very high gross margins historically, but obviously we'll have to flush that profit aspect of inventory through as we do the purchase accounting.

And then we obviously believe that it can be accretive to us by 2011.

Okay.

And then I have some questions on Venezuela too.

Of the non-essential rate, are there restrictions to your access to get money at that rate?

I think the honest answer, Connie, is that we don't really know yet.

This is all relatively new.

We're still trying to figure out how the Venezuelan government is actually going to make exchange available to companies to allow them to pay for the cost of imported raw materials and in some cases imported finished products.

And so I think it's -- if you look at how things played out in 2009 there were some programs that were available to get exchange at the official rate.

But most of our business went at the parallel rate which -- so I think we're not sure exactly how that's going to play out in 2010.

If the sufficient funding will be available at the non-essential rate, that would be great, that would be one scenario.

But it's perhaps more likely we'll be dealing in the parallel rate as we were this year.

Okay, and also I just want to make sure that I'm understanding, I want to have an apples-to-apples comparison excluding the one-time stuff with Venezuela, and it seemed to me in last year's first quarter, you had two impacts from Venezuela running through.

One was the transaction cost.

But also didn't you have a loss to reduce your cash balances in the first quarter and shouldn't we exclude that from our adjusted base in 2009?

So that it's a straight comparison to 2010.

Well, because we'll be probably pulling some cash out again in 2010, so I'm not sure that I'd back that out completely.

I mean the loss that we're going to be treating as an unusual item is really just the impact of going to hyperinflationary accounting, which happened on January 1.

To put it in perspective, if the devaluation that happened in December of 2009, all of that one-time charge would have flowed through UTA and not gone through the income statement at all.

Okay, and that's, so that's -- but doesn't the cash that you generate, doesn't that also get remeasured in the remeasurement of the balance sheet?

Yes, the bolivar cash and bolivar receivables will generate exchange losses as the exchange gains or losses as the exchange rate fluctuates in 2010, net of your bolivar payable position.

Okay.

Did you record transaction losses in Venezuela in each of the four quarters of 2009?

Yes, but in some cases, the hit was in cost of sales and others it was in other income expense.

It really depended on the type of transaction.

Okay, so year-over-year, because it's already in the 2009 base, it doesn't get precipitously worse in 2010.

So the only thing we really need to think about is the translation impact and the one-time balance sheet effect?

I think that's right.

The bottom line, based on what we know of the exchange rates, Venezuela should be pretty similar in 2010 versus 2009.

Now that assumes things stay as they are.

Sales will be a lot lower, but the operating earnings net income shouldn't be materially different, because the parallel rate is projected to be broadly similar to where it was in 2009.

So the one-time transaction cost related to remeasuring the balance sheet is the big hit.

Are consumers shopping or has business come to a halt?

No, I mean we make things that people need every day, so people need bath tissue, people need diapers.

And so yes, it's a tumultuous environment to be sure, but no matter what's happening politically, people need our products to survive.

And if I could just ask one last question, I'm sorry, how should we think about the first quarter?

What are the big influences on the first quarter?

Well, again, we've got quite a bit of innovation launching in the early part of the year, so you'll probably see stepped up marketing spending.

Commodity costs are moving sequentially higher in some areas.

You've seen oil up a bit, polymer costs will be higher, and pulp costs will be higher than the fourth quarter.

The G&A costs will likely be lower as some of the impact of the accruals that were taken in the fourth quarter reverse, so you'll see lower G&A spending.

Broadly, I'd say those are some of the major impacts you'd look for.

Mark?

I think if you think about our business in two halves, our cost savings programs tend to ramp up toward the end of the year, which tends to benefit the second half.

The benefits of the innovation that will come in the first half will flow through in the second half.

So it's likely first half comps will be better just because our earnings were lower in 2009, but progressively we'll earn more in the back half than the first half.

Great.

Thank you.

Our next question comes from Wendy Nicholson with Citigroup.

Hi, just a couple of follow-up questions on the tissue business.

First of all, I know you've talked a little bit over the last year about maybe some distribution losses for the Scott brand.

