Excuse me, everyone. We now have Mr. Mike Masseth in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of Mr. Masseth's presentation, we will open the floor for questions. At that time instructions will be given as to the procedure to follow if you would like to ask a question. I would now like to turn the conference over to Mr. Mike Masseth. Mr. Masseth, you may begin, sir.

Thanks, David, and good morning, everyone. We appreciate your interest in Kimberly-Clark. With us today are Tom Falk, Chairman and CEO; Mark Buthman, Senior VP and CFO; and Randy Vest, Vice President and Controller. Now, here is the agenda for today's call. Mark will start with a review of our fourth quarter results. Then Tom will provide his perspective and discuss our outlook for 2008, and that will leave us plenty of time to finish as usual with Q&A. For those wishing to follow along, we have a presentation of today's materials in the investors section of our website, www.kimberly-clark.com. The presentation also includes details regarding our 2008 planning assumptions. First, let me remind you, that we'll be making forward-looking statements during the call today. There can be no assurance that future events will occur as anticipated or that 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 future results to differ materially from those expressed in any forward-looking statements. We'll also be referring to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating profit, and adjusted operating margin. Management believes that reporting in this manner enables investors to better understand and analyze our ongoing results of operations. For additional information on why we make these adjustments and reconciliation to comparable financial measures determined in accordance with GAAP, see today's news release and additional information on our website. Now, I will turn it over to Mark.

Thanks, Mike, and good morning, everyone. I hope you had a chance to review our news release this morning with the details of our results. I'm going to briefly review the quarter and I am going to start with a few headlines. First, we achieved outstanding top line growth with sales up 10.5%, that includes about 6% organic growth above our sales objective led by very strong performance in Personal Care. Second, we delivered solid bottom line results. Adjusted earnings per share for the quarter were $1.11, up 8% from last year and in line with our previous guidance for earnings in a range of $1.09 to $1.11 a share. This was despite observing cost inflation that was well above our previous expectation. Third, we continue to deploy cash in shareholder friendly ways. Our fourth quarter share repurchases and dividend payments brought the full year total to more than $3.7 billion. Now, I would like to review some of the details of our results, and I will start with the top line for each of our segments. In Personal Care, sales climbed 16%, driven by strong volume growth of 10% and currency benefits of 5%. In North America, we delivered broad based volume growth of 10%-plus as our brands continue to benefit from innovation. Huggies posted double-digit volume growth in both diapers and baby wipes fueled by premium tier innovations. Volumes also rose at a double-digit rate in child care with good early benefits from our new GoodNites Sleep Boxers and Sleep Shorts. And in adult care, volumes advanced 7% behind improvements to both Poise and Depend. Moving to Europe, fourth-quarter sales volumes for Personal Care rose 3%. Growth was led by Huggies diapers and baby wipes and our Pull-Ups and DriNites child care brands. In the developing and emerging…

Thanks, Mark, and good morning, everyone. I'll comment briefly about our progress during 2007 and then I'll go over the outlook for the coming year. Our headline for 2007 is that we again delivered on our commitments while strengthening our platform for future growth. For the year, our top line growth was better than we expected as we started the year and that improvement in top line really contributed to the solid improvement in adjusted operating profit and earnings per share, and those were in line with our long-term targets, that despite significantly higher inflation, and it includes the stepped up level of marketing spending for the year. So, here are the numbers. On the bottom line, adjusted earnings were $4.25 per share. That is an increase of about 9% versus 2006 compared with our original growth in the 5% to 8% range that we targeted for the year. Meanwhile, inflation totaled about $350 million; that's more than double the top end of the range we anticipated at this time last year. And then marketing spending for the year increased by about $50 million. We achieved all these results because our K-C teams around the world continue to execute our global business plan very well. They are delivering on the promise of our targeted growth strategies, they are driving costs out of the system, they are taking our capabilities in innovation, marketing and customer development to a much higher level. So, looking back on the year, there's much that I am encouraged about. I would like to highlight several accomplishments that we achieved this year in particular. First of all, our sales increased by more than 9% and organic sales growth was about 6% and that's above our long-term target. Sales volume were up a solid 4%, which is great.…

[Operator Instructions]. Our first question comes from Ali Dibadj from Sanford Bernstein.

Hey, guys. How are you?

Hey, Ali. How are you?

Good. Couple of questions. One is just wanted to get underneath mix a little bit. I'm looking at two things; one is it looked like across the board; mix was more or less positive except for Personal Care. And at the same time you paired that up with developing and emerging markets doing well for Personal Care but not as well for the other pieces of the business, want to understand the interaction there and how we should think about the margin mix effect of developing markets becomes bigger going forward.

Yeah. I mean just kind of looking at the numbers, Ali, if you look at that mix in Personal Care, mix in Other was basically flat. If you kind of you break it down, I don't see any big impact in the developing and emerging markets on that. It's probably more of a rounding issue, and I think if you look at our US business, we had solid growth in Pull-Ups which is a positive mix for us. The launch of Sleep Boxers and Sleep Shorts was positive, and so I don't think you're seeing anything there that we're concerned about at this point.

And I guess on the other larger piece of business, say Consumer Tissue, where volumes were down, on the one hand you can argue that, look, that's okay for my margins, but on the flip side, want to get underneath, understanding kind of the fixed leverage issue that you may be losing if the volumes continues to go down?

