Good day, ladies and gentlemen, and welcome to The Clorox Company third quarter fiscal year 2009 earnings release conference call. (Operator Instructions) I would now like to introduce your host for today's conference call, Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin your conference.

Great, thank you. Welcome, everyone, and thank you for joining Clorox's third quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO, Larry Peiros, Executive Vice President and Chief Operating Officer of Clorox North America, and Dan Heinrich, our Chief Financial Officer. We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website, TheCloroxCompany.com. On today's call Larry will start with some specific comments on business unit performance, including perspective on the current consumer and retail environment. Dan will then follow with a review of our quarter's financial performance, as well as details on our updated fiscal 2009 outlook as well as our initial outlook for fiscal year 2010. Finally, Don will close with some comments on Clorox's near-term strategic focus before we then open the call up for your questions. Let me remind you that on today's call we will refer to certain non-GAAP financial measures including but not limited to free cash flow, EBIT margin, debt-to-EBITDA and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast, prepared remarks, or supplemental information available in the financial results area of our website as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today's earnings release. Lastly, please recognize that today's discussion contains forward-looking statements. Actual results could differ materially from management's expectations. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results to differ materially from management's expectations. With that let me turn it over to Larry.

Thanks, Steve. Good morning to those of you on the call. As you saw in our press release, we had a very strong quarter, with sales equal to a year ago and margins exceeding our expectations. Net earnings were up an impressive 53% versus the year ago quarter. All in all, we're very happy with our performance in this extremely challenging environment. I'm going to focus on market share, volume and sales and provide perspective on [inaudible] our top line results. Starting with our categories, consumer consumption remains relatively stable despite the economic downturn. Consumer takeaway in U.S. tracked channels was up about 1% versus the year ago quarter and our sales growth in the untracked customer base is significantly outpacing sales in the tracked universe. We did see some mixed results in our market shares. In the eight categories we measure in the U.S. we grew our health share in four categories and lost share in the other four. That said, our overall share across all of the categories was down only 0.2 share points or essentially flat. Share declines were generally due to pricing actions we've taken and some limited growth in private label shares given the economic environment. Market share performance continues to be one of our top focus areas and we plan to invest more heavily in Q4 to keep our brands strong. Volume for the quarter was down about 3% and right on our forecast. Volume declines were primarily due to the impact of price increases and our exit from the private label food bags business. Volume declines due to pricing were in line with our projections. Sales for the quarter were flat on top of a very strong 9% sales growth rate in the year ago quarter. Unfavorable foreign exchange rates reduced sales by…

Thank you, Larry. I want to provide some perspective on our third quarter financial results and our fiscal year 2009 outlook as well as our plans for fiscal year 2010. Lots of puts and takes but before I get into the details let me step back and highlight several key messages that cross all of those time periods. First, we're pleased to finally be back on the path to annual gross margin improvement. We've weathered five years of increases in commodities and energy costs that we could only partially offset with cost savings, pricing and favorable business mix. Through the end of fiscal 2008 we'd lost more than 500 basis points from our fiscal year 2003 gross margin of 46.3%. Even with this fiscal year's anticipated gross margin expansion, we'll remain well below our historical average. Frankly, it feels good to finally be showing positive annual margin growth numbers after five challenging years. We anticipate further margin expansion in fiscal 2010. Second, we're continuing to invest in the long-term health of the business. While we're certainly focused on delivering good results each quarter, we're also committed to having a very healthy and vibrant company when we celebrate our centennial birthday in 2013. Despite obvious pressures in this environment to reduce spending levels and investments in projects that have longer-term payouts, we're continuing to strongly support our brands with advertising and meaningful innovation and we're investing in our infrastructure, such as our homecare plant consolidation, operating model changes and information technology. I'll talk more about that in a moment. Third, we're very pleased with our continued strong cash flow and the progress we're making in paying down our debt. Strong cash flow has always been king, but even more so in this difficult economy. Strong earnings and disciplined management of both…