Has that actually played out or what's your expectation now for that?

No, I think you're seeing retailers everywhere are more disciplined on the brands they carry and the SKUs they carry.

And I think that's true that every retailer they talk to, that they want to have a more impactful, more efficient line up.

Broadly we would say we have the distribution we need to achieve our objectives.

The distribution has shifted around and we've gained in some areas, we've lost in some other areas.

But overall, we feel like we've done a pretty good job and brought the retailers what they needed to give them the efficient line up they're looking for.

So in terms of pressure on your business, do you think this is just an ongoing thing, or has the last year seen -- particularly whatever more of a shift to private label, any disproportion at pressure on your business?

No, I think retailers are continuing to push.

I mean they want innovation, they want to make room for innovation.

So they are going to be pushing manufacturers to make sure that their product lineup is performing.

So every one of our brand teams is making sure that we've got the right things on the shelf and the right packings for each retail channel and that we're the relevant offering that they want to put on the shelf.

And given the continued downtrading to private label particularly on the towel side, does it change your philosophy or your willingness to do more private label manufacturing?

Not at this point.

I think we are a branded business and that's where we focus.

We do have some private label contracts that are important to us with strategic retail partners, but I wouldn't say that -- it would say we're going to go chase private label broadly as a key strategy.

We've got excellent programming behind Viva, which is a super premium differentiated product.

We continue to make sure that Scott towels provides the value that consumers are looking for, and we think both of those brands have got a role to play in the category going forward.

And then my last question -- and I may have my facts totally wrong here, but isn't it in the spring of 2010 that the brands that SCA bought from Proctor in Western Europe have to go away as a part of that licensing agreement?

So I think I'm wondering if my facts are right -- if that's still in the cards and whether that affects you at all?

In other words, is that a unique opportunity to capture branded share against what now looks like just a private label dominated market, or is that just an immaterial thing?

Well, I think the shares were pretty small to begin with, and the share growth in Europe is mostly occurring in private label broadly.

And so we managed to hold share and are down just a tick in a couple categories.

But I'd say we're watching private label more carefully in Europe than we are some of the other branded players.

Fair enough.

Thank you so much.

Thanks, Wendy.

Our next question question comes from Lauren Lieberman with Barclays Capital.

Thanks, good morning.

First thing was just on strategic marketing.

I think it would be really helpful if you guys could give us a ballpark idea of what percent of your general expense you consider to be strategic marketing.

Because in the conversation about how much it increases year-over-year, local currency versus as reported -- when I look back at what you said last quarter it was up $50 million.

This quarter it's up $45 million.

And that's different than what Mark had just suggested.

So I'm having trouble figuring out what up faster than sales means for this year.

I'm not sure what question would you like us to answer in that, Lauren?

Sorry, let's start with what's the base -- what percentage roughly even is strategic marketing of your general expense?

So Lauren, this is Paul.

We consider advertising and consumer promotion between the lines as strategic marketing.

Advertising we'll report in the 10-K, but roughly speaking it's about 3% of sales.

The consumer promotion piece is a meaningful number but it's less than the advertising number.

Okay, great.

So it's less than advertising.

That's perfect, thank you.

Then since it's at least year-over-year even adjusting for currency, strategic marketing was up significantly in 2009 versus 2008.

So in your plans for 2010, to increase strategic marketing faster than sales, what's really changing outside of the dollar number?

Where is it being allocated, or how is it being allocated differently that you think it will have a positive impact on volumes and brand equity versus what you may or may not have seen this year?

As you look at our global business plan that we've talked about, the categories that are targeted, the categories and countries that are targeted for significant growth are going to be where we invest disproportionately.

So if you looked at our personal care businesses pretty much around the world, you would expect to see higher A&P spending.

If you looked at our Kleenex business and some of the things we're going to do behind that, you'd expect to see higher marketing spending.

Our Andrex business in the UK, we're going through a major relaunch really as we speak.

You look at our Viva business and Cottonelle businesses in the US, where you've got high margin differentiated products where we would be wanting to spend more behind those.