Yeah. We were never happy when our volumes are down. So I’d say, there is a couple of factors going on in Consumer Tissue. Facial tissue is a big driver of it and you had a real weak cold and flu season for us. If you looked at the symptomology reports that we track, they were down about 9% in the fourth quarter versus prior year, so that's a factor. I think the other factor is, with the desheeting that we did on Cottonelle which will give us revenue increase that also the way we track thousands of sheets sold for our volume calculations. So, that shows up as a volume negative and a price positive as you roll that through the market. So, those are probably the two biggest factors in the volume drag in Consumer Tissue in the quarter. We had good volume growth on Scott Tissue, good volume growth on Viva, and those are… Viva in particular is mix enhancing for us which is the right thing. So I think the... I guess the good news for our consumers is they were generally healthier in the fourth quarter and there wasn't any big flu pandemics floating around and so far even into the new year, the cold and flu symptomology seems to be a little lower than usual.

And I want to ask you about that in particular, help us think about the amount of selling that you had planned for the cold and flu season, how long it will… what inventory levels are right now at retailers and how long that will take to kind of bleed off, particularly given that there's going to be some price increases, and that mediate difficult time? Can you just help us think about that?

Yeah. Well, I think what we saw, I don't think that there's a big inventory issue. We have very high velocity category, so retailers typically don't let inventory build. The fact that you saw are volumes down in facial tissue would say that basically our promotions didn't generate the lift that we thought and so the retailers translated that into the lower orders. So I'm not too concerned about it from a retail standpoint. Typically in the holiday season, you are not going to see retailers loading a lot of our categories anyway even with the pricing coming in February and most of the big manufacturers are pretty good at trying to manage the environment to try to prevent a lot of loading from occurring because it just messes up everybody's supply chain.

Okay, and one last question, if I could just squeeze it in is, thinking about the kind of FORCE and SCR savings for next year, $200 million to $250 million, how confident are you in getting those numbers and where are they kind of coming from? It sounds like 90% of the charge is already done, it sounds like these are all plans are in progress, is that a fair statement or are they new plans that you are thinking of going forward?

No, I’d say, as you break it into two buckets, the competitive improvement initiatives, there were still some facilities that were closed during the year in 2007, including one that was closed in December of 2007, and so we will have the full-year benefit of those in 2008. So, we feel very confident on those. I think the other thing that we went through in 2007 was a lot of our business process outsourcing activities and so really there was relatively little savings from all of that in '07 as we went through those changes, and so '08 will be when those savings begin to show up. And so we have got those budgeted and planned for and we feel very confident about the competitive improvement initiatives. On the FORCE cost savings, which are our day in and day out activities, once again, we had a very solid year. The momentum in the fourth quarter was good and our teams have got targets set and plans in place to deliver on their FORCE expectations in 2008 as well. I mean a lot of it is going to be productivity driven, it's going to be material substitution driven. In this high inflationary environment, it's tougher to get negotiated cost savings, but we have got lots of opportunities to continue to drive FORCE across the program.

Okay. Thank you.

Thanks, Ali.

Our next question comes from Lauren Lieberman with Lehman Brothers.

Thank you. Good morning.

Good morning, Lauren.

First question was on the consumer trends in the US. I mean you gave a pretty clear explanation around Cottonelle in the US right now. One question on everybody's mind is what's the consumer doing, are we seeing any trade down or signs of less interest in trading up, and Consumer Tissue is probably one of the categories that people worry about first? Could you just comment on that and also if there's any kind of change through the quarter, sort of October versus December and then even first couple of weeks in January?

I was just looking at this morning earlier, I was looking at private label shares across our categories for both the fourth quarter and the full year and the trends are pretty similar. If you look at private label shares in diapers, they are down about a point full year and fourth quarter. Quarter to quarter, they are down a little bit sequentially, third quarter to fourth quarter. If you look at training pants, you see pretty much the same phenomena. So, if you look really across all of those categories, about the only category where private label shares are up a little bit in all of that was in the fourth quarter is facial tissue, and they are still at a very low level there. So, we are not really seeing in the data yet any major changes in consumer behavior in our category. So, I think the general feeling at this point is the consumer for a little luxury is willing to reach into their pocket and pay a bit more for a better quality product and that's exciting to us because it shows up in the things where we’ve launched premium variants. Our tier-5 diaper volume is doing well in the US this year. We continue to do well with super premium baby wipes offering, and so I think we've got to continue to drive innovation and earn that consumers' trust and value into 2008.

Okay, great. And then, in Europe, particularly in Personal Care certainly in the big five market, sort of a deceleration there. Can you talk a little bit about the competitive environment? Is it anything again consumer perspective or just the... who is running more effective promotion or not?

Yeah, it was just... I was on a conference call with our European team earlier this week and we were going through their fourth quarter and full year outlook and there is a bit of a retail price war in the UK. Some of the big retailers are seeing their same store's comp sales decline and so they are spending more in key categories, particularly diapers is a destination category. So, there was a lot promotion activity in the UK in the fourth quarter in particular, and so that drove pricing levels down. Some of that was funded by manufacturers; some of it may have been funded by retailers, it's difficult to tell, but it certainly showed up in our pricing in the quarter in Personal Care in Europe. And you had seen waves of that earlier in the year where there were some buy one, get one free activity in France on diapers. You saw some of that Italy as well, but the UK in the fourth quarter was probably where the biggest competitive activity happened. That seems to have moderated a little bit as the quarter came to a close, but that's something obviously we will be watching pretty closely in 2008.

Right, great. Let me just one thing, just to follow up on my first question about private label, can you just comment on what you guys have seen or saw in prior recessions? Let's just make that daring assumption that were in one. What have the trends actually been during the sessions in terms of the private label in your volume growth?

I think in most recent economic swings in the US, you don't consumers changing patterns that much. The part of our business that would tend to be more exposed to the economy is K-C Professional, but you go back to 9/11 where the economy kind of dipped hard after 9/11, you saw things slow down in K-C Professional, you didn't see that much of a swing in any of our consumer categories, so I am more bullish on the consumer. They look for value, they know how they are spending their money and I am more confident in the outlook than may be what you read in newspaper these days.