Thank you, Dan, and hello, everyone. While as both Dan and Larry discussed, we did have a very strong third quarter performance, I think the last few years have brought, as we all know, significant volatility from commodity and energy cost increases, price increases and certainly dramatic changes in foreign currencies. I certainly feel that we've managed very well through these turbulent times and that we're well positioned to weather the very weak global consumer and economic environment we're likely to see through fiscal 2010. I'd say I'm particularly pleased with the great job our folks have done to drive excellent results in this really tough environment. Now looking ahead, I certainly feel good about the plans we have in place and I believe our long-term strategies are certainly appropriate for the current market conditions that are out there. First of all, we're going to continue to focus on outstanding execution against our centennial strategy. We're implementing a new operating model, as you all know, designed to enable better and faster execution of our strategy to build brands and, again, focus on market share grain. Third, I believe we're doing as good a job of anyone in recognizing and capitalizing on key consumer trends, including health and wellness, sustainability and the ethnic shifts going on in this country and other markets. Fourth, we're staying focused on achieving 60/40 blind product wins with consumers and we feel very good about our new product pipeline for fiscal year 2010, and we certainly have strong customer capabilities that our retail partners particularly value, especially in these times. And finally, given the current economic environment, we remain very focused on reinforcing our value proposition to consumers. Having said all that, I think we all know it's a very dynamic environment out there. I don't…

(Operator Instructions) Your first question comes from Bill Pecoriello - Consumer Edge Research.

Question: As you're looking into the fourth quarter and you talked about picking up the level of promotional spend, aside from trash bags, where you said you've rolled back again on May 1st, what other categories - bleach, wipes, liquid cleaners - where else are you seeing that you're going to have to adjust the promotional price points heading into the fourth quarter and what do you expect that pricing level to be versus what we saw in the third quarter when you were up 6%?

I think what we talked about is keeping a strong level or increased level of advertising support. I don't think we talked about trade promotion spending and, in fact, we don't expect significant increases in trade promotion spending in the fourth quarter. We didn't see that in the third quarter either. So most of this is advertising support - kind of brand building kinds of efforts. We did take the price rollback on Glad trash bags, which is the second rollback now on trash bags. We aren't anticipating taking rollbacks in other brands at this point in time and feel like we're in a good place from a value equation standpoint on our brands.

So in the other categories - you mentioned the four categories where you were losing share in the quarter and you also mentioned looking at the gaps - you don't see any increased promotional price points on any of those categories?

Nothing significant. We are increasing our advertising support, particularly on bleach, behind our two successful campaigns, one on the laundry side and one on the non-laundry side, but no significant change in our trade promotion support.

Bill, if you look at bleach in particular and you look at the last 13 weeks - and this is [FDKT], the average weighted price in the quarter, '09 versus '08 - the gap versus private label has expanded slightly. We're at a 31% premium versus 29% last year. So we're being mindful of that in trying to, as Larry said, that merchandising support is targeted to make sure that gap stays in that range and maybe reduces it slightly. But we feel like we're in pretty good position.

I just want to ask on the reallocating of shelf space, you had mentioned retailers in certain categories simplifying the shelves. Any categories in particular where you're seeing any big changes that can either help you in a positive or negative way?

I don't think I'd say anything dramatic. Again, we are seeing some of the smaller players, I mean, homecare is a category that just has an awful lot of churn all the time because of the number of new items coming in and we're generally seeing more of a focus on the bigger brands and some of the tertiary brands and even some of the tertiary vendors are being eliminated from shelves.

Bill, I'd just make one last comment. I know that Dan did mention increased merchandising spending in F1 '10. That's primarily to support the new product launches that we've got going out there.

There is a planning provision in there for some level of increased trade spending to address any price gap issues that may arise in '10. That's more of a planning assumption right now versus any specific plans.

Your next question comes from Doug Lane - Jefferies.

Going into the quarter were you anticipating that Burt's Bees would be down or did conditions get a little worse coming out of the December quarter?

Doug, I think we did anticipate a soft quarter given how much growth we saw in the year ago period. And we're obviously also seeing some slowdown in that category given the economic situation, as well as some destocking among retailers.

But there weren't any account losses or anything of that size?

No. In fact, we're gaining distribution still in the U.S., gaining more Wal-Mart outlets, for example.

Yes, I think, just to add onto that, Doug, the various points, you know, when we looked at the year ago quarter, we had almost 30% growth, which is one of the highest quarters in the history of the company, so we knew we were going to be in for a tough sled in terms of a comp, especially in this environment. But to the point that Larry just made, we are gaining distribution. We're now expanding into the mass channel, as you know, and that continues to do well, so no distribution losses at all but more on the gain side.

Now I know you're reluctant to talk about new products so far ahead of their launch, but can you just give us some idea of the scope of your sort of 15 key brands, how many are going to get this new product activity next year?

I would say as part of our plans for next year we have three what we would term hard conversions, so they're significant product improvements on some of our major brands that are significant enough to require changing UPC code and a hard conversion. So I would say focus on 60/40 wins on our base brands, supporting our base brand value equations with product improvements, so not necessarily taking the price down but improving the overall quality of the product, obviously critically important. Also you'll see at least one what I would term white space opportunity probably next year as well.