So those would be the focal points where we see we've got innovation, we've got the strategic growth platform where we would want to spend more behind those.

Okay, great.

And then specifically to consumer tissue, I know the Nielsen data is less and less useful, especially now with Target not included in it.

But the numbers and track channels for Scott in both bath and paper towels have been down double digits.

So just getting back to Wendy's question about distribution, is the performance very very different in untracked channels for Scott?

I mean, Scott bath overall had a terrific year, so significantly outperformed the category from a growth rate standpoint, so yes, there's no issue on Scott bath.

I mean there is really more of making sure we can manage the supply chain and stay in good customer service, because if you look at the fourth quarter we significantly outperformed our expectations on Scott bath.

Scott towels, we did lose share but if you looked at our total towel share versus the prior quarter, I think it was down 0.2 point, and that was probably pretty evenly split across Scott and Viva.

Okay, and then just finally on margins in tissue.

I understand that broadly, when you talk about the G&A spending up year-over-year that some of it was accruals and one-time or timing issues.

But when I look at the reported operating margins for tissue, as you highlighted, they're down really significantly year-over-year.

And I', just wondering to what degree is that or the downtime tied to the fact that volume has now been negative for two years?

And you sort of focus on revenue realization, improving margins, it got back to a level that I'm wondering if maybe you'll say okay, midteens margins was fine and now we'll spend again, but we're back where we started in terms of margins and top line?

I'd say I'd look at the average margin for the year and say tissue margins for the full year were up probably a couple hundred basis points, 11.5 versus 8.9.

And yes, we slid back in the fourth quarter but I'd still say looking at that full year average is really what we're aiming at in 2010.

And there's a lot of things that happened in the fourth quarter and some of that was one-time and some of it was downtime related, which we will have more of.

But a good chunk of that was in the international businesses, where margins were off quite a bit and part of that was downtime related.

Okay.

All right, thank you so much.

Thanks, Lauren.

Our next question comes from Chip Dillon with Credit Suisse.

Hi, good morning.

Hi, Chip.

Hi.

My first question is just to clarify on the diaper changes that Proctor has put out there.

You mentioned it's a pretty minimal shelf space issue.

But are there any plans at Kimberly -- not that you would share the details, but to somehow respond to that with innovations of your own?

Well, I mean, as you know, we're always improving Huggies and have got aggressive product plans going into every year.

In fact we've got multiyear product plans.

And so yes, we feel like we will have a competitive and inmost cases superior preferred product than Huggies throughout 2010, so we're very confident in the innovation plan that we have.

We know Proctor as a great marketing company will come in and make a lot of noise about their product improvement.

But I think what they're doing, if you really take it all apart, is more of a cost savings program than a significant step change in product performance.

Okay, and I'm sorry to beat the dead horse on the tissue issue.

This horse is alive and well Chip.

It's a horse we like very much and we've got confidence that our tissue business can perform and earn us cost of capital and plays an important role for us.

You'll be glad to know we bought a massive package of Scott tissue, 1,000 rolls at CostCo on Martin Luther King Day, so we're doing our part.

Thank you very much.

We appreciate the business.

When you look at the average US -- at least looking at RICI, the NBSK price for 2009, it was $718 and it's supposed to go to $880 in February, which if it just did -- I'm not saying it will or won't and stayed there for the rest of the year, and not higher or lower -- that would mean you have about $160 a ton change.

And that would add up to be almost your full $400 million cost increase you're building in.

And I know -- I believe you buy about 1 million tons give or take of wastepaper, and that's already about $100 a ton above the 2009 average, so that would go through there.

Are there offsets to this where you see raw materials or other costs going down, input costs going down that would keep you in that $300 million to $400 million range?

Or are you expecting pulp to roll down or how can we reconcile those?

In some parts of the tissue business, in the UK for example, energy costs are probably going to be a little lower in 2010 versus 2009.

So that's part of it and there are other areas where we've got pretty significant manufacturing cost improvements, part of which we started out with our organization optimization program that will roll forward into 2010.