Okay, great. Thanks so much.

Thanks.

Our next question comes from Bill Schmitz with Deutsche Bank.

Hey, Bill.

Hi, good morning.

Good morning.

Hey, I am going to start with Mexico. I know K-C de Mexico’s numbers haven’t come out yet, but it seems like the top line is real soft this quarter. They are sort of a carry on from the US going down there?

Yes. Mark and I were just down in Mexico on Tuesday and that looks... that's one of the annual Board meetings we go to down there, and yes, there was some tax law changes in the fourth quarter that a lot of the traditional trade really curtailed their buying at the end of December and so a lot of industries had kind of a weak December which affected their fourth quarter comparison, but they will be doing their earnings calls tomorrow, so you will be able to get more color from them on that front.

Okay, great. And then in respect to Kleenex sort of issue or softness, is this going to be endemic, just because you tend to look at the amount of people getting flu shots, I mean is it sort of a one-off this year or should we look for the influence of cold and flu to come down as more and more people are proactive with this kind of thing?

Yes. I don't think we've seen a trend yet. You see some years where there is... where there is a stronger cold and flu season and some areas where there is not. So I think this is one that so far seems to be a little weaker than others, but it's not over yet either. So I'd say at this point we would continue to want to be there, to care for our consumers and whatever their needs are. And thank you for noticing that Kleenex was softer... so --

A couple of house-keeping things, gross margin assumptions for next year?

Yes, I think for us the key to 2008 is going to be price realization, so as we bring these price increases through the first quarter to the bottom line, that's going to drive our gross margin performance. So, obviously, we are not to satisfied where the gross margin are in particular in the tissue businesses and so that will be a key focus for us for 2008.

Okay. So, if you look at your guidance, you are kind of talking 5% to 7% sales with currency and so that assumes there is not a whole lot of margin expansion and I imagine there is lot of savings coming to the SG&A line, and so it sounds like you are kind of guiding the GM sort of flat to down?

Well, I mean actually we are expecting to continue to invest in strategic marketing in 2008. So you will see... you won't see as much leverage on the SG&A line as you might be expecting.

And Bill, this is Mike. We would expect our gross margin to be up based on our planning assumptions and that operating profit growth would be pretty similar to sales growth, maybe a little higher than sales growth with probably flat or up 10 basis points in operating margin.

Okay. Great. And then distribution costs are excluded from that $400 million of raw material inflation next year?

The energy component or the diesel fuel component of distribution would be in that number. But, other distributions or higher warehousing or other things like that would not be in that number.

Okay, great. And then, sorry, last one, I promise, I think Scott was a $2 billion brand last year. Did Scott grow this year?

Yeah, absolutely. Scott Tissue had a very solid year in North America, and as you look at the Scott brand around the world, we use it various configurations. And if you look at our KCP washroom business actually had a much stronger year than we would have expected going into the year which is a key part of the Scott brand as well.

Okay, great. Thanks very much.

Thanks.

Our next question comes from Chip Dillon with Citibank.

Yes. Good morning Tom, Mark and Mike.

Good morning, Chip.

I'm still quite blown away by the Personal Care segment and if you could just talk little bit about...

In a positive way, Chip?

Oh, absolutely.

Oh, good.

I mean, you, especially when you look at the volume growth in diapers in the US, I think this is a third straight quarter where Europe posted a double-digit range. And I know that we can't see the biggest retailer in some of the clubs stores in the Nelson numbers. But, could you just talk little bit about how sustainable that is? I mean obviously we have got… we don't have a population growth anywhere near that level. And I just wonder, did you think it'll moderate a bit this year and do you think you can still maintain the share you have obviously gained?

Well, when we've picked up share in the fourth quarter by our estimation, it looked like it was up about a point or so, and we had a solid year in diapers with a lot of innovation driven behind it, and we look for that momentum to continue. Now obviously those growth rates are higher as you would correctly say than the birthrate. And as you are going into a price increase scenario, we are probably going to be a little bit more focused on realizing revenues than driving volume harder. But, again, we are not in the business to give up share. So, we look to at least hold on to our share and hopefully build it a bit during the year.

And now, in terms of a range of strategic marketing increase, you said that would go up again. I know it was 50 in '07. Can you give us kind of a ballpark range of how much you would target for that to go up in '08?

Yes. We are not going to give you probably as much specificity as you'd like but look for us to continue to invest a meaningful amount in growing our brands. Given the amount of inflation that we've got and the range around that, that's probably the other variable that we're watching.

And then the last question is, as I look at the outlook, it just seems to me that on the revenue side, you are anticipating these current round of price increases, especially in tissue, to go through, but it also equally... it looks like you are assuming that you're not looking for any fall off in fiber cost. I don't think you are necessarily looking for any increases but you... it looks like you are keeping pulp sort of where it is at least, is that fair to say?

Yes. As I look at it, I think pulp is being propped up really by the weak US dollar and I don't see that swinging back. So our currency and our cost commodity cost assumptions we think are pretty consistent with each other. And so when you look at where the dollar is today relative to the C dollar, even at current pulp prices, the Canadian and Scandinavian producers aren’t making a ton of money and capacity is tight. I think may be the wild card out there is if the economy does slow down a bit, does that cause commodity prices to pull back. You're seeing that a little bit in oil as we speak. So I think that may be the only other variable that we haven't really figured out how to model in this forecast.

Year on year, the... of our 400 plus million of inflation expectation, about half of that's going to be fiber, not just virgin, but recycled –

[inaudible] holding where we are at, just that year-over-year impact is a couple hundred million bucks.