And Doug, more broadly, I think if you look at our history across our portfolio, there is innovation in almost every category every year. Some of it's small. Some of it may just be a flavor improvement or a flavor change in salad dressing to perhaps something else much larger in the category, but I think when you look back at the end of fiscal year 2010 you'll have seen innovation in almost every category we participate in.

Your next question comes from William Schmitz - Deutsche Bank Securities.

The first question, could you just talk about what your assumptions are for category growth next year because it looks like implied by the guidance is 3% to 4% volume growth? And then sort of connected to that question is I think your cost structure's roughly 50/50 fixed versus variable, so shouldn't there be actually some benefit also on the gross margin line from better manufacturing variances?

So on the category side, I think the implication you're getting from the outlook is right. So what we do see from a category perspective is internationally, as you know, we've been growing, well, we were in the double-digit range; we then moved into the high singles. We're projecting that those will continue to slow probably to about flat. So we are anticipating some category growth, obviously, domestically. It's going to be supported by new products and some of the other initiatives that we're undertaking. So we do see some growth in the categories over the fiscal 2010. With respect to you fixed versus variable, actually there were a lot more variable than the percentage that you gave. We're probably closer to 70% to 75% variable versus 25% fixed.

And then just a follow up - and please don't kill me on this one - but can you give a timetable for the Green Works laundry launch and is that part of one of the three, big hard conversions?

No, that wouldn't be a conversion; that would be what I would term a white space opportunity if we were to move forward with that. We are in a small test market with a laundry product under the Green Works name. We haven't publicly announced any further expansion of that. We'll obviously look at those results before we make determination on how we move forward.

What would the timing be if you did move forward?

Some time next fiscal year.

Your next question comes from Chris Ferrara - BAS-ML.

I just wanted to ask about some of the things on gross margin, I guess. Dan, did I hear it right? Did you say basically FX in manufacturing and logistics hit you by 200 basis points in fiscal 2010?

You know, let me talk about the themes that fit inside gross margin and maybe this will help address your question. We're looking at 50 to 100 basis points for the full fiscal year. The pricing benefit will be less in fiscal '10 than '09 because obviously we're tapering off the pricing that we have taken domestically. International still has some pricing in there but, again, they're getting hit more on the top line. So pricing will be lower next year. As you look at cost savings, we clearly expect that we'll continue to see this, call it $90 million, $90 to $100 million or so cost savings that will sit inside the cost of goods sold. We do anticipate, again, that we'll have lower commodities year-over-year, again, stronger in the first half versus the second half. But we do have some other anchors against our gross margin. I mean, we have normal plant operating costs, logistics, manufacturing costs. We certainly have an impact from foreign exchange that sit in there. I mentioned earlier the trade spending assumption, which also nets through our gross margins. And there's probably a little bit of negative business mix, frankly, in fiscal '10. So when you add all those things together that's where we come out with the 50 to 100 basis points.

I hate to get so tedious, I guess it's just when you add up the positives that you guys are calling out, I mean, even if you assume that that pricing is netted out by potentially higher trade spending or higher merchandising as you support new product launches, the numbers still don't seem to add up. You seem to get more positives than negatives unless you have really a pretty big business mix negative. Am I missing any piece of that?

Well, again, we're projecting about a point increase in trade which is going to be in there. Foreign exchange, you know, it's a little difficult to precisely say what that impact will be but, you know, it will be at least a point. And then you have just a lot of other sort of normal inflationary pressures that exist in there, and then you have our commodities outlook. So I think if you do kind of run the math together you would see that we think the 50 to 100 is the right number for right now.

Chris, this may not be the biggest number on the page, but we'll also experience some manufacturing costs and logistics costs related to those hard conversions that Larry mentioned. I guess I didn't specifically call that out, but there's costs associated with that as well.

And then just, I guess, one other quick one. I know you're taking pricing internationally, but for fiscal '10 do you think North America pricing will possibly slip negative for the year?

No, it's still projected to be positive for the year. It's the residual effect that we have from our fiscal '09 pricing actions, although the benefit will be a little bit lower in '10 now because we did the Glad trash price rollback.

So most of the activity will be carryover from the current fiscal year, so price increases on things like Kingsford charcoal because of raw materials going up offset by the reduction on Glad trash.

And, finally, I'm sorry, I don't know if you said this already, bleach pricing, is there any outlook there? I mean, has there been any view as to whether that's sticking well still?