And obviously, we're watching the fiber prices as you are.

And when we look at the currency swings that are going on, that's driving it in part as well as Chinese demand has been extraordinarily high, and we'll see how long that plays out.

Okay, and then noting the capital spending which you of course are citing within your planned long term range, it's still up about 25% to 30% from where it was in 2009.

Obviously we all entered 2009 with a lot of conservatism.

But are there any specific projects you can point to or maybe just segments you can point to as to where the increases are taking place -- like for example, are there new tissue machines in there or what would account for the increase in spending?

I mean, we pulled back 2009 from our normal run rate just reflecting the challenging environment and we wanted to make sure we conserve cash flow and strengthen our balance sheet going into this tough economic environment.

We also felt like if the categories weren't going to be growing rapidly, we shouldn't need to spend as much on capital.

But if you look at the 2010 plan, you'd see some capacity expansion in Personal Care around the world, particularly in diapers and fem care.

You'd see more spending on cost savings programs, so supporting a lot of the cost savings plans that we have, we're going to spend a bit more of our capital in that vein.

We've got good cost savings projects that we'll be driving to help make sure we deliver on that front.

There's no major tissue capacity expansions that are in the plan that are significant to talk about at this stage.

And so we think in tissue, through productivity growth, we've got the capacity to support our growth.

Thank you.

Thanks, Chip.

Our next question comes from Gail Glazerman with UBS.

Hi, just a few questions to start on the way from home tissue business.

There is a price increase in the market.

Have you announced anything?

And just in general, it's one of your more economically more sensitive businesses -- with macro indicators starting to point up, are you seeing anything change in that business?

I'd say if you look at the sequential volume comparisons in KCP, it looked like it got a little better.

But I would say the comparison got easier, because last year's fourth quarter you saw a pretty big inventory pullback and bigger volume declines.

And so I would say we're going to follow the unemployment rate and you're not really seeing a lot of job creation or seeing unemployment rate decline.

And until you start to see that, you're going to see the KCP business go sideways, I'd guess, from -- the comparisons get easier in 2010 but I don't think you're going to see real volume improvement until you see the economy start to turn more positively.

You look at a lot of industries, there's still significant excess capacity, and until that starts to get filled up, you're not going to see huge swings in volume improvement in KC Professional.

There is a general industry price increase that's rolling around.

We've looked for opportunities where we get the chance to improve our net realized revenue.

Whether we do that through list or we do that through increasing contract prices, we're still evaluating the response to that.

Okay, and just going back to private label, I guess you mentioned that private label is gaining share in Europe and there was I guess some talking around it and some of the other markets.

But can you talk about what you're seeing in the key North American markets in terms of private label share?

Private label is gaining share in Europe for like 50 years, and so if you look at a long trend, it's continued to move upward generally and it's driven by the European retailers.

If you look at private label shares in our major US markets -- if you looked at it in just versus the prior quarter, private label shares are actually down in half of our category, and maybe flat in the rest.

So it's down 0.7 point in infant care, pretty flat in child care, down a couple points in baby wipes, down 1 tick in fem care, down 0.7 point of adult care, down a couple points in facial tissue, up 0.6 point in bath and up 0.1 point in paper towels.

So versus sequentially, you'd say private label share has got a little weaker.

Now there was more branded spending on marketing money and trade promotion, which probably narrowed some of those price gaps.

If you looked full year 2009 versus 2008, you'd say private label was up about 0.5 point or more in five of our categories and flat in about three.

So you'd see the biggest moves in -- adult care private label is up a couple points.

It was up a couple points in paper towels and it was up about 1 point in facial tissue.

Most of the other Personal Care categories private label shares were within 0.5 point of where they were in 2008, so not a huge swing.

Okay, thank you, and I guess just last question.

Looking at the international volume trend, low single digits in 2009.

Was that mainly inventory destocking, price elasticity> And would you envision being able to get that back to a double digit rate over the next year or two?

Well, we saw double digit organic growth, but probably more price.

And some of that is going to come as we drive innovation in some of the higher margin segments.