Yes. We though it would going down by now, but obviously we have... we are both not... haven't seen that yet.

We did too, but it hasn't happened, so –

Yes. Last quick question is when you look at the UK, which I think people view as being maybe the weakest link in Europe right now. My question is, any evidence that they tend to be less private label oriented in the continent, are people shifting to that area? And then secondly, you mentioned how the fourth quarter was pretty brutal in the retail channels… I mean among the retailers. Do you see positive comparisons before the fourth quarter in the UK or is it going to take till then before you have a real chance if you where just looking at that country alone?

Yes. I mean, I think the… your point on the UK economy is one that I think everybody is sort of wondering about. Their housing market is probably a bit more overheated than even the US one has, but we still see... we don't see a big enough economic change there to shift purchasing patterns. So we are continuing to expect to have a solid year in Huggies, a solid year on Andrex. We had a good year actually in the UK on facial tissue in 2007. They had a stronger cold and flu season. So they had a nice fourth quarter increase in facial tissues. So I think the retail environment will probably continue to be volatile, and we’re going to be making sure we're prepared to compete in that environment. But for us, it is one of our strongest markets in Europe and we plan to continue to build and grow on that environment.

Got you. Thank you.

Our next question comes from Jason Gear with Wachovia Capital Markets.

Good morning, guys. I just want to talk maybe a little bit more about Europe and certainly in North America, we’ve heard about the price increases that have been coming through and it sounds like maybe there could be more as the year progresses, but Europe obviously has been absent with price increases, it’s also been a bit more promotional there too. Can you just talk a little bit about the ability at some point during the year to take pricing leave… I’ll leave it at that?

Yeah, I would guess… first of all, a lot of the pricing in the US is driven by commodity cost increases which in large part are driven by the weaker dollar. With the relatively strong euro and sterling during the year, European producers who are buying dollar based commodities did not see anywhere near the level of inflation in their local currency. And so need for price in some of those markets has not been as significant as you would have seen in the US market. And having said that, the fiber’s run up, I think there will be some fiber price increases taken in in '08. I know we're leading some on K-C Professional and we will like to be taking some tissue prices in several markets during the year in 2008. But, at this point, I would probably wouldn't see a lot of price changes, list price changes at least on the Personnel Care side. You might see more of a bit of pullback in promotional levels would be the most likely response there.

Okay and then... and secondly I think in your release you talked about the net… for your outlook for '08, the net selling pricing would be 1% or 2%. Can you talk a little bit about... obviously that's net of promotional spending, can you talk about what you are anticipating with... in 2008 especially in North America and kind of going back to seeing a softer economy going into recession and taking pricing at the same time down that slippery slope and I was wondering how you are... I know obviously you are stepping up on the advertising side, I was wondering if you could talk a little bit about the promotional levels as well?

Again, a lot of the purpose of promotion is to get your innovation tried by your consumers. So, we are trying to make sure we're competitive with the promotional environment but we are also targeting it to support a lot of our innovations to help drive mix in appropriate ways and then to help line up with our customers and help them accomplish their objectives for the categories. And so, that's really the focal point for what we are trying to do with a lot of our promotional activity is to accomplish strategic objectives for each of our brands. So, from an economy standpoint, I don't see a huge shift or reaction to that just based on a slow down in the economy. I think we will continue to execute the plan, we'll continue to drive innovation. And again I am more bullish; I don't see a huge pullback here. If there is anything, I think you are going to see a fairly short correction, so --

Okay. And then two small housekeeping questions; one, can you talk a little bit about the timing of the cost savings, the 200 to 250, I think, it was. In '07 it was more… I think a little bit heavier in the second quarter. Is there any type of guidance you can give there? And then also in terms of the cost inflation expectations between the fiber cost, the polymer, and then in the energy, can you talk about maybe relative to 2007, how you see that $400 million kind of broken down? Thank you.

Yes, the cost saves, I don't see... I think you will see each quarterly swings, it should be more consistent. Obviously on the FORCE side, you tend to build a bit during the year, but other than that I think you will see a fairly consistent pattern. And then what was the second question?

Just on the cost inflation.

Cost inflation. Just in the first quarter, you are going to see a pretty good hit from pulp. Pulp alone in the first quarter is probably going to be 50 million bucks. So, I am guessing... we are assuming things are roughly staying at the level that they are at. Pulp at this level, oil in the low 90s, you are going to see that at least front-end loaded and maybe moderating a bit in the back half.

Okay. Great. Thanks a lot guys.

Our next question from Chris Ferrara with Merrill Lynch.

Hi guys. Why don't you just talk...

Morning, Chris.

How are you? Can you talk about cap spending? I guess the '08 outlook calls for what, basing your sales growth estimate 4.4 to 4.9% of sales, why is that lower and I guess why wouldn't that be the normal rate as opposed to heavier restructuring in '07 that ran more in line with what your long-term guidance has been?

Yes. As you look at our plan for the year, we set the target last June, where Mark and I looked at where we are coming out, what we expect the sales to be, saw the targets that was really at the low end of sales growth rate. Currency has kind of picked up in the back half of the year and so as a result our sales are higher in part because of currency. A lot of our capital spending is US dollar based equipment that you're buying to put in various markets around the world. So we're not inflating capital spending at that same rate, and I think the other point would be, if you look at the last couple of years we had a big tissue machine expansion in the US. We don't have that in ’08, and so it's going to pull back a little bit below our long-term averages as a result of that. I don't know, Mark, if you’ve got any other color you want to add to that.