It's very stable. We've gone up in line with our price increase. Private label's gone up really exactly the same amount. So relatively speaking we have about the same premium as we had before.

Your next question comes from Ali Dibadj - Sanford C. Bernstein.

In terms of the context of your '09 and '10 guidance as well as looking a little bit beyond, I mean, in this quarter you've had it looks like highest margins, like EVT margins, in North America in the past 30 quarters or so. Why after you get through the wage inflation and the hard turns and whatever you can't expect to get a higher gross margin than you've ever seen before?

I guess I'm not following you. Maybe you can ask the question differently.

Yes, let me try it again. So you've gotten hit by, call it 1,000 basis points of commodities over the past several years. On the flip side, you've offset a lot of that with pricing. You've offset a lot of that with cutting costs throughout your organization and have more planned. If you're not going to have to rescind too much more of the pricing, which is your assumption right now, if you're not going to plow back too much more cost into the company at this point and if foreign exchange at some point evens out, aren't you going to get back even more than what you got hurt by commodities, i.e., your margins, your gross margins go to 50% plus rather than just back to the mid 40s as you've had historically?

Okay, I think I now understand the context of your question. You know, if you go back - I kind of use the 2003 - 2004 time period as the relevant period to look at. So as I mentioned in my prepared remarks, we were in the, call it low 46% range on gross margins that year and on our operating margins we were probably in the 21% range. If you look at the benefit in margins that we'll have this year, you know, depending on where we come out in that range, we'll probably see our gross margins somewhere around 43% if our projections are right. And then if you take the high end of next year range you would say we would be in the - you know, if you take the 100 basis points high end - we should be somewhere around 44% gross margin. On the operating margin side, that's probably good enough to keep us in the low 20% to 21% range. So at least over the next two years, next year and a half or so as we look out, what that says is while we're rebuilding our margins we're still not back to the levels that we saw really in fiscal 2003 - 2004. Now as we look forward we continue to feel really good about our cost savings pipeline and we're making a lot of investments in our infrastructure now that will provide benefit in those out years. Again, our thesis right now, other than the handful of price adjustments that we've made, we're not anticipating that we're going to see much in the way of price giveback. But we do expect that there will be a recovery and we will see some upward pressure on commodity costs so that we need to balance that out. Certainly currency has been a headwind and at least over the next year or so we expect that to continue to be a headwind and then we'll see where it goes in the out years. The pricing we're taking in fiscal '10 is related primarily to the foreign exchange impacts. To the extent that those foreign exchange impacts lessen then we'd probably take less pricing, so there'd be an offset there. So, I guess, longwinded explanation, over the next could of years, yes, I do see a path forward to us rebuilding back towards our fiscal 2003 margins and we'll have to see, ultimately, whether in fact we can get above those levels, at least, you know, as we look out over the next 18 months to two years or so.

But philosophically you don't see your categories necessarily creating, I guess, a ceiling on your gross margins beyond - I'm talking more normalized kind of longer-term year.

You know, the one category we always talk about, obviously, is Glad and that's one that is so tied to commodities you have to determine what commodities cost assumption you want to use for that. But no, we don't see some inherent cap that sits on our other categories and, in fact, over time we would expect the change in business mix we're making in the portfolio will be beneficial. I mean, a lot of what we're doing around Green Works, around natural personal care, the other extensions that we're getting into, sustainability, are really about getting into some faster-growing higher-margin areas which we think will benefit over time.

More immediately, I guess, over the next couple quarters, a year, you mentioned inventory workdowns and the hard changeovers, how much of the inventory workdowns really impact margins? [Inaudible] mentioned this a little bit, but I'm thinking of this in the context of the fact that you guys outsource, what is it, 20% to 25% of your domestic operations, your domestic manufacturing operations? Is that outsourced bit aligned with where you're doing the conversions or is it completely separate? How should we think about that?

Let me take that question. You know, the types of costs you incur when you do a hard conversion is obviously you need to sell through all the existing inventory, so typically there's some trade merchandising adjustments that need to happen there. You're also building a lot of new inventory for the lots, so you have additional manufacturing and warehouse costs associated with that. And in terms of the contract manufacturing, probably 30% to 35% of our manufacturing is contract manufacturing, so on a relative basis, to the extent any of these products we do involve a contract manufacturer, those costs are still there whether they're in our system or whether they're in a contract manufacturer's system.

So some of the changes may be in the contract manufacturer, but you're still going, in some sense, foot them?