But I also think in large parts of the emerging markets, as their economies start to improve, we'll see category penetration improve.

So we would expect organic volume growth in the emerging markets to probably not get back to the double digit range broadly, because we've got a lot of markets over there that are pretty well developed, like Australia and Korea, that are a big part of our mix.

But we've still got aggressive growth plans in China and Russia, and we're seeing good growth in those areas as well as big parts of Latin America.

Okay, thank you.

Thanks.

Our next question comes from John Faucher with JPMorgan.

Hello, John.

Hi guys.

I'm going to ask you a different way to look at the number for next year, aside from just margins, which is if I take a look at the reversal of charges, the benefits from the workforce reduction and the incremental benefit from force, to me, that all adds up roughly to where your cost of goods sold inflation number is for the year, the $300 million to $400 million.

And then if I take a look at the lack of curtailment and the lower pension year-over-year, if I add that to your 2009 base, that gets me to the midpoint of your guidance range.

And then I'm looking at this saying okay you've got $1 billion in revenue growth, that has to be dropping at a relatively lower margin number, because you don't seem to be getting much profit benefit from the growth.

So I guess is there something I'm missing there?

Obviously you talked about the higher marketing spend, but just a normalized margin on the $1 billion in incremental growth would get you a couple hundred million dollars.

So I guess the question there is what am I missing on this?

I think a couple things, without seeing the analysis entirely -- I'd say the overhead absorption I'd probably only maybe bring half of that back because we'll still have some downtime in 2010, so that's part of it.

We'll have strategic marketing spending that will be faster than sales, so that will be a part of it.

We'll spend a bit more in R&D and customer development, so that will be another part of it.

Wage rate inflation -- we didn't do a lot in salary increases, and in 2009 we'll likely have a normal wage increase in 2010, so that will be in probably the $25 million to $50 million range.

We have some product improvement costs.

As we're improving the product, we'll put some value back in, so that's a chunk that's not in there.

I think those are probably the other pieces that maybe weren't in the analysis that you laid out that would account for the differences that you're talking about.

Okay, so nothing major, just taking advantage of maybe a little bit of flex to have to work on a bunch of different things is the way to look at it?

Well, it's more the normal things that happen in the business.

You have product improvement costs every year, you have wage increases every year, you have investments in marketing that you're trying to increase at a faster rate than sales, and you've got cost savings programs to pay for it all.

Okay.

Thank you.

Okay, thanks.

Our next question comes from Leigh Ferst with the Dudack Research Group.

Good morning.

Can you comment on what's going on with retail inventories?

In our categories, we're pretty high turn already.

So we take up a lot of space in the warehouse and retailers really want to flow our product to the store as quickly as they can.

And so we haven't seen huge swings at this point in time.

I'd say going into 2009, you saw everybody be really lean on inventory.

I wouldn't say they've rebuilt that dramatically, and every customer would tell you they're trying to run with a leaner, more efficient supply chain, and so we play a part in that.

But we are already at the top end of their performance from an inventory turns standpoint in most cases.

Thank you.

Thanks.

Our next question comes from Jason Gere with RBC Capital Markets.

Hi, good morning.

Just a quick question about the 2% to 3% volume.

I mean what are you assuming for market category growth, maybe consumer tissue, Personal Care?

I know you did talk about the slow and modest recovery, so I'm trying to figure out what you're implying in terms of market share gains.

Well, I mean in the US, we would expect the categories to be pretty flat.

The birth rate has been a little down in the US, so that will play out in our categories for the next couple of years.

And so we would expect to see the diaper category pretty flat.

And tissue, bath tissue generally follows population growth, so that's going to be flat to up slightly.

Household towels, the category was pretty weak this year, and so was facial tissue.

So as the economy recovers, you could start to see those categories grow a bit at a faster pace.

Globally, we would still look for probably mid single digit category growth in diapers and some of the Personal Care spaces.

Fem care may be a little slower than that as it's more penetrated in most markets.

So I'd say if you look at our 2% to 3% target, not huge share gains here, it's really more category penetration, with perhaps some of our innovation in selected markets, we would see modest share improvement.