I think that's right. You noticed we are at the kind of the high end of our range this year and part of that was driven by some capacity we needed as we have exceeded our sales volumes. And so I think we're getting back to a little more normal spending pattern and you don't have that one big tissue machine investment to bump up the number.

We continue to have a good productivity year. Our diaper assets ran well around the world. We saw good tissue productivity. Despite all the restructuring and facilities activity, we had a solid year, and that's where we expect that to continue in 2008.

And I guess that there's going to be a currency impact in '08 too. But I mean, are you still comfortable with that 5 to 6, call it a 5.5 mid point is what we should look for '09 and '10 like that?

Yes. I think, that those are the long range assumptions. The thing that'll spike a little bit is when you have a tissue expansion at major markets that could pop it up a bit in a particular year. So again, we are using that to focus on hitting our return on invested capital goals and so to do that we got to spend, roughly around the rate of depreciation.

Got it. And then on working cap, do you think… and will there be working capital improvement, particularly inventories, next year? I know you have spent a lot of time talking about it, but I'm wondering if you can update us a little bit on that.

Yes. We are.. that is one area that really I'm not happy about this year and neither is Mark. Mark's performance review is tomorrow, so that's one of the things we'll likely be talking about.

Thanks for bring it up.

And I'm going from this call and do a call with our top 1000 leaders to talk about our 2008 objectives and working capital, particularly inventory is going to play a key role in that. So, we've got more inventory than I'm comfortable with. We made a little bit of progress in the fourth quarter, but not where we need to be. So that's obviously one that we didn't deliver on relative to our expectations this year.

Yes. I think Chris the other thing that we are going to try to do to drive a little more deep into this is incorporating in our finance and line managers objectives all the way down through the organization, and we're going to kind of expand the scope of FORCE a little bit to try to leverage our FORCE network around the world to more rapidly share best practices across the organization. And I think the other systemic thing is as we come, we're almost 90% through the competitive improvement initiatives investment phase if you will, a lot of which had to do with impacts on our production facilities, and there was an impact to our inventory level. So I think the combination of those things, I would expect us to make a good bit of progress in '08.

So, just to be… it sounds like, I mean, obviously the interruption of it… the supply chain improvements you guys have been making and your effort to improve service levels are only part of the inventory expansion we've seen, right? I mean the rest, I guess you have some systemic issues that you're trying to get through with that, is it a fair characterization?

Yes. I guess I’d say the systemic issue has been our volume has consistently exceeded our expectations and so the team's trying to protect to the high side inventory levels, so that we can provide customer service. And so that's, as we better at forecasting, we'll be able to carry less safety stock and manage the inventory better.

Got it. And then not to [inaudible] but one last, when you guys say commodity cost is going to be at least $400 million, does that mean that something greater than 400 is actually baked into your planning assumptions?

Yeah, I mean... I think the number is probably slightly higher than that, but it's in that ballpark.

Great. Thanks a lot.

Our next question comes from Gail Glazerman with UBS.

Good morning. Just going back to Consumer Tissue, when you talked about price only being part of the solution for their low-margin, are there any specific other actions that you can point to other than kind of the promotional spending or -- ?

No. I think as our Consumer Tissue team is looking at their P&L, they are not happy with the way the margins are structured. So, it's going to be driving mix, it is going to be make sure we are investing the marketing resources behind the right initiatives that are going to give us the right revenue for the productive capacity that we have got. So, as we drive things like improving our facial tissue volume, driving Cottonelle, or driving Viva in the North American market, those are all mix enhancing opportunities for us. And as you look at the rest of the world, there it's been primarily a price realization gain, but they have also got an opportunity there to drive better mix. So, there is a number of initiatives that are underway to really help improve that. But, it's likely going to be in the revenue area somewhere, whether it’s price, mix, reduced trade spend, all of those factors will be things that we will be focusing on. We will continue to drive FORCE, we've got all of our competitive improvement initiative plans underway, but this isn’t one where we are probably going to cost save our way to prosperity. We are going to have to do it by better marketing, better innovation and driving the top line in that business.

Okay. And looking at Europe your prices [inaudible] a little bit in the quarter which is I think an improvement over the last few quarters. Anything specific there and also just in terms of European tissue, any change of behavior with the SCA P&G acquisition, are you seeing any changes in the market?

No, I think in Europe, I think we had a price increase in Italy late in the year. That probably is what showed up in the fourth quarter numbers, but nothing significant other than that. And then in terms of Procter SCA activities, it's too early to tell, really. I think that thing just came together in the fourth quarter and so I wouldn't say we've seen really any fundamental changes in behavior by anybody in Europe lately.

Okay. And looking at the volume growth, particularly in Personal Care and [inaudible] new products, I'm just wondering if there is anything you can flag for the new product pipeline moving into 2008?

We’ll get good momentum coming out of 2007 was the tier 5 diaper initiative, sleep boxes and sleep shorts, and we will expect to see continued innovation across our personal core category in 2008.

Okay. And sorry to belabor the point, but just going back to pulp, your forecast say 885 for NBSK is actually a little bit higher than current prices. Is it safe to assume that you are assuming a little bit of further price increases in the near term but then maybe later in the year?

Yes, that's a fair sequencing of how we think it will probably play out.

Okay. Thank you.

Thank you.

Our next question comes from Amy Chasen with Goldman Sachs.

Hi, good morning.

Good morning, Amy.

How are you?

Pretty good. How are you?

Good, thanks. Just on pricing, you have these price increases that are coming on February 1st, I just want to know if you are hearing anything different from the retailers as usual about implementing those price increases than what you've heard over the last couple of years, number one? And then I have a feeling in light of the consumer being weaker, are you expecting that these price increases will have any more of a volume impact [inaudible] the last couple of years.