There's just a general period of inefficiency as you're making that migration. Again, it's not dramatic, but it is something that needs to be accounted for and it would be no different whether it's in our own plant or at a contract manufacturer's facility.

A last quick question from me, at least, is it looks like you're taking down debt for sure; good cash generation in this quarter. Do you have a hard point at which you say look, we're going to buyback some stock or we're going to acquire something?

You know, I would say as we look out we're feeling good about the cash generation level and we are paying down debt. Assuming no acquisitions in fiscal '10 and no share buybacks, we would expect to be below 2.5 times debt-to-EBITDA. What we've talked about in the past is wanting to live inside 2.5 to 3, even with acquisitions, so I would say probably some point sort of mid-fiscal '10. I think we'll be creating flexibility at that point in time that if we want to reconsider share repurchases or do maybe some small bolt-on acquisitions we would be in a good position to do so at that time.

The only thing I'd add to that, Ali, is in addition to that we're obviously focused on continuing to support the dividend as well.

Your next question comes from Alec Patterson – RCM. Alec Patterson – RCM: Dan, I guess, for you, just trying to get my hands around the FX flow through here. For starters, the $12 to $14 million pre-tax, that's all in the fourth quarter of this year, '09?

Yes, that is in Q4.

And then the $20 million for the following year, that's all based upon the futures' market as opposed to the current spot price, correct?

Yes, we're factoring in, using the best projections we can out there. We don't have any particular view on currencies. We generally take the market's view of where those currencies will be and build those into our outlook.

And is all $20 million flowing through cost of goods?

No, that's a net earnings impact so it's going to be top line margins, operating costs as well as impacts from transaction losses. We're trying to give you a net earnings impact because it's pretty hard to try to model it through all the lines in the P&L.

Understood. So the transaction impact that you're trying to isolate there is maybe more of a below-the-line item?

The vast majority of the $20 million for next year - more than $20 million next year - is going to be up above; it's not going to be below the line. More of the impact this year, at least in the fourth quarter, that will be below the line.

And that relates mostly back to Venezuela?

That's the biggest, yes.

And the restructuring plans for next year, they're embedded in the earnings guidance and do I have the number right, approximately $0.11 a share.

It's about, yes, $20 to $30 million is the planning assumption we have for restructuring next year so depending on where in the range we come out that sounds pretty close.

And then your destock and restock for your hard conversions, net of all that through the year I would presume that you're positioning yourself for a higher net sales position across those product categories?

Well, certainly that's the intent for a new product launch would be to grow sales over time. We will have an impact in Q2. We expect to recover that in the second half of the year and we hope all of these things are successful so that they do grow sales.

What I mean is that the timing of it is such that the recovery, the restocking effect will all be captured within the fiscal year?

Yes.

Certainly the restocking effect, absolutely.

And lastly, for 2010 on all the guidance you laid out, any comments about, at least sequentially or anything on trend wise for economic profit?

I'm just trying to think. Again, we don't calculate that quarterly; it's for a full year. So I don't really have a sense of first half, second half. It really depends on our investment patterns, I guess. What I would say, though, on economic profit is we're down this year because we have the full year effect of Burt's Bees in our invested capital base. Next year we would expect to start growing economic profit because Burt's will fully be in the base.

Yes, I would fully expect it, Alec, to be up in the high single digits along with where the EPS range is at least.

Your next question comes from Linda Bolton Weiser - Caris.

I was wondering if disinfecting wipes is one of the categories that maybe has seen some shelf space reduction at retail? We thought we saw at Wal-Mart that it had significantly less space and it looked even like perhaps Rediwipes was eliminated from the shelf. Can you comment on that and is that similar type thing going on in other channels of distribution?

I would say no big shifts in wipe distribution. We've been focused on trying to create a separate kind of four-foot section in most retailers. I think we continue to make progress against that objective. Wipes seem to be a very important category and obviously with this whole flu issue around, it could be even more important in the short term. So no big shifts.

How is your wipes performance in the fiscal third quarter?

Wipes was down slightly and we're still up on the fiscal year-to-date.

Is the category growing or declining?

The category has been declining slightly.

Linda, overall, our wipes business from a share standpoint is still very strong, right around 50%. What we think we're seeing a little bit of now is maybe trade down among consumer behavior, where people may be choosing to use a spray cleaner, maybe use a dilutable cleaning product. It's a little bit more cost-effective for them in this environment. But fundamentally our wipes business is extremely healthy and, as Larry noted, given the unfortunate situation right now with swine flu, it may actually be used even more greatly by consumers.