Okay, and then just on the next point, just in Personal Care in Europe, can you just comment about the Simply Dry rollout from Proctor?

Clearly this quarter, Huggies showed some strength and the price investment actually improved for you guys this period versus the last couple quarters.

So just wondering how that competitive landscape is looking.

Well, so far, the Simply Dry has mostly cannibalized P&G's existing share, so we've defended reasonably well and obviously we're watching closely as they roll it out to more markets.

But so far, we're feeling like we're doing the right things with the Huggies franchise in Europe.

Okay and then just the last question, with the face masks up I guess adding 6% to the growth in the fourth quarter, what assumptions are you making for 2010?

Are you assuming there's going to be some reversal as this pushes out from the H1N1?

I guess can you put some color around that?

Thanks.

It's a good question.

Mark and I were just with our healthcare team a week or so ago having this exact same discussion.

And I think we're basically assuming that we still have a little bit of H1N1 benefit in the first quarter, and then it really winds down and goes back to more of a pre-H1N1 level.

So you'd actually see some volume decline on face masks in 2010, and that's built into our plan.

One of the questions we've been debating is a lot of this was governments and hospitals building a stockpile and we don't -- it's difficult to give visibility as to whether the stockpile was actually used and pulled down and do they need to replenish, or where are they in their own inventory levels at the end-user level.

And so that's something we're still trying to get better visibility of.

And I think there's talk of another H1N1 bloom in the spring.

We'll see how that transpires at this stage.

But our planning assumptions are that we've got a bit left in the first quarter and then we revert more to where we were before the pandemic began.

Okay, great.

Thank you.

Thanks.

Our next question comes from Linda Bolton-Weiser with Caris & Company.

Hi, Linda.

Can you give us a little bit of an update on the most recent headcount reduction program and tell us how in cost savings there were in the quarter?

And then I guess costs related to that were only$ 6 million in the quarter pretax.

I thought it would be more like $12 million.

Are you still going to have more costs going forward, or are the costs over and just the benefit?

And I'm also modeling about $80 million of benefit in the first half of 2010 from that -- is that about right?

Yes, that's all right, Linda.

This is Paul.

The costs are done.

They came in at about $128 million for the year.

It's in the news release.

The savings in the fourth quarter were $30 million and that brought the full year to about $55 million and that leaves about 80 million for 2010.

And the headcount -- we completed the program, we reduced headcount by about 1,600 positions as we said at the beginning that we would do.

So on track and complete.

Great, and then can you just touch on the operating margins in KC Professional and Healthcare and why they came down so much sequentially?

Is that just a sequential increase in material cost inputs or something else?

Because the pricing in professional was actually pretty good, so can you explain that a little bit more?

KC Professional -- secondary fiber was part of it.

They also had some significantly higher distribution expense, which was -- part of that was related to a new order entry system that we put in.

So we should start to see some improvement in that area in 2010 as we get that established.

We also took a little bit more downtime from an inventory standpoint globally on KC Professional.

So that's sort of that story.

And on healthcare, the input costs and polymer was a part of it, but probably a bigger part was the impact of the I-Flow one-time costs and some of the inventory step up that flowed through those numbers.

Okay, great.

And then can you just tell us how the new Natural diaper is doing?

The Huggies Pure and Natural, so far so good.

It's holding steady at about 1 sharepoint and -- but, we're doing well with the newer models with the just entering the category.

So that bodes well for the future as they continue through that franchise.

Do you have all the distribution you'd want to have or is there still gains to be made?

Well, we always like more distribution, but we think we've got what we need to make that a successful launch for us.

Okay, thanks a lot.

Thanks, Linda.

At this time we have no further questions.

All right, thanks, David.

I'll turn it over to Tom for final comments.

Well, once again, we're very pleased with the performance that we delivered in 2009.

But as you also know, we're never satisfied and so we're looking forward to 2010 to continue to execute our global business plan well.

Thank you again for your support of Kimberly-Clark.

Thank you.