Well, if you look at the pricing on bathroom tissue and diapers, which are really kind of the big categories, we didn't take any price yet on facial tissue which’s typically been the most sensitive category from a volume standpoint. So we won't have that volume risk on facial at this point in time. And from our bath issue standpoint, it looks like all of the players have basically lined up some of the retail price changes are already starting to happen in the market place, even ahead of the date which is good. It looks like some of the promotional prices that are being scheduled for the first quarter are starting to move up based at least on our businesses, so, so far so good on the tissue side. On the personal care side, again, the two major players in diapers have moved up. Those will happen on February 1. Gloves is not going up and private label is probably going to be a mixed bag. I think no one really knows yet what's going to happen on private label. We'll have wait and see what happens in the retail marketplace. Obviously, with the Canadian first quality deal, you’ve got some new ownership there and we'll just have to wait and see what happens on that front.

And I guess from a consumer standpoint, are you sensing that she's going to start to [inaudible] in light of what is going on?

Yes. These price increases aren’t of a size that are going to cause you to change a lot of behavior. Taking 5% to 6% price increases and so and then, if you look at it, that kind of pricing has happened across lots of categories in the last year. These are really a couple of categories that have had much price and you’ve seen this kind of pricing in toothpaste and shampoo and deodorants and other categories and you haven't seen much shift in consumer purchasing behavior. They buy basically the same products that meet the needs of their family and we would expect to see that continue in these categories.

Okay. I guess the basis of my question was just this year may be different than last year in terms of the health of the consumer and the amount of money that they have to spend?

Yes. I mean again maybe more bullish in that as you look at overall employment levels and household formation and some of the fundamental economics, you’re still think those as relatively strong. Again, you may have a pullback led by housing and some of the issues in the financial sector, but I think if you look at the underlying strength of the economy, I'm more bullish than what seems to be written in newspaper these days.

Okay. And last but not least, given the $400 million commodity number, do you anticipate having to take more pricing above and beyond the February 1st price increases?

At this point in time there are... as you look around the world there will be other price increases among others of our businesses. But for the big US businesses that you are talking about, that's the primary price increase that we've got in our plan for the year. So obviously we'll have to wait and see what happens in the marketplace.

Okay. Great thank you.

Thanks.

Our next question comes from John Faucher with JP Morgan.

Yes, good morning. I just have one quick question given everyone has asked a lot of questions already. D&A for next year, for 2008, can you walk us through what your assumptions are there? Obviously, a big drop off this year and how much, is there any benefit to the operating margin from lower D&A, as we look at it in 2008? Thanks.

I think, John, the ongoing depreciation rate should be pretty similar. It's been running around $180 million, $190 million a quarter, and that will continue. There is extra depreciation in the numbers this year above what will have next year related to our restructuring costs.

Okay, so that's an accelerated depreciation related to the restructuring?

Yes.

Okay, and that will lower the ongoing depreciation by how much as we look forward, do you know that?

I don't have the number right off the top of my head; I will talk to you later about that.

Okay, sounds good. Thanks.

Our next question comes from Connie Maneaty with BMO Capital Markets.

Good morning. I guess I would like to tie together some of the questions that have been asked on the macro level. If there is an economic slowdown that results in demand destruction, even if very modest, and dollar weakness not withstanding, raw material cost start to decline, what do you imagine or plan for the results to be at the retail level? Do you think that the competitors will keep all their list prices the same and just promote a little bit more to stimulate demand or would you think that from past experience retailers would want some of the prices to be rolled back to capture some of the margin that might come from lower seller cost?

Connie, I am going to go even more macro for you. I would say in any kind of an economy, consumer still need to use some tissue and diapers everyday, and so I don't see fundamental shifts in the demand level for our products. Now will they decide if the economy gets really bad, will they start to shift to other categories? And I would say if you look at, if you look at really big economic shocks that have happened around the world, if you go back and look at the Asian currency crisis and what happened in markets like Korea and Thailand, or you look at Argentina when you had 3 for 1 devolution and you really destroy the purchasing power of the middle class, then you would see big shifts in category consumption; category that were much more discretionary would suddenly disappear. But in the kind of swing that I think is possible or likely in the US economy I don't see any major changes in consumer purchasing patterns. And so, you look at how much the low income consumers gotten squeezed with higher gasoline costs in the last year and you really haven't seen in our categories any kind of a shift in private label share or in fact you’ve actually seen the super premium segments of the categories growing. So could you see a little bit slower growth in super premium categories? May be, but it's up to us to continue to drive innovation and make those super premium categories really worth the value that they are delivering to the consumer.

That's helpful. Are you a subscriber to the notion that with new capacity likely to add 30% to the worldwide supply of resins, that resin costs will moderate?

Well, I think in the end, the question is going to come down to what actually happens to refining margins. When oil was up in the low 90s, and some polymers hadn't move the refining margin was really getting squeezed. And so either oil had to come down or some of those polymer rates went up and we saw some of that in the fourth quarter and was one of the reasons why our inflation number was a little higher than we expected heading into the quarter. So that's sort of what we are watching. Obviously, the capacity balance in monomers and some of the polymers will have an impact in the short-term but over the long-term, eventually it's going to line up with oil price to some extent.

Okay, and than just one housekeeping question, what were your year-end shares outstanding, not the average, but the year-end?

I think Mike or Paul will have that for you. We are around 420 million, I think.

420.9.

Very good.

It should be in the news release also.

Okay. Thanks very much.

Our next question comes from Justin Hott with Bear Stearns.

Thanks. Tom first question, couple of quick ones. You took a lot of care in putting in your marketing organization and getting in a CMO. Do you think you are at the point now where if cost came down, you would be able to handle a lot more programs that you ramped up or it'll take more time?