And then I was just curious how you view the SC Johnson competitive product in the natural cleaners area. How do you view that they're making headway? Are they gaining share? Can you just comment on that?

They obviously have established some share; I wouldn't call it a very high share. And our share is stable or actually even up a little bit despite their launch, so the share they're getting is coming at the expense of other players in the category.

Your next question comes from Nik Modi - UBS.

Just two questions. I've seen, obviously, some personnel changes in the areas that are important to the cost savings side, so just curious if you can comment on that, Don, in terms of any replacements and how you're looking at that? And then the second thing is just on the trade promotion piece that you have for fiscal '10, do you have programs in place or are you kind of working on any trade optimization or trade efficiency programs and can you share some perspective around that as well?

Let me let Larry jump in first on the product supply change in leadership.

As you may have heard, we did lose our VP of Product Supply; he has gone to a competitor. But we have a very ready and able replacement in place. The very morning the previous VP of Product Supply announced his resignation we promoted a successor. So I think we're in very good shape.

And I would say on the cost savings program, this is an extensive program throughout the company. It's not dependent on any one individual and we feel really good about the plans that are in place. And then you asked a question on trade promotion - could you ask that question again?

Yes. I was just curious. Clearly, you're ramping up for at some contingency on trade promo; just curious if you also have programs in place to maybe enhance the efficiency. I know companies are always working on that, but just curious about where you are.

Yes. We don't talk about it as much, but we've been working for years on being more efficient in our trade spending, looking at the returns, making sure that we optimize in there and we continue to do that and it continues to be a focus area for us. The one thing we are doing among the IT projects that we're working on is a replacement and upgrade of our trade merchandising system and we think that system will give us some more automated real-time tools that will allow us to be even more efficient and mine the data even better than we do today. So clearly it's an area we continue to focus on. We actually think we do pretty well in this regard and we think we can get better over time. And, again, I'd just like to come back to the fiscal '10 trade merchandising increase that we've talked about and referred to. The vast majority or a big chunk of that increase is really to support new products, so I just want to emphasize that the ramp-up you see is tied to product introduction, not any sort of general inefficiency in the system. And there is a planning contingency in case we need to do something on price gaps or things like that.

And just a last question. We've picked up just some pretty drastic movement in terms of retailers, as you talked about, Larry, getting rid of tertiary players but also getting rid of maybe the second-biggest brand in the category in certain chains. I'm just curious if you can comment on that; whether you want to get specific or not is up to you, but just curious if you can make any comments around that.

Again, we haven't seen any material change in our distribution.

I'm talking about your competitors, I'm sorry.

Customers are definitely continuing to look at assortment. This has been an issue for many, many years. I think in the current economic environment, given the carrying cost of inventory and other things they're looking harder and harder at assortment issues. We feel very good about where we're positioned with our brands and our categories to deal with that and, again, most of the impact has been on these tertiary kinds of players. I haven't seen any, you know, there's been a few limited places where retailers have gone to very reduced [inaudible] but I wouldn't say a huge impact to date.

Your next question comes from Lauren Lieberman - Barclays Capital.

Just, first, a quick follow up on the wipes commentary. Were you selling in the Green Works wipes in this quarter?

Yes.

It just surprises me that wipes would - and it's not that big of a deal - but would have been down slightly even with the sell in.

When I spoke to wipes, that was Clorox wipes. It was not including those.

The second thing was just in terms of pricing dynamics in Glad trash, I got a little bit confused, I want to say honestly over the last couple of months, at the timing of you and your largest branded competitor rolling back pricing, so with the change you're making today, where does that put you versus Hefty? Have they already rolled back that similar rate of increase or are you leading this time because the Nielsen data is very difficult to really see what's truly happening.

I would say for the past quarter we've basically [inaudible] parity to Hefty with a significant premium. Both of us have a significant premium versus private label, but that premium has come down a bit versus the previous quarter. I will tell you that it's hard for us to track Hefty because they operate differently than us and they often spend specifically to, you know, individual customers. But the best data we have is for the last quarter we're a sense of parity to Hefty.

Okay, and so from here is it - so this is more of a preemptive change based on what you're seeing in resin costs.

I think we fully expect that they will come down in price and we're seeing some signs of that but, again, it's anecdotal at this point. We don't have the real IRI or Nielsen data to validate that.

And then how about for private label, same thing or have you seen them start to move?

Private label has moved for sure. Obviously, private label is different by count, so it can vary dramatically, but we have seen some specific move on the part of private label. Again, if you looked at the quarter, our gap versus private label is not that different than it was a year ago. It's actually a little bit improved in the case of the mid-count size.

And then just one follow up on the FX, the transaction losses for Q4 in Venezuela. So what changes that that wouldn't persist, because I would think you still need to get your hands on dollars in the country and there isn't much seasonality in that business, so I wouldn't think there'd be much change in terms of your needs for dollars and potential need to go to the secondary market.

Yes, Lauren, what I would say is we've been carrying a cash balance in Venezuela, so it's built up over time. We were trying to use the official government mechanism for repatriating those funds at the official exchange rate and what we've seen is further restrictions on how much you can convert and really it gets back to what the dollar reserves of Venezuela are, so they've been contracting your ability to cash out at the official rate. So what we've concluded is it's time to move the cash out of Venezuela to pay off the U.S. dollar-denominated liabilities that they have. Our operating posture going forward is we'll probably repatriate on a much more frequent basis, to not let the cash build, to lower the risk in the country.

Okay, so more the repatriation than dollars needed for day-to-day operation?

Again, there's an outsized impact in Q4 because we had higher balances; however, those balances are to pay off the U.S. dollar-denominated purchases that have gone into Venezuela.

So, Lauren, said another way, we're still going to have this effect going into fiscal '10. It's just you won't have this backlog of payables that exists right now. It'll be more just [break in audio].

Okay. And probably more able to do it on the official rate because the magnitude will be smaller?

Certainly we'll try to maximize, to the extent we can, what we can bring out at the official rate.

Your next question comes from Alice Longley - Buckingham Research.

My question is about the 3% to 4% volume increase you're projecting for next year. Are you assuming in there that as you're pricing in the U.S. anniversaries that volume will come back for brands where volume has been down you think because of the pricing?

Absolutely we're anticipating in fiscal '10 as we lap those prices that we'll see a return to normal purchase behavior and we'll see a return to volume growth in those categories where we took pricing. And obviously that outlook also includes the impact of new product launches.

Well, aside from the launches, why are you sure that that will happen as opposed to maybe in this kind of a tough environment consumers will stay with the lower-priced brands?

We've been doing pricing for a number of years now using a pretty detailed model to get at this. And essentially you do see some dissipation of the pricing effect over time, and so we're basing this on the models that we've run on these brands. We've validated this now, fortunately, way too many times - I think we've taken 40 price increases over the last three to four years. So we feel pretty good about how the models work. Now, could there be a sea change because of the economic environment? We're not really seeing that as yet. If things got much worse, I suppose that's a possibility but we're feeling pretty confident that things will bounce back relatively speaking.

And you've adjusted that model for recessionary periods?

We've adjusted it based on the best data we have today, so we're reflecting what's - we've been in a recession for about a year now; it's reflecting that current data.

And then my next question is Burt's Bees. Can you tell us what the growth of Burt's Bees is or has been this last quarter at retail and how you get it because Burt's Bees, of course, is distributed all over the place, not only in tracked channels and Wal-Mart, but all kinds of small retailers, so how do you really track how it's doing in terms of gross at retail and what have those numbers looked like?

We definitely don't have the detailed data on Burt's that we have on our other businesses, so we sometimes extrapolate a little bit to get at the numbers. We do think that overall the category of natural personal care has slowed down. It does seem to be growing still faster than traditional personal care categories, but it definitely slowed down over the period of the last 52 weeks. If you looked at 52-week data, you'd see about 10% growth and closer to low single digits or flattish kind of growth in the last quarter. Having said that, we also believe based on our extrapolation of the data that we've gained share in that category.

So you think your sales were up mid single digits at retail in the quarter from Burt's Bees?

Probably low single digits would be our best guess.

That's where we think the consumption was, yes.

Your next question comes from Connie Maneaty - BMO Capital Markets.

Just another question on these hard conversions. When was the last time you had one and what was the category it was in?

If you remember, the Sure Fire launch in Kingsford charcoal product, where we essentially changed from a certain kind of briquette to a redesigned briquette that was more efficient and caused us to change the weight of the various sizes. So whenever you change the weight of a product is one of example. You're required to change the UPC code on that product, and so that would be a hard conversion.

This time are the conversions in three separate categories?

Yes.

And one follow up also on Venezuela. Since you use outside currency advisors and you're taking down your cash balances pretty dramatically there, are you getting a sense from them that a devaluation in Venezuela is more likely now than it was a few months ago?