I would say, we are still building out Tony’s organization, so he is continuing to fill roles. But, we also have... I mean most of the actual marketing work gets done in our business units and Tony and his team are really helping share ideas back and forth, helping drive best practices, helping build capability and really help leverage the talent that we have throughout the organization to take it to another level. And so, I think for us it's more about how do we increase the efficiency and the effectiveness of our marketing and we're seeing that as ideas get shared around the world, we've got a consistent view of our brands around the world, and we're beginning measured and develop metrics that we can find out what works and why and share those practices with a lot more confidence. So, once again, it's how you make the investments that were making more effective. And we are probably a little bit behind on our long range goal of increasing marketing spend by 100 basis points and we may not get to that ultimate level of spend, but we are actually on track to spend the dollar amounts that we thought we would spend. And I think the marketing organization that we’ve got in place will help us get more value from that. Quite honestly, our top line growth has been exceeding our expectations even with the modest increase in marketing that we had, and I think part of that has been because we've got more efficiency from our marketing spend than we thought.

Okay. That's the other... you just sort of segued into my other question there, Tom. Not suggesting you take up your top line targets, but if you're gaining 6% now and your organization is just starting on the marketing initiatives and Personnel Care is going great, it seems you are gaining some share there. What really... when we think about 3% to 5% rate what really can get worse here than what you're seeing right now? It looks like things are actually improving. What should we be worried about that would take those numbers down lower?

As we look at setting that 3% to 5% rate, it was done thoughtfully, looking at what the categories were doing and recognizing that we have tough competitors that do a great job as well, that are very good marketers around the world. And that for us, to assume that we are going to take share in every category, every market, every year to get to above that range of category growth is probably unrealistic. So, I still think that 3 to 5 is a realistic long-term target. If we see sustained performance above that, obviously, we will revisit that over time.

And just one more thing, to be fair to Mark, his performance, would you share with investors about probably the best job, the best job that we've seen on the cost side or what should we be looking at saying, well, this is going well?

I think Mark's team is really heavily involved in the FORCE initiative and supporting that, and they had a great year this year. So, FORCE cost savings were solid. We continued... we thought actually with all the competitive improvement initiatives and a lot of our team supporting that in 2007 that we wouldn't see as much FORCE activity when we actually exceeded our expectations there. I think the other thing that happened behind the scenes is all of the business process outsourcing work was primarily in a lot of Mark's organization and that happened at a very high level without any significant business disruption and now we are poised to start to get some of the benefits from that in 2008.

I think the key –

[inaudible].

Yes, thanks, Justin and for the whole world to hear. The key is that it really is an integrated effort with the business teams. I mean they are doing all the work and the heavy lifting. So, our organization is just a catalyst to help, holds up together. But I think given the inflationary pressures, we've got the businesses that really done a terrific job, managing costs, and that's the way it ought to work, and it's the way... will translate debt-to-working capital next year.

Hey, Mark, is it's fair, do you still have hundreds, thousands of cost reduction initiatives in the pipeline with that or am I exaggerating?

I think there is probably 10,000 FORCE programs active today, something like that.

Okay. Thanks, guys.

Good.

Our next question comes from Filippe Goossens with Credit Suisse,

Yes. Good morning. I was a little late dialing in because I was on another earnings call, but I hope that my questions will not be repetitive. Tom, Lauren asked about the state of the US consumer. If I can just bring a little more global the question, what I've been talking a lot with investors about over the last few weeks is the [inaudible] are we going to say global decoupling or de-merging markets which should really have been a great engine for the world economy as well as for yourselves. Are they going to start slowing down as well, can you perhaps say... give your point of view in terms of whether you see the emerging markets and particularly the BRICETs for you to continue to significantly outperform the overall company average?

Yeah. I guess I will say our developing and emerging markets was consistent all year long and if anything seemed to be accelerating at the end of the year. And my own personal view of the global economy is that... the global economy is a much more diversified stronger network than it ever has been. And so, it's not just relying on the US economy to provide growth for all of the emerging economy. So, I mean the consumer market in India, the consumer market in China, the consumer market in Brazil are helping and growing in their own right as those consumers want improved products and are willing to spend more of their income to deliver those kinds of improved products. So, I think actually having a slowdown in the US if that occurs will have less of an impact then it would have had historically because of the strength and growth in those other markets. So, again... as we look at developing the emerging markets, we still see tons of opportunity and we are more excited than ever about markets like Russia, India and China. That’s not to say that there can’t be bumps in the road, there always will be, but [inaudible] a market like Latin America in total where we’ve been for years, you could look at all of that... the half empty part of the glass down there and talk about political issues or other things and yet we had this terrific year really across-the-board and in Central and South America and delivered huge growth despite other things that are happening politically down there.

Okay. Then moving on, Tom, to commodity prices. Obviously, there is kind of two parts to the equation in terms of bringing prices down on one side, obviously, supply we've spoken about that already on the call, the other one is demand and then connecting that with my first question, let's say that they were to be a material slowdown in the global economy, therefore commodity prices supposedly are going to come down. That margin benefit that you would generate to commodity price is coming down, would you not loose that benefit by actually your top line growth engine in emerging market slowing down or net-net you still think it will be closer to your margin, going forward?

I think that we are focused on growing the bottom line faster than the top line in emerging markets, while we are increasing our strategic marketing spending in those markets and that's been a formula that’s worked for us. So I think that, if there is a slowdown a bit in the economies you could well see a pullback in commodity price. I think with ... then you’ll wind up with is maybe a little bit less price utilization overall than we are planning. But on the other hand, we think, if you look at the last three years, we started out the year with an inflation assumption that wound up being nowhere near where it actually turned out. We think we've got a conservative set of assumptions here, but as we've also seen how volatile markets can be, oil can move from $70 to $90 a barrel and what seems like a heartbeat. So we have to watch and see how this plays out.