You know, Connie, I'm not a foreign exchange forecaster and I've done a lousy job over my career trying to figure out when devaluations occur. What we do know is the spread between the parallel market and the official rate has been growing over the last 12 months or so, so obviously as oil prices have come down it's put further strain on that. So, you know, one would look at the spread and say at some point realistically you would expect to see an adjustment, but I couldn't tell you when or whether that in fact will happen. So I don't know that I have a good outlook for you, but we're trying to manage the business and we think about the business assuming the parallel rate is the right rate and we're making our economic decisions around that parallel rate.

Have you calculated what a 30% devaluation or more would mean to the business itself?

Yes.

And what would that be?

I'm not going to share that level of detail.

Okay, so we'll just wait for the headlines.

But, Connie, to be clear, Venezuela for us is about 1% of sales, so you have to think about that order of magnitude.

I know, but 1% of sales is - it's 1% of sales for a lot of companies and it's causing a major ruckus. I mean, is it worth being in Venezuela if it's that small?

You know, Venezuela's been a very strong growth market for us over the last several years and I think from a business standpoint they're a key growth driver for our Latin American market. It's been a very successful market for us.

Yes, I would say we have very strong leading brands in Venezuela. Our margins are good. Obviously, the currency has been impacted and you have to deal with those when they occur, but actually the business is very solid down there and we've had some success of trying to price through to recover some of the currency impacts that we've seen. But it remains a difficult market.

Your next question comes from Chris Ferrara - BAS-ML.

Can you just give a quick revisit of the distribution rollout schedule for Wal-Mart, where that's pacing and where you are and what's left for Burt's Bees?

Right now, Chris, we're in about 2,500 Wal-Marts, with a broader product line than the lip balm, which is essentially in all 3,500 Wal-Marts at the checkout stands. What is being changed in a number of those 2,500 stores right now is the modification of what the natural personal care section looks like. A lot of those sections were originally or at four-foot sections and a lot of them are being modified to eight-foot sections for the category, so that work's going on right now and that'll continue for a few months. But right now we have an expanded line beyond the checkout in about 2,500 and we think that's the right amount of stores based on the demographics around those stores to stay at.

So it sounds like you're a large part of the way through where you started anyway. Is that right and when did you get there, if that is right?

Well, we're just getting there on the 2,500 stores. Again, I think the big next wave is as those stores re-foot their sections into eight-foot sections, that could have a dramatic impact on what happens with volume in those stores. So I think that's the next wave. That'll take us several months to work through that with Wal-Mart. That work's going on right now. I think it's consistent with our model on Burt's Bees saying that we believe over the next several years about 50% of the growth is going to continue to come from new distribution.

Your next question comes from William Schmitz - Deutsche Bank Securities.

Can you just tell us what the incremental incentive compensation cost and pension cost is going to be in 2009 now that the market's kind of moved a little bit on the pension side and also you increased your incentive comp, I guess, this quarter.

Yes, incentive comp, we've increased our levels, but it's still below the levels that we had last year. So it's kind of a moving target depending on where we come out, but we're probably accrued at about 70% to 80% of the level we were last year. For obvious reasons I'm not going to go into specific dollar amounts here, but we are down on what our accruals are. On the pension expense side we don't have an impact this year from it because under the actuarial method that was established July 1 of last year. We do anticipate, however, that next year we will see an increase in the pension. I think on the last call I talked about a possible $10 to $20 million impact from that. That estimate was based on where the market was in the last earnings call. We've seen some recovery in the market and we're putting $30 million into the pension plan here in the fourth quarter, so we should benefit from that when we do the next actuarial valuation in July. And my sense is right now that the incremental expense will be lower than that range I gave to you last time.

Okay, got you, because I think last quarter you said that the elimination of the incentive comp was $7 million.

Yes, I mean, that's probably reasonably close on a dollar basis on the impact last quarter.

(Operator Instructions) We currently don't have any further questions in the queue.

Okay, why don't we conclude then.

All right. Well, thanks, everyone, for joining the call. I think we feel obviously very good about the quarter. Based on some of the reaction there's obviously been some disappointment about the FY '10 outlook. I think we all feel we're being prudently conservative in that outlook. I think you all know there are a number of moving parts in the business and, with the volatility we've seen in commodities and currencies and consumer spending in general over the last six to nine months, we think our FY '10 outlook, which is high single digit EPS growth on top of this year's mid teens EPS growth is a very strong performance in any environment, let alone the worst recession in 75 years. So we feel very good about where we are. We think we have very solid plans in place to deliver that plan for next year and we'll look forward to talking to you on the next call and seeing most of you, probably, at the analyst meeting in June in New York. Thank you, everyone.

That does conclude today's conference. We thank you for your participation.