Okay. And then a question going back to your Analyst Day last year in New York. Is it still pretty much your anticipation that for the near term we should not expect any type of strategic transaction that would transform the portfolio towards let's say higher margin type businesses?

Yes. In terms of a transforming M&A, that's not a part of our global business plan. Would we look at M&A in areas that are of strategic interest to us, as tuck-ins and some thing in Health Care that would help us broaden that portfolio or something, in a part of K-C Professional, there are certainly things that we would take a look at there, but nothing that I would consider to be a transforming acquisition.

And then kind of connection with Mexico there was a question as earlier as well. And now, I… if I recall correctly, you have brought in some of the shares that you did not already own in one of your subsidiaries in Brazil. Is there any reason to believe for us that K-C Mexico would not be another type of opportunity where you would say we will be able bring that in house or you pretty much happy with the current setup?

I'm very happy with the current structure and that's a little different in that in Brazil we had a partner that wanted to sell their stake, K-C de Mexico is a public company, where 52% of the shares are held by public investors and we are own the balance. And so we've got a great company there with a perfect franchise and great market share in that market and we've been -- it's been a great partnership and a great investment for us.

Okay. And then two more questions, if I may. On the marketing spend, the increase last year and what your… bet your things for '08, can you give us a rough feel for what percentage is in the US versus the emerging marketplace please?

Yes. We may have to follow up and give you the details on that, and unless you’ve got those handy, Mike?

What I would say is that the marketing spending in developing and emerging markets continue to grow at a faster rate than sales across those markets.

Okay. And then with my final question, perhaps for Tom again. We've talked a bit about pricing initiatives from this call as well as in the last call. Any initial REIT in terms of – or additional REIT in terms of how not consumers might be reacting to this, but retailers? If I recall correctly on the last earnings call for Albertsons, I think I was actually the first CEO who did mention that he had seen some trading down so, just kind of additional comments would be very helpful.

Yes, I mean again we haven't seen that yet but these prices haven't gone into effect yet at this stage. And again on the amounts we are talking about, don't think you are going to see a huge sticker shot from a consumer standpoint. So our expectation is that this is going to be pretty consistent with what consumers are seeing across a lot of categories and with the weaker US dollar, you’ll just see more… risk of more inflation particularly in the first half of '08.

Okay. Thank you very much gentlemen.

Thank you.

Our next question comes from Lauren Lieberman with Lehman Brothers.

Thanks. Sorry, I just have a very quick follow-up on, Tom, you made comments about potentially there being some pricing in Consumer Tissue later this year in Europe. [inaudible] built into planning assumptions now or not?

Well, it depends. In Europe you take price at different times. In some markets, you tend to take it earlier and some markets you tend to take late in the year. Like in '07 we wound up with a price increase in Italy that happened late in the year. So if you are going to take price in that market, it will probably happen later in the year. So, we'll just have to... some of it depends on one year agreements with customers open up and one year able to go in and take price.

Okay. But for our modeling assumptions, is it safe to really just think about, I guess maybe they want to be more conservative, just think about what we know in terms of K-C Professional, what we know of in terms of the US pricing [inaudible] if you end up able to do it?

Yes, I think that's fair. We gave you kind of overall price assumptions for the year, which include what we know and expect to realize which I think are reasonable.

Okay, great. Thank you.

Our next question comes from Chris Ferrara with Merrill Lynch.

Hey, sorry. Also another quick follow-up. Tom you mentioned the ad spend pace that you guys are progressing toward. Are you on track to do in dollar amounts the ad spend increase you wanted? And I just wanted to go back and reconcile that, I think in '05 you guys said that you're going to increase ad spending by $200 million. Is that right and is that off of the '04 base of $421 million?

Yes. We are basically talking about a 100 basis point increase as a percent of sales in strategic A&P, which I think would have... when you ultimately get to the sales level that we would have got into by 2010, that would have translated into a couple of $100 million. And I think what we are finding is our sales are actually ahead of expectations in part due to currency but in part due to stronger volume growth and better mix than we would have expected of the Global Business Plan. And so we are actually on track. We are probably be a little bit behind for 2007, but as we look at where we are going in ’08 and beyond, we’re on track to getting cost to that same dollar amount of spending, but we won't get to the 100 basis point increase, I don't think that at our current trajectory. On the other hand, we are getting better top line volume than we expected with the market spend level that we have got so I feel good about the investment levels we’ve been able to put into the marketing despite the cost increases we’ve had.

So, when you refer to that dollar number that is.. I agree with you, I already know it only translates to about $200 million. So, off of the '04 base, I mean that implies that you are on pace to get near or you are still planning getting near $620 million plus by '09, is that fair?

Yes, that's fair.

Actually, it is even more than that because your sales go up too. So, the $200 million is an incremental number and so you’ve got that spending plus the spending that goes long with the rise in sales.

In other words, assuming you add margin flat, that 200 you are talking about with an incremental on top of the margin, on top of estimated flat margin.

Correct.

Got it. Thank you.

At this time, we have no further questions.

Okay, David. I think we'll wrap it up and I'll just hand it back to Tom for a couple of closing comments.

Okay. Thanks, Mike. Well once again, we had a solid year in 2007. We delivered on all of our commitments again under our Global Business Plan and we are poised to continue to deliver in 2008. So, thank you again for your support.

Ladies and gentlemen you may disconnect at this